The European Union is not a federal state, but a collection of independent states that take responsibility for their own economic development and social services. There are clear differences in the standard of living, economic development and social services between the states, but there is a fundamental agreement that the EU does not interfere or decide upon national taxation or how public money is distributed within each state. Relatively clear rules prevent state aid that can disrupt their competition between nations. It is also a clear principle that the EU does not, and should not, tax residents, only the states have the power to do this.
The EU does have a limited mandate to assist countries to develop economically and improve the standard of living, but this is a limited mandate.
If you pass a beggar of the street, or a person who is unemployed, seriously ill or otherwise suffering, do you give him or her more that €1, €10, €100, or €1000 each month for the next couple of years? That is what the EU is planning… Most people help those in need, and that is good, but charity starts at home and is limited in the modern world.
The virus has had severe economic and social consequences for every country in the EU, as well as the rest of the world. Each country has taken responsibility for handling the pandemic, some, like the Nordic countries, excluding Sweden, have handled the situation much better than Belgium, Italy, Spain, and France. These four countries, like the UK, have not done a good job because of poor healthcare management by their political leaders. Each of these four countries have the economic strength and resources to manage without external help and they must take responsibility themselves for the results of this poor management. It is certainly not the responsibility of other countries to help out for these countries.
It is the same situation for the Nordic countries. We have not requested any help from the EU. On the other hand, the weaker European member states have requested emergency assistance from the EU, and the EU has responded with an offer of limited assistance.
Not only has the EU made an offer of limited assistance, but the European Central Bank is continuing to offer a massive funding of governments under its bond buying program called Quantitative Easing. Banks are also being supported by governments as if they are the main way to lead recovery.
The pandemic has caused mass unemployment and has reduced the revenues of companies and of the state. Companies have laid off staff and cut back on their activities. Financial support for the unemployed and for companies is being made available by governments and this is being covered by extra issuance of debt by governments.
Economic activity is gradually recovering, but full recovery will take many years.
Most companies, large and small, and private individuals do not have the capacity to take on more debt, and it is foolish to assume that the issuance of debt by companies and individuals is the solution to the pandemic.
Supplementary borrowing by governments is a reasonable solution for long-term recovery, but it must be admitted that this debt must be repaid with interest at a later date by work – the sale of goods and services. If you have less money, then you have less to spend and the belt has to be tightened.
Printing money by the central banks or by governments only leads to excessive inflation – and that will come again if money is squandered in this way. Quantitative Easing, the purchase of government debt by our central banks is frightening because they are buying between 30% and 40% of all new issuance! The head of the European Central Bank, Ms. Lagarde, and the head of Finland’s central bank, Mr. Rehn, are both former politicians, and as such they have another agenda – and that agenda is not based on economic reality but on some mythical belief that central banks have unlimited papers to solve the world’s economic problems!
Ms. Lagarde performance at the helm of the IMF was anything but convincing when she oversaw massive new loans to a bankrupt Argentina, and Mr. Rehn is a staunch Center Party politician, the party of farmers and forest owners, was welcoming Turkey with open arms to join the EU just a decade ago!
In many ways the pandemic has been a lesson in economic management, and it should be seen as a turning point for politicians as well. A well-managed economy can thrive sufficiently well so long as the political leadership is professional and honest. A falling economy is not the end of the world after decades of growth – a slowing down of economic activity that causes a slowing of Climate Change is much more important. Do we really want to destroy our planet?
The EU summit this weekend should not be handing out money without conditions to weak or poorly managed EU member states. As stated at the beginning of this article, each country is responsible for handling the pandemic and is responsible for their economic and social management. The European Union is not a federal state, but a collection of independent states that take responsibility for their own economic development and social services.
Furthermore, if countries like Poland and Hungary are not prepared to observe the commonly accepted version of the Rule of Law then they should no longer be eligible for any limited EU handouts.
Compromises are always an essential part of agreements between 27 nations but breaking the rules openly and brazenly has consequences. There is now no big need to hurry through poorly designed measures by the EU. In fact the EU is not really needed to develop such new measures. We need to reform the EU, reduce corruption and improve healthy and limited cooperation between member states. We need to improve cyber security, and stop the USA and China from weakening joint bodies and our internal markets with unfair competition – but that is another story…