Tags: Feldstein | Europe | US

Feldstein: Europe Failed Trying to Be Like US

Wednesday, 30 Nov 2011 10:24 AM

The euro is a flawed currency concept in that it sought to resemble the U.S. economy, says Harvard economist and Chairman under President Ronald Reagan's Council of Economic Advisers Martin Feldstein.

"The key argument made by European officials and other defenders of the euro has been that, because a single currency works well in the United States, it should also work well in Europe. After all, both are large, continental, and diverse economies. But that argument overlooks three important differences between the U.S. and Europe," Feldstein writes in a Project Syndicate column.

First, the U.S. runs a seamless labor market, where different cultural and policy labor policies abound in Europe.

Secondly, the U.S. runs one centralized fiscal system, with individuals and businesses paying most of their taxes to one federal government rather than states and third, states are required by their constitutions to balance their annual operating budgets

That's not going to happen in Europe.

"None of these features of the U.S. economy would develop in Europe even if the eurozone evolved into a more explicitly political union," Feldstein writes.

A central revenue-collecting body would basically require Germans to pay more taxes than other European nations, and even if that wrinkle could be ironed out, nothing could prompt workers to pack up and move to other parts of Europe in search of work like they do in the U.S.

"The most likely effect of strengthening political union in the eurozone would be to give Germany the power to control the other members’ budgets and prescribe changes in their taxes and spending. This formal transfer of sovereignty would only increase the tensions and conflicts that already exist between Germany and other E.U. countries," Feldstein writes.

Officials have urged Germany to prop up debt-ridden European nations and alleviate the crisis, especially neighboring Poland.

"I demand of Germany that, for your own sake and for ours, you help it (the euro zone) survive and prosper. You know full well that nobody else can do it," says Polish Foreign Minister Radoslaw Sikorski, according to Reuters.

"I will probably be the first Polish foreign minister in history to say so but here it is: I fear German power less than I am beginning to fear German inactivity."

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The euro is a flawed currency concept in that it sought to resemble the U.S. economy, says Harvard economist and Chairman under President Ronald Reagan's Council of Economic Advisers Martin Feldstein. The key argument made by European officials and other defenders of the...
Feldstein,Europe,US
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2011-24-30
Wednesday, 30 Nov 2011 10:24 AM
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