Posts tagged with: european union

How about a tax on fires?

On National Review Online, Acton Research Director Samuel Gregg examines the push for a “transaction tax” to solve some of the fiscal problems in the European Union. The move would, Gregg explains, “levy a tax on any transaction on financial instruments (securities, loans, deposits, derivatives, and various asset classes) between banks, hedge funds, insurance businesses, investment companies, and other financial organizations whenever one contracting party is located in the EU.” That may not sound like much, but would apply to literally millions of financial transactions daily. The scheme has drawn the support of “EU apparatchiks” but the opposition of the British who see the tax proposal as a threat to London’s financial competitiveness. Gregg sees what’s behind it:

In short, the EU’s transactions-tax scheme reflects a long-standing desire to “throw sand” in the wheels of financial globalization. Its origins lie in what’s called the “Tobin tax,” named after the American economist James Tobin, who argued in 1972 for the levying of a 0.5 percent tax on all spot-currency conversions. The point, for Tobin, was to discourage “speculators” who “invest their money in foreign exchange on a very short-term basis.”

Unfortunately for its advocates, there’s considerable evidence that Tobin-like taxes on financial transactions don’t reduce volatility. In the midst of financial crises, long-term and short-term investors behave in very much the same way — they get out, and transaction taxes don’t prevent them from abandoning ship. Greece, for example, currently applies a transaction tax to the sale of Greek-listed shares. That, however, isn’t doing much to prevent the present exodus of capital from Greece.

Taking the broader view, it’s hard to avoid concluding this latest EU harmonization boondoggle is about two things. First, it’s a way for EU officials and governments to appear to be punishing European financial institutions for their contributions to Europe’s economic crisis. Second, it reflects the general European failure to come to grips with some of the deeper problems contributing to Europe’s debt crisis.

Read “Financial Fiddling while the Euro Burns” by Samuel Gregg on NRO.

Wis. Gov. Scott Walker

On National Review Online, Acton Research Director Samuel Gregg demolishes the left’s knee-jerk explanation for labor union decline, which blames “the machinations of conservative intellectuals, free-market-inclined governments, and businesses who, over time, have successfully worked to diminish organized labor, thereby crushing the proverbial ‘little guy.'”

Gregg writes:

“The truth, however, is rather more complex. One factor at work is economic globalization. Businesses fed up with unions who think that their industry should be immune from competition are now in a position to move their operations elsewhere — ranging from the southern states of America, to China, India, and other developing countries — where people and governments enthusiastically welcome the influx of knowledge, capital, and jobs. In this regard, it’s always struck me as ironic that unions in developed countries regularly act in ways that essentially hamper economic and employment growth in developing nations. So much for the “international solidarity of workers.” Comradeship apparently stops at the Rio Grande. (more…)

France elected a new president yesterday, the socialist Francois Hollande who has vowed to rein in “Anglo-Saxon” capitalism and dramatically raise taxes on the “rich.” Voters turned out Nicholas Sarkozy, the flamboyant conservative whose five-year term was undermined by Europe’s economic crisis, his paparazzi-worthy lifestyle and a combative personality. But Sarkozy’s defeat exposes “a crisis of identity and purpose that presently afflicts much of Europe’s center-right,” according to Acton Research Director Samuel Gregg in a new analysis on The American Spectator.

The reasons for this widespread disarray on Europe’s right are partly structural. Many European electoral systems are designed to prevent any one party from governing in its own right. Many center-right parties consequently find themselves in coalitions with left-leaning groups. This blunts their ability to challenge left-wing social and economic policies.

Tendencies to tepidness are accentuated by the fact that European politics is dominated by career politicians to an extent unimaginable to Americans who don’t reside in Chicago. European center-right politicians are consequently even more focused upon acquiring and staying in office than their American counterparts. That means they are extremely risk-averse when it comes to challenging the European status quo — such as becoming associated with proposals for substantive economic reform or confronting the intolerant leftist hegemony that dominates European educational institutions.

A far deeper problem facing Europe’s center-right, however, is its intellectual-ineffectiveness. By this, I don’t mean that there aren’t any intellectually-convinced European conservatives and free marketers. In fact, there are plenty of such individuals. Their impact upon the public square, however, is minimal.

Such ineffectiveness has several causes. First, most non-left European think-tanks are explicitly associated with existing political parties and usually government-funded. Hence, the willingness of people working in such outfits to criticize their own side for failure to promote conservative principles — something many American think-tanks often do — is limited, if not non-existent.

Gregg also offers suggestions for revitalizing Europe’s conservatives. Read “Europe’s Right in Disarray” by Samuel Gregg on The American Spectator.

Would dissolving the European common currency, as proposed by the French free-market economist and entrepreneur Charles Gave in his book Libéral mais non coupable (“Liberal But Not Guilty”) free the Old Continent to stand upright on its financial feet again? Or would dissolving the currency drastically end the European project altogether, as some pro-Euro technocrats in Brussels fear?

