Posts tagged with: Europe’s financial crisis

Online today at The American Spectator is an article from Acton Research Director Samuel Gregg. The article highlights the forethought of German economist Wilhelm Röpke, who predicted Europe’s present economic downturn in the middle of the twentieth century. Röpke, Gregg says, was a “euroskeptic” before the term existed. Excerpt here:

Where Röpke proved correct was in envisaging that efforts to impose European political integration from the top-down would go hand-in-hand with attempts to replicate large welfare systems and extensive regulation across Europe. What’s now called “Social Europe,” Röpke maintained, was integral to the same dirigiste and rationalist mindset that viewed extensive planning by political-bureaucratic elites as infinitely superior to the workings of Adam Smith’s invisible hand within a legal framework of clear rules and limited government.

Röpke died in February 1966, decades before the present crisis that’s created a bleak economic future for an entire generation of young Europeans and turned the phrase “Greece” into a byword for dysfunctionality. Like many prophets, Röpke’s predictions about the long-term effects of choices made by European leaders in the 1950s and 1960s were mocked in his own time. But in the unlikely event of Europe’s political masters escaping the echo chamber that tells them that salvation can only be found in ever-greater centralization, those whose knowledge of history extends beyond the last 24 hour news cycle might be honest enough to admit that Röpke was right.

And the PIIGS might fly.

Entire article here.

Kishore Jayabalan, the Acton Institute’s Rome office director, was interviewed by the Zenit news agency in an article titled, “Is Taxing the Church a Real Solution for Italy?” In the article, Jayabalan discusses the history of the Italian state and its imposition of property taxes on the Roman Catholic Church’s land holdings, residences and non-profit businesses.

Sometimes in the past, particularly under Napoleonic rule and before the Lateran Pacts, the institution of property tax was often a subject of state persecution of the Church in economic terms. Mr. Jayabalan answers critical questions about the reasons behind Italy’s evolving (or rather “revolving”) fiscal policies and historic land expropriations to the Church’s detriment.

The Church has traditionally been exempt from paying ICI [property tax] on non-commercial entities because they serve a social purpose. The old law actually exempted entitles that were ‘predominantly’ non-commercial. The new law exempts simply non-commercial entities, so there will be some re-defining of what is non-commercial or not by the Italian Ministry of the Economy. Jewish, Muslim, and other religious, and for that matter secular, non-profits were also ICI-exempt, so this was not a case of special pleading for the Catholic Church in Italy, even though Catholic institutions dwarf the others numerically…

Of course this is not the first time the Church has been muscled out of land. Napoleon’s massive cash taxes upon his conquest of Italy were designed to force noble families (generally with very close ties to the Church) out of their lands and titles. Napoleon spared the Church the niceties of taxes, choosing to simply expropriate the property. The unification of Italy as well saw Church lands, art and lives lost as the new nation was formed. But even this was nothing new. After all Nero had blamed the Christians for a fire he set to clear some land in downtown Rome, so in the end Sts. Peter and Paul and 900 other Christians were killed for a real estate deal.

To read Jayabalan’s full interview, go here.

A practical man?

On the American Spectator, Acton Research Director Samuel Gregg examines the baleful influence exerted on economic thought and public policy for decades by John Maynard Keynes. Gregg observes that “despite his iconoclastic reputation, Keynes was a quintessentially establishment man.” This was in contrast to free-market critics of Keynes such as Friedrich Hayek and Wilhelm Röpke who generally speaking “exerted influence primarily from the ‘outside’: not least through their writings capturing the imagination of decidedly non-establishment politicians such as Britain’s Margaret Thatcher and West Germany’s Ludwig Erhard.” Perhaps not so surprisingly, many of Keynes’ most prominent devotees are also “insider” types:

The story of Keynes’s rise as the scholar shaping economic policy from “within” is more, however, than just the tale of one man’s meteoric career. It also heralded the surge of an army of activist-intellectuals into the ranks of governments before, during, and after World War II. The revolution in economics pioneered by Keynes effectively accompanied and rationalized an upheaval in the composition and activities of governments.

