Tags: euro | reform | rescue | guardian

UK Guardian: Euro Needs Reform, Not Rescue

By    |   Thursday, 27 Oct 2011 12:25 PM

The euro rescue agreement doesn't get at the root causes of the continent's crisis. Instead of a rescue, the euro zone needs reform, according to the Guardian.

The real solution is a European welfare state, according to the U.K.-based newspaper.

A European tax on profits can finance social spending such as unemployment benefits and redistribute income from rich to poor countries without increasing debt levels or relying on bailouts.

"This could give new life to the project of European integration," writes Engelbert Stockhammer in the Guardian article. "And it would make economic sense."

The euro zone also needs "trans-national coordinated wage bargaining" that takes into consideration equity and trade imbalances, he says. That would prompt higher wage growth in countries with trade surpluses, which would help prevent imbalances.

Plus, it needs to slow down national and international financial transactions with transaction taxes and asset-based reserve requirements. That would break the self-reinforcing loop between asset prices and credit, helping to prevent debt-fueled bubbles.

Plans to rescue the euro, he asserts, are bad economics as well as bad for democracy, as they would have a tribunal dictate policies to troubled countries.

Rescue plans are based on the premise that public debt caused the crisis. But that's not true, Stockhammer argues. Since introduction of the euro, public debt as a percentage of GDP actually fell somewhat while household debt increased significantly.

A massive increase in private debt and property bubbles, driven by deregulation and international property flows, are the real culprits.

The euro led to export-driven growth in Germany and debt-driven growth in countries like Greece.

"Economic growth in the euro was based on growing imbalances; it was an accident waiting to happen," he says.

Announcement of the latest plan to solve the euro crisis, including a 50 percent haircut for bondholders, caused stock markets to surge. But that surge may be short lived, writes Bruce Crumley on his blog for Time.

"Because as events since July — and, indeed, during every serious crisis in the recent past — have shown," he writes, "markets are really lousy measures of policy merit and economic direction. In fact, they're poster children for bipolar disorder gone amok under the influence of dog-eat-dog self-interest."

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The euro rescue agreement doesn't get at the root causes of the continent's crisis. Instead of a rescue, the euro zone needs reform, according to the Guardian. The real solution is a European welfare state, according to the U.K.-based newspaper. A European tax on...
euro,reform,rescue,guardian
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2011-25-27
Thursday, 27 Oct 2011 12:25 PM
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