"Those who don't know history are doomed to repeat it."
Commentary & Analysis
Can’t we all just get along?
I read with interest Mr. George Soros’ plan B for Europe, as succinctly laid out in and editorial the Financial Times this morning. In case the EU leaders didn’t know it, Mr. Soros is here to let them know it’s time for the eurozone to be “ringfenced,” i.e. insure the core remains stable despite the fact it may be too late for some countries on the periphery. “Gee ... thank you, Captain Obvious!” is what I would assume the response from European finance ministers might be to those comments.
Of course this ring-fencing would require more taxpayer money with Germany and Finland and Netherlands making it more costly for them to borrow in the open market thanks to the necessity of a common European bond market. This of course also would require a euro wide Treasury as in the U.S.; heck, no need to re-create the wheel here, we will trade you straight up Timothy (Tax Cheat) Geithner and the whole supporting cast for a good bottle of Bordeaux and a cheese wheel to be named later.
But seriously, assuming anyone can really take these politicos seriously, the question is: Is it too late? Have the taxpayers who are footing these bailout bills, and will suffer from any form of transfer union, had enough already?
I would suspect that many taxpayers wish they were all Brits now. Why? Well, not the weather, maybe the scotch, but because of the fact that the UK is part of the EU but is not tied to the currency union. They are free from the single currency straight jacket and despite the problems in the UK, there is some flexibility left instead of subsidy upon subsidy upon subsidy to others whose ability to produce wealth is questionable given said straight jacket. The UK controls its own monetary policy. If European citizens are tired of laboring under effective German monetary policy, just wait till they get a look at transfer union, would be my guess.
I argue that a country like Switzerland, no EU membership and its own currency and monetary policy is doing okay with exports to the eurozone. The scare tactic of disaster if anyone leaves the Union doesn’t seem to hold up empirically. A mess it will be, but a country’s competitiveness against its competitors is what creates wealth; a condition badly lacking in the current union. Maybe more control of the union by Germany will do the trick?
I said to a friend yesterday—Milton Freidman was right again. He is gloating in his grave. His understanding of the market was brilliant. But his understanding of the political economy was equally as brilliant. He said before this whole Mundell Inspired Experiment started that Europe in its current condition was not fertile ground for a currency union. One of Milton’s many arguments was the fact that one needed to see political union before embarking on currency union. It didn’t happen. And the idea of political union seems to be pushed further off thanks to the resentments build during this two-speed Europe experiment.
So, I think Mr. Soros’ call for European elites to once again try to legislate the idea that everyone should just get along, by mandating yet another institution that forces them to get along, while yielding yet another major piece of sovereignty, may be a bit late.
But, never say never when it comes to this game.
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