Charles Gave, the chairman of the investment firm GaveKal, (and whose lecture I listened to at a 2011 Acton Conference Family Enterprise, Market Economies, and Poverty in Rome), offers an excellent economic policy analysis in answering these urgent questions.  However, as you will read below, the European side of the financial crisis cannot be fixed in purely economic terms.

In his chapter “Europe: A Turtle on its Back”, Gave says that the EU’s already slow-moving economic tortoise is now in a worse position while laying flat on its back – its shell “heavily weighed down by a systemic debt trap” whose origins are found in keeping the common currency afloat at all costs.

Gave believes that the only way to get the turtle walking upright again would be lighten its load by effectively dissolving the heavily debt-tied euro and restoring national currencies to pre-1999 monetary standards. In Gave’s opinion, a restoration of national currencies across the Eurozone would force member states to return to a culture of self-reliance, that is to say, to count more on their own national fiscal and monetary means and standards.

The positive effect would also mean abandoning the quasi-idolatrous ways in which Europeans go to save their common currency while closing a blind eye to less responsible member states’ reckless spending.

Gave’s criticism of local/national responsibilities and the very origins of debt raise deeper questions about the cause of the  European debt and monetary crises, but it is far from offering a  more complete picture of the problem.

Acton’s research director, Dr. Samuel Gregg, helps us fill in the gaps.  As he said in a recent editorial for the American Spectator:

Europe does indeed face huge monetary challenges. Having a common currency while permitting euro-members to violate mutually-agreed debt limits was always a recipe for disaster. Greece could happily splurge on adding tens of thousands of public sector workers to the government’s payroll and financing Chicago-esque patronage politics, while Portugal built dozens of now-idle, often half-finished soccer stadiums.  Why? Because everyone knew if things went bad, then preserving the euro (a ‘sacred cow’ for Europe’s political class) from the impact of nations’ defaulting meant that heavyweights like Germany would go to considerable lengths to try and prevent a currency-meltdown.

Yet this amounts to only a partial — and therefore inadequate — explanation of Europe’s present disarray…[It] can’t disguise the truth that there’s something even more fundamental driving Europe’s economic crisis.

From the beginning, post-war Social Democracy’s goal … was to use the state to realize as much economic security and equality as possible, without resorting to the outright collectivization pursued by the comrades in the East.  In policy-terms, that meant extensive regulation, legal privileges for trade unions, “free” healthcare, subsidies and special breaks for politically-connected businesses, ever-growing social security programs, and legions of national and EU public sector workers to “manage” the regulatory-welfare state…with little-to-no experience of the private sector.

None of this was cost-free. It was financed by punishing taxation and, particularly in recent years, public and private debt. In terms of outcomes, it has produced some of the developed world’s worst long-term unemployment rates, steadily-declining productivity, and risk-averse private sectors.

In sum, the idolatrous preservation of a European common currency and the ensuing “debt trap”  and “domino default” which Gave articulates in his book  is more fully understood when we link the European financial crisis to a crisis of Christianity — a  faith which makes challenging demands on practicing members’  moral interrelationships, levels of risk aversion, and practical ways in which they care for fellow citizens and see their moral duties relation to their neighbor and society.

Christianity, as defined so well by the Catholic Church’s teachings on subsidiarity, demands that social problems must be first solved at the individual, local level. Only if the local and personal proves insufficient should the problem to be taken to higher levels, with the state as the means of last resort.

Subsidiarity – a guiding principle to all responsible Christians – helps limit public debt by relegating moral duties first and foremost to the private sphere.  Subsidiarity is a check against  forms of collectivization and the expensive public costs involved. When too much of the moral duty is placed on the state, public costs grow and debt is possible.  When it is not, the state’s welfare machine is tends to shut down.

In conclusion, if it is true that the vast majority of Europeans no longer practice their Christian faith or take their charitable duties very seriously, one can rightly doubt how easily it will be them to free themselves from the weight of unsustainable debt  (see also Sam Gregg’s ALS lecture below on this topic). If non-practicing Europeans tend to pass on more of their individual moral responsibilities to the state  for the welfare of the elderly, sick and need people of society, it ends up being a costly delegation of Christian freedom and responsibility.  In economic consequences, this makes the EU a fertile ground for a systemic debt traps and precarious monetary crises.

[youtube http://www.youtube.com/watch?v=h1HZud5lHGc&w=350&h=208]

On The American Spectator, Acton Research Director Samuel Gregg observes that, “as evidence for the European social model’s severe dysfunctionality continues to mount before our eyes, the American left is acutely aware how much it discredits its decades-old effort to take America down the same economic path.” Against this evidence, some liberals are pinning the blame on passing fiscal and currency imbalances. No, Gregg says, there’s “something even more fundamental” behind the meltdown of the post-war West European social model. (Thanks to RealClearWorld for linking).