From this standpoint, it’s not hard to understand why New Dealers such as John Kenneth Galbraith were so giddy when they first read Keynes’s General Theory. Confident that Keynes and his followers had given them the conceptual tools to “run” the economy, scholars like Galbraith increasingly spent their careers shifting between tenured university posts, government advisory boards, international financial institutions, and political appointments — without, of course, spending any time whatsoever in the private sector.

In short, Keynes helped make possible the Jeffrey Sachs, Robert Reichs, Joseph Stiglitz’s, and Timothy Geithners of this world. Moreover, features of post-Keynesian economics — especially a penchant for econometrics and building abstract models that borders on physics-envy — fueled hopes that an expert-guided state could direct economic life without necessarily embracing socialism. A type of nexus consequently developed between postwar economists seeking influence (and jobs), and governments wanting studies that conferred scientific authority upon interventionist policies.

Read Samuel Gregg’s “The Madness of Lord Keynes” on the American Spectator.

It is very easy to forget what is happening in other parts of the world especially when we are in the midst of our own financial crisis in the United States. Considering the economic challenges we are faced with, this may be a mistake as we can learn from other’s problems. Europe is experiencing economic woes that continue to worsen. In the American Spectator, Samuel Gregg explains:

As Europe’s financial crisis worsens, it’s increasingly apparent that the economic woes of countries like Portugal, Spain, and Greece have resulted from more than just bad policy. With each passing day, evidence mounts that one dynamic driving the crisis is that of untruth: a disturbing European pattern of fabrication about levels of public spending and debt.

The latest proof for this thesis is the discovery by newly-elected Spanish regional and local governments of concealed debts run up by their predecessors. This contradicts claims by Spain’s Socialist Finance Minister, Elena Salgado, that Spain’s regions had no “hidden deficits” on their accounts. Spain’s business community, however, has long complained about local governments pressuring private companies to do business with them “off the books.”

One reason for such behavior is that Spain’s government knows that the greater Spain’s real overall-public debt, the higher will be the interest-rates demanded by financial markets and the more stringent will be the conditions attached to any “financial assistance package” (i.e., bailout) that Spain might, like Portugal and Greece, eventually need.

As Gregg says, the financial problems in Europe are not just current but have been festering since the beginning of the Eurozone when strict standards were to be implemented:

In the 1990s, European governments agreed the single currency’s success would depend upon countries entering the eurozone on a solid financial basis and then remaining on a firm footing. To that end, both the 1992 Maastricht Treaty and the 1997 Stability and Growth Pact (SGP) established strict criteria concerning public spending for countries admitted to the single currency.

One such standard concerned the ratio of an applicant country’ gross government debt to GDP. It was not to exceed 60 percent at the end of the preceding fiscal year. Maastricht’s convergence criteria also specified that the ratio of the annual government deficit to GDP should not exceed 3 percent of the same fiscal period.

Such standards were supposed to prevent a “free rider” program from occurring so countries with an irresponsible fiscal reputation, such as Greece, didn’t use their membership to over-indulge and rely on the rest of the members to bail them out. However, this policy wasn’t strictly adhered too. Gregg states that “…many euro applicants were allowed to get away with ‘creative accounting’ to meet the conditions of Maastricht.”

Europe continued to financially falter and wasn’t showing signs of recovery. This could be seen from many actions such as the encouragement of “fudging” numbers through new rules that “added many exceptions for types of spending that would not be included when determining debt and deficit figures.”

Is there a solution to Europe’s financial crisis? Gregg responds with a resounding yes:

Few “core values” would have a more bracing effect upon Europe’s current economic problems than their governments embracing honesty, transparency, and accountability. No doubt many a European political-career would be terminated as a result. The alternative, however, is for Europe’s governments to continue the charade about the real state of their finances.

Morally and financially, that’s not an option at all.

Click here to read the full article in the American Spectator.