This "master solution" just perpetuates a fraud...
SO ITALY has adopted $61 billion in spending cuts. The newspapers and the government call this austerity. But it's really just living within your means, points out Dan Denning, editor of the Daily Reckoning Australia.
The Italians have also introduced a "solidarity" tax on those who earn more than €90,000 per year. What is a solidarity tax? It's what you call a tax that forces other people to pay for the standard of living you believe you deserve. It's the sort of thing people ask for when they believe the world owes them something.
Free insight of the day: the world doesn't owe you anything.
Europe's leaders are still calling plays from the 20th century's playbook. Italian Finance Minister Giulio Tremonti called for more "integration and consolidation of public finances in Europe," and a "master solution" to Europe's problems. By that he means a "Eurobond" that would allow greater levels of borrowing.
Hmm. Maybe it's just us, but the term "master solution" conjures up an image of a Super Nanny Police State. That's kind of creepy. Besides, the European Social Democratic welfare state has spent itself into oblivion. Government finances have become so unsustainable that Europe's most indebted governments can't borrow in their own name any longer.
The solution is obvious. They need a new name!
Eurobonds would be guaranteed by the full faith and credit of the European Union. It would "collectivize" Europe's credit rating. Because the collective credit rating would include Europe's bigger economies with smaller government deficits, it would be cheaper for everyone to borrow in Eurobonds. This would make it possible for Italy, Spain, Ireland, Portugal and everyone to refinance government debts at a much lower interest rate.
Of course, a Eurobond wouldn't impose any spending discipline on national governments. It would just make it cheaper for them to borrow now. Of course they love the idea! It permits deficit spending by allowing the permanent expansion of government debt. This is the whole fiscal model of the Welfare State.
Poor Germany. It's going to cop it the worst if the Eurobond gets pushed through. The Germans know that national governments will abuse the borrowing privilege as they always have, while not really cutting spending or pruning back the Welfare State. Fortunately, Germany has a history of doing what's best for Europe in order to avoid a wider conflict.
Post-war Europe has too much invested in the idea of political and financial union to abandon the idea now. The core of the idea—that you can live at each other's expense and have something for nothing—is proving to be a monumental fraud. But rather than acknowledging that reality, the Europeans keep trying to extend the fantasy.
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