… this reality is that the Social Democratic project is coming apart at the seams under the weight of the economic policies and priorities pursued by most Social Democrats (whatever their party-designation) — including the American variety.

From the beginning, post-war Social Democracy’s goal (to which much of Europe’s right also subscribes) was to use the state to realize as much economic security and equality as possible, without resorting to the outright collectivization pursued by the comrades in the East. In policy-terms, that meant extensive regulation, legal privileges for trade unions, “free” healthcare, subsidies and special breaks for politically-connected businesses, ever-growing social security programs, and legions of national and EU public sector workers to “manage” the regulatory-welfare state — all of which was presided over by an increasingly-inbred European political class (Europe’s real “1 percent”) with little-to-no experience of the private sector.

None of this was cost-free. It was financed by punishing taxation and, particularly in recent years, public and private debt. In terms of outcomes, it has produced some of the developed world’s worst long-term unemployment rates, steadily-declining productivity, and risk-averse private sectors.

Above all, it slowly strangled the living daylights out of economic freedom in much of Europe. Without Germany (which, incidentally, also engaged in welfare reform and considerable economic liberalization in the 2000s), it’s hard to avoid concluding that Social Democratic Europe would have imploded long ago.

Read “The American Left’s European Nightmare” by Samuel Gregg on The American Spectator.

A week ago, Dr. Samuel Gregg addressed an audience here at Acton’s Grand Rapids, Michigan office on the topic of “Europe: A Continent in Economic and Cultural Crisis.” If you weren’t able to attend, we’re pleased to present the video of Dr. Gregg’s presentation below.

In the journal Foreign Affairs, Acton Research Director Samuel Gregg offers an analysis of the Vatican’s recent pronouncements on economic policy, most notably the document issued in October titled “Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority” (also called “The Note”). The Church, Gregg said, “wanted to attract the attention of world leaders as they assembled to discuss ongoing turmoil in financial markets at the G-20 Summit in Cannes and to add its voice to those arguing for capital controls (such as the “Tobin tax”) to discourage international financial speculation.” But, he argues, advocating a world economic authority could work against the interests of developing nations, including those heavily Catholic:

… a world authority could pit the economic interests of Catholics in developed countries against those in developing nations, creating challenges for how the Church presents its teachings about economic issues to Catholics throughout the world. Many countries throughout Latin America, Africa, and Asia are in a fundamentally different economic and geopolitical place from those of the ailing EU. The Church must thus deepen its appreciation of how the global operation of economic factors such as comparative advantage, incentives, and tradeoffs has different impacts upon Catholics living in very dissimilar economic circumstances. But this also has implications for the Church’s position concerning the economic functions to be assumed by a world authority. Such responsibilities, for example, could primarily concern promoting greater economic integration through removing obstacles to trade. This, however, would be incompatible with the Note’s theme that a world authority’s economic functions should be focused upon securing greater control over the pace of change through international regulations that, if implemented, would significantly impede the free movement of people, goods, and capital.

Read “The Vatican’s Calls for Global Financial Reform” by Samuel Gregg on the website of Foreign Affairs.

[Thanks to RealClearWorld, ThePulp.it, NewsBusters and PewSitter.com for linking to this commentary.] Over at the American Spectator, Acton Research Director Samuel Gregg points to Europe’s “perceptible inability” to acknowledge some of the deeper dynamics driving its financial crisis. And these are primarily a “slow-motion population implosion” complicated by the exodus of young European Union citizens and the return of hundreds of thousands of immigrants to their homes in developing nations. That is an ominous development for a region where the dependency rate — the ratio of retirees per member of the labor force — has ratcheted up as the welfare state has ballooned over several decades.

Gregg:

These facts have made some Europeans willing to ponder the necessity of labor-market and welfare reform, not least because those countries that have weathered the crisis better than others (e.g., Germany and Sweden) actually implemented such changes in the 2000s. Getting Europeans to talk publicly about the continent’s population-trends and their economic consequences, however, is a different matter.

Why? One reason is that many Europeans have long been in thrall to the over-population gospel. Long before Paul Erhlich’s The Population Bomb (1968) — whose doomsday future-scenarios of a world devastated by famines, mass disease, and social unrest unleashed by overpopulation never materialized — numerous European economists had bought into this thesis.

In 1798, the Anglican vicar and one of the first modern economists, Thomas Malthus, published his Essay on the Principle of Population. This argued that growing populations would produce an increasing labor-supply. The result, Malthus insisted, would be lower wages and therefore mass poverty. “The power of population,” he claimed, “is so superior to the power of the Earth to produce subsistence for man, that premature death must in some shape or other visit the human race.” Another English philosopher-economist, John Stuart Mill, was so convinced by Malthusian arguments that he actually spent time in London parks distributing birth-control pamphlets to bemused onlookers.

