Saturday, 28 February 2009

Germany: willing to step in?

It seems that Germany is finally beginning to realise the need for it to take a lead in the EU (and I suppose we'll worry later if this unduly increases Germany's influence in the bloc further). The eurozone bond idea is out, as far as Germany is concerned (and so as far as the eurozone is concerned too). The Nordic countries are apparently sceptical about the idea (while agreeing that the euro is a Good Thing), but I'd say that Germany has pretty much killed it off for now. A eurozone bond would have helped the more crisis stricken eurozone countries, but if western banks are so tied up in Eastern Europe, then it might not do much good overall anyway.

And in any case, it would make things more expensive for Germany.

Of course, German money will be handed out only on German terms. For Ireland the conditions could be a bit of a slap in the face: protection of the Irish corporation tax (which is quite low in order to attract investment) was one of the planks of the No campaign back in June, despite the retention of the veto in such areas. In the end economic realities could force us to raise our corporation tax to get our hands on German money.

Of course, the German government is there to serve the German people so it can hardly be blamed for acting to ensure its own interests where its own money could be splashed about. Shoring up the European economy is naturally itself in the interests of Germany, but moves to act on this can hardly be politically comfortable, to say the least, and if this is acted on, then Germany should be congratulated for its solidarity with other member states when Germany itself is facing a tough time too.

Perhaps there should be some sort of country or industry insurance in the EU (or the eurozone)? I know nothing about economics, so I'm just tossing out random ideas, but with Europe's economies so interdependent, a common fund for supporting member state governments or Europe-wide industries could be an alternative to just relying solely on Germany. If every country contributed regularly to this fund, which could be administered by the Commission to ensure that it wasn't applied in such a way that it could harm the workings of the internal market, then the burden would be lifted from Germany (to a degree), and the political danger inherent in relying on one member to prop up the whole group would be mitigated. Member states would have to commit to certain rules to make sure that the fund wasn't abused (though it's hard to see how it could be enforced when the whole point of it is to help in times of crisis).

The EIB, etc. are stepping into a support role for countries at the moment, but they were not designed to help combat the effects of a crisis of this scale in the member states. Something stronger is needed.

Moves to help ensure the better regulation of Europe-wide (and global) flows of money are good, but all economic areas grow and develop quickly and the regulation regime we produce today may be outmoded in 20 years time, or even dismantled in the future just as the regulation resulting from the Great Depression was scrapped in the name of free market orthodoxy (plus the fact that every generation sees themselves as smarter than the last one). So prevention, while better than the cure, cannot always be relied on. We need to have some medicine in place as a back up, should we need it.

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