If we are to believe the latest new, France and Germany are now talking about a European fiscal union, widely-held to be what is missing from the failed Euro monetary experiment. It is commonly believed that when a supra-national fiscal body can spend to compensate for private sector losses and/or dissaving in a particular region, this European experiment will be all hunky dory.
But what about labour mobility? Can Greeks or Irish just decide to uproot themselves and start anew in Germany? Can the French do it? Or vise-versa, can Germans just decide to look for jobs in Greece or Portugal? European financial and market integration can increase prosperity in a particular country or sector, while causing social upheaval in another. Inequality arises because while businesses can take their money and technology anywhere in the common area, their workers cannot follow suit, or counter with similar moves of their own. People cannot mitigate the deflationary effects of capital leaving one region by migrating to another, or mute the harsh consequences of a neighbour country’s continual trade surpluses, by piling on to that country.
While countercyclical fiscal policy can help alleviate these deflationary effects, a lack of mobility will still hamper efficient distribution of the benefits of integration. After all, integration probably wasn't pursued merely to allow one country to capture all its commercial value, while another region ends up perennially on welfare, or on make-work programs. There's probably no true union unless all Europeans consider themselves to be Europeans first, who just chose to live in the region they live in. Without freedom of mobility, they're all probably better off having both fiscal and monetary sovereignty.
5 comments:
Irrespective of differing national macro policies (labour tax, regulations etc.) Europe still differs and is handicapped compared to other large "countries" (e.g. China, America) in that it is trying bring together people with different cultures and especially languages. Capital will head where its risk adjusted return vs labour wages is greater - currently not southern Europe despite the headline bond yields. Assuming Euro remains, it will require wages to fall in the south or everyone to learn German/French...
AA, what you said lays out the futility of the 'increased integration' they are talking of right now. Better to discuss the coordinated breakup of the eurozone rather than getting deeper into an unresolvable mess.
yes! completely agree Rogue. Completely.
Labour mobility is very important, and in fact is one of the main tests for an optimal currency area. Europe scores low in this area, lower than the US for example but the trend is definitely positive. Compared to previous generations, Europeans today travel more and tend to at least have one language that they all speak (usually English), so there really is no absolute barrier for a young worker to emigrate to another country. In addition, despite all the stereotypes you see frequently in the popular press, culturally Europeans have more in common than Americans in the South vs the Northeast or California. If you visit London you will see an example of a city and an economy consisting of people from everywhere in Europe. This is more the result of a truly open economy (the UK has always been more open to foreign workers compared to other European nations) than common language, geographic proximity (obviously) or same currency etc. If the institutions start converging (starting with a eurozone wide Social Security system, a common Treasury, Federal taxation and Federal budget), moving around in Europe will become much easier. Even today, without any of that in place, you see much of the unemployed youth in the South emigrating in droves to the North.
In my view, increased integration and a complete fiscal union is not a futile attempt. But the more the politicians waste time by trying to find half measures instead of actually setting a roadmap for a complete union in place, the more confidence is eroded and with it resentment from the populace, in all corners of the continent.
nice comment, Theta!
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