Read Samuel Gregg’s “Europe in Demographic Denial” on the American Spectator.

Václav Havel

Václav Havel, playwright, anti-Communist dissident and former president of the Czech Republic, died yesterday at the age of 75. There has been an outpouring of tributes to the great man today. In light of that, I’d like to point PowerBlog readers to the September-October 1998 issue of Religion & Liberty and the article “Living Responsibly: Václav Havel’s View” by Edward E. Ericson.

Ericson says that Havel offers a particularly penetrating analysis of our times based on the understanding that, in Havel’s words, “we are going through a great departure from God which has no parallel in history.” It is no coincidence that, Havel adds, that “the first atheistic civilization” has produced the bloodiest century in history.

In 1998, Ericson wrote that Havel could not be described as a believer but admitted to “an affinity for Christian sentiment” and that he tries “to live in the spirit of Christian morality.” Yet Havel’s understanding of Christianity’s formative work in building what is today Europe was deep. He praised the “blending of classical, Christian, and Jewish elements” that has created “the most dynamic civilization of the last millennium.” The news report linked above said that Havel spent his last moments in the company of his wife, Dagmar Havlova, and a Catholic nun.

Ericson:

According to Havel, ordinary people everywhere can live in the truth only by embracing the “notion of human responsibility.” Responsibility is “that fundamental point from which all identity grows and by which it stands or falls; it is the foundation, the root, the center of gravity, the constructional principle or axis of identity.” Thus, Havel declares, “I am responsible for the state of the world,” and he means a “responsibility not only to the world but also ‘for the world,’ as though I myself were to be judged for how the world turns out.” Citing Dostoevsky’s spiritual dictum that all are responsible for all, he points to that “‘higher’ responsibility, which grows out of a conscious or subconscious certainty that our death ends nothing, because everything is forever being recorded and evaluated somewhere else, somewhere ‘above us,’ in … an integral aspect of the secret order of the cosmos, of nature, and of life, which believers call God and to whose judgment everything is liable.”

Read “Living Responsibly: Václav Havel’s View” by Edward E. Ericson.

Attend Acton University 2012 where Ericson will lecture on Aleksandr Solzhenitsyn.

Acton’s director of research Samuel Gregg is up at Public Discourse, with a piece titled “Monetary Possibilities for a Post-Euro Europe.” With his usual mix of sophisticated economic analysis and reference to deep principles, Gregg considers European countries’ options should the eurozone fail. If that happens, he says, “European governments will have a once-in-a-lifetime opportunity to rethink the type of monetary order they wish to embrace.”

One such scenario is a three-way monetary division within the EU that reflects the differing political commitments and economic priorities of different nations. Germany and the more fiscally responsible eurozone members such as Austria, Finland, and the Netherlands could, for instance, decide to reconcile themselves to being the only ones with the necessary fiscal and monetary discipline to maintain a common currency.

Alongside this bloc would be two other groups. One would consist of those EU countries such as Britain, Sweden, and Denmark that have maintained their own monetary systems because of reservations about the euro’s implications for national sovereignty. Another group would include EU nations such as Greece, Portugal, and Italy that are simply unable or unwilling to embrace the disciplined monetary and fiscal policies required by a common currency; these nations would consequently find themselves outside the eurozone and reverting to their national currencies.

A more radical monetary opportunity for a post-euro EU would be currency competition. This was once proposed by Britain’s Margaret Thatcher as an alternative to the present common currency. Contemporary proposals for currency competition, such as that advanced by Philip Booth and Alberto Mingardi, involve the monetary authorities of different countries authorizing the use of currencies alongside the euro in domestic settings other than their own. Consumer choice rather than state sovereignty would thus ultimately determine which currencies were used.

Yet another option would be the embrace of what might be called a European gold standard. In the 1950s and 1960s, the German economist Wilhelm Röpke argued that European monetary integration could occur via a nucleus of countries agreeing to adhere to a gold standard, much as had happened somewhat spontaneously in the nineteenth century through a process of unilateral decision-making by individual countries. Once this had occurred, adherents of such a gold standard would have to insist upon all members maintaining monetary discipline as well as freedom and stability in foreign exchange markets.

The stability of the European currency would be assured not by EU bureaucrats, but by the gold standard itself, and by allowance for the expulsion of countries that abuse their big-boy privileges.

Britain just rejected an EU treaty because the Conservative Party decided Brussels was trying to capitalize on the Mediterranean crisis by grabbing more power. The three proposed currency models, Gregg argues, would maintain countries’ freedom by yanking monetary power from central bureaucrats who exercise political power. He reflects further on the composition and history of the eurozone, on the countries’ political and economic freedom, and on what Röpke would have to say in the rest of the piece.