Euros & Dollars: EU Puts Italy in Its Fiscal Crosshairs
The European Commission has plans to go after Italy for its excessive budget deficit. There is no real reason for them to do this, and the timing is very bad.
The European Commission has plans to go after Italy for its excessive budget deficit. There is no real reason for them to do this, and the timing is very bad.
The EU’s new fiscal rules are supposed to solve the problem with member state budget deficits. But so far, neither the European Parliament nor the European Council has addressed the two biggest problems with their reform efforts.
Europe’s economy is falling behind America, and the gap is getting big. The reason is obvious, and so is the solution.
With a welfare state that dominates their budgets, European governments are exceedingly vulnerable to a recession. When tax revenue declines and entitlements force governments to spend more, the inevitable result is larger budget deficits. What will the ECB do in response to that?
Given the high level of economic integration in Europe, it is unlikely that a recession will be confined to half the continent.
You don’t make promises you can’t keep. Nor do you keep an economic structure that can’t promise growth and prosperity.
Rather than sinking further into debt to maintain current, high levels of government spending, it is time for Europe’s leaders to fundamentally reconsider their economic and social policies. It is time for them to adopt an entirely new program for economic prosperity.
The euro itself is only part of the failure. An entire structure of government institutions, laws, and even constitutional provisions were erected around it in order to secure its success. It all looked impressive two decades ago; today, the structure itself, from the European Central Bank (ECB), to the so-called Stability and Growth Pact, is a package of sordid evidence that even under democratic governments, central economic planning is a bad idea.
President Macron wants the EU to reform budget rules to increase public-sector investments, which, he hopes, would lead to stronger economic growth and higher levels of employment. Macron’s vision is understandable, but his reforms are likely to defeat their own purpose.
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