Other People’s Money

It is always easy to spend other people’s money. In fact, it is too easy, especially for politicians. Conversely, it is hard to persuade other people to part with their money, especially for politicians. So how to resolve this paradox? Simple: by bribing folk with their own money while persuading them that the money has come from somewhere else. This is the method too often adopted by politicians in democracies whose “vote for me now, somebody else will pay later” mentality, particularly in the case of the United States and the United Kingdom, has resulted in excessive amounts of public indebtedness which has limited the room manoeuvre at a time of economic crisis. In continental Europe, many countries – Greece, Spain, Italy, Ireland, for example, are bridling under the austerity measures considered necessary to deal with the Eurozone crisis. And, unlike the US and the UK, the problem for many Eurozone members is that since they are using other people’s money, the Euro, in the mistaken belief that was now their money, their room for manoeuvre is virtually non-existent.

The single currency, the Euro, may well be a good idea. It is certainly a good idea for Germany, since it has made the price of its manufactured goods very attractive to those Eurozone countries that were able to binge on cheap borrowing up until the Eurozone crisis broke. Unfortunately, it has made everything else in those countries not made in Germany look rather expensive and no amount of austerity or even, in the case of Greece, paying taxes, is going make up for the productivity difference between the German economy and those Eurozone countries which are most badly affected by the austerity measures. Increasingly – not that their politicians seem to allow them much of a say – Germans are questioning why their hard earned cash should be finding its way down south to support those feckless Mediterranean types. In the view of the hard working German, it is their money, not other people’s, and should be staying at home.

And here we reach the nub of the problem: to be successful a single currency needs fiscal union which in turn means political union. This is what is really behind the “deeper integration” of the Eurozone although, oddly (or not oddly given the lack of democracy in Europe, alas) nobody has actually come out and said this and asked the good folk of Europe whether this is what they would actually like. Instead, we have endless talk of special measures, institutional adjustments, fiscal and stability pacts and the like whereas a simple statement of the truth would be welcome. Some countries probably would like it, others may be a little more uncomfortable at the thought of all major economic and political decisions being taken in Berlin (hidden behind a Brussels fig-leaf when convenient, no doubt) since it wasn’t so popular last time it was tried but, as we know, although it may not repeat itself, history often rhymes. However, that is the reality: only political union can justify the continual large cash transfers from richer to poorer regions that will be needed if the single currency is to work. Because, as part of a political union it will not be a case of “German” money going to Greece, for example, but European money supporting a European region, in much the same way as in the UK money raised in one region may be spent in another. The UK is political union and natural currency area so these payments are broadly understood and accepted. A currency union without political union is simply a recipe for continual wailing and gnashing of teeth.

Perhaps it comes as no surprise, therefore, that Poland is dragging its feet about the date of its joining the Euro. Notwithstanding Poland’s desire – as mentioned in The Fortune Teller – to be at the heart of Europe, President Komorowski thinks that Poland should decide whether to join the euro zone after the parliamentary and presidential elections in 2015, and that the government should not rush the deadline for adopting the Euro (something originally targeted for 2012 before the global banking crisis). Poland, which joined the EU in 2004, is obliged by treaty to adopt the Euro eventually (which would also require a change to Poland’s constitution). The Polish Prime Minister thinks that Poland must decide sooner rather than later when to join to avoid being in the EU’s periphery while the finance minister seems in less of a hurry and would prefer to join a Euro which is not this Euro. And the people? Well, they are seldom asked but recent opinion polls suggest that fewer than one in three Poles support adopting in the Euro in place of the zloty, a view based in no small part on the difficulties seen elsewhere within the Eurozone.

So there you have it. Other people’s money: great in theory, but not in practice when the piper calls the other people’s tune.

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