Sarkozy and Merkel call for 'true economic government' to save eurozone

[grumbler]

The Economist had an interesting article about where federal taxes are raised and spent in the USA a few weeks back :

http://www.economist.com/blogs/dailychart/2011/08/americas-fiscal-union

As one can see there are huge imbalances, as one would expect in a continent-sized country. It works because being an American is so much more important than being from NM or NY.

In the Eurozone though it is the other way around, Germany and Greece (etc etc) are much more important to people than the eurozone. No way would the Germans or Dutch tolerate the sort of fiscal flows that are routine in the US.

It isn't a very interesting article and chart because all it tells us is where federal facilities make up a relatively large part of a state's economy.  Mississippi gains little from having the US government pay all the sailors on ships in the yards there - those sailors pay no taxes and spend their money on-base.

If the chart showed the same thing without including defense spending, I think it would be meaningful.

Also, The Economist knows better than to lump D.C. in with a state.

[Razgovory]

They have hookers on base now?

[Martim Silva]

Adding another institution to decide on Eurozone matters just serves to exclude some of the more economically liberal EU countries like UK, Sweden or Poland from the decision making so that the French dirigiste point of view has more supporters.

Merkel is an idiot to agree to this.

And it doesn't really address any of the problems of the Eurozone.

It actually starts to address the main one, which is that we need a common economic goverment to go with a single currency. Which is also the way to go to form an united Europe. Which happens to be our main goal in all of this.

That said, trust me Zanza: this is very much Berlin's idea. It actually took awhile to get the French to agree. Sarkozy will be allowed to peacock it as if he is leading the show, but that is intentional.

Don't bother to pin any guilt on Merkel. This is a group move. And the SPD can be voted into office anytime you want - privately, they're very much in support of this.

I admit there are quite a few people in Berlin who have a boner about the move (seeing as it is a bit of a correction of the 1945 debacle), but nobody has any illusions that this is a risk that can misfire. Still, it has to be tried if Europe is to have a chance.

Also, that is why Germany insists so much in the austerity measures - while it is in fact true that they are quite recessive and will temporarily hurt Europe's economy, in the long run this is the only way to get rid of the 'always getting into more debt' cycle that characterizes the economies that are too close to the american economical sphere of influence.

If we get to pull this one off, we'll have the true foundations for a strong Europe ready in about a decade. Which will leave us only with the question on how to get enough resources to actually pull the full might of the continents' economic strength to bear, since Europe has little oil and rare earths deposits, and our foreign sources of those can be severely hampered by the US, Russia or China*.

(*: and we don't have enough variable food, but we've been making great strides in the relations with the Ukraine and belive that particular issue can be overcome with proper exploitation of the Ukranian arable land)

Few people in Berlin had actually thought about that little detail before I raised it, but while we were looking rather dispiritedly at a map of the Caucasus, the guys at DIW suggested that our superior creativity can eventually develop alternatives that we can produce and make us self-sufficient in those areas in the coming decades. The Bundesministerium für Wirtschaft und Technologie chimed in to say that they are swamped with patents that the country can't even develop all on its own, so they see it as a possible solution (though it might be better to get the FDP out of that ministerium, as they are preferring to let most of the patents go to private firms, even if that means foreign companies, while I'm defending that the State needs to create an institute to develop the patents that would otherwise leave Germany and go abroad. The FDP says it doesn't trust government bureaucrats to do such a job, but I think I know a few who can).

All this said, the Bundesministerium der Finanzen has already warned everybody repeatedly that "it [the Economy] can all collapse at any time" if nothing is done, so advancing with a common economic government is the best way to go.

It's risky, but if successful we can reap massive dividends. Since by risking nothing, we'd have a guaranteed collapse, we're damn well moving in with this.

The key issue is to avoid the issuance of Eurobonds until such a thing as the common economic government is in place - otherwise, since the largest economies bar Germany are in doldrums and the smaller ones who are healthy are too tiny, we'd just be shifting the burden of the debt of others directly onto the German taxpayer, which should be protected as much as possible as it is the backbone of the European economy (this is why people got so upset when Merkel agreed to let the ECB buy Spanish and Italian debt. The chancellor knows very well the dangers of this move, so everybody wanted conferences so that she could tell others what was that she was told to agree to such a thing - in fact, Spain and Italy were hanging by a fingernail, with Zapatero and Tremonti making frantic calls for an intervention to Paris, Berlin and Brussels).

But now things have calmed a bit, and we managed to get the French on board with the plans that have been laid out years ago. The fact that that the yields on French bonds rose quite a bit after the announcement of the purchases immensely helped the negotiations, as that move made Paris much more agreeable to the original proposals and allowed the issue of the Eurobonds to be buried for now.

[Barrister]

[Razgovory]

I wonder how widespread MS's beliefs are in the PIIGs.

[MadImmortalMan]

the largest economies bar Germany are in doldrums

Bar Germany? Yeah, Germany's going gangbusters. 

[jimmy olsen]

Martim, what is your job?

[Tamas]

that characterizes the economies that are too close to the american economical sphere of influence

[citizen k]

that characterizes the economies that are too close to the american economical sphere of influence

In Martim's world, if it's bad, it's American.

[Razgovory]

Martim, what is your job?

Interviewer of ambassadors.

[MadImmortalMan]

that characterizes the economies that are too close to the american economical sphere of influence

In Martim's world, if it's bad, it's American.

Ironically, the problem he talks about there is caused by being less "American". AKA, the USA is not as far down that road to hell as the uber-debtors of Europe.

[Zanza]

The other big transfer happened after reunification when the Western states transferred something like 1.5 trillion Euro (much more than is currently spent on the bailouts!) to East Germany, which is roughly the size of Greece and Ireland combined. The result was mixed, there was success in raising East German living standards, but they still rely on these transfer payments twenty years later. The tentative end date for these payments is now being pushed to 2019.

I had no idea that was still going on. 

There is even an extra tax for it. It's 5.5% on top of the amount you pay in income tax. They now consider to keep it even after 2019, but not for the eastern regions exclusively, but to support economically weak regions in the whole country.

[Admiral Yi]

Do Ossis have to pay the Ossi tax too?

[Zanza]

Yes.

[Zanza]

@Martim: Few people in Berlin had realized that we have very little oil in Europe before you told them? Wow.

I thought they had learned that in 1941.