Monday, November 9, 2015

9/11/15: Lessons from German reunification for a European Fiscal Union: Sinn


CESIfo's Hans-Werner Sinn has just torn a massive hole in the parasail of European 'federalistas' of French 'harmonise-everything' variety. His summarised view is presented here: http://www.voxeu.org/article/german-reunification-lessons-european-fiscal-union. A longer version is published by CESIfo on November 9th.

Key point in both is that "The fiscal union demanded by Hollande now is an understandable attempt to compensate for the lack of competitiveness of the southern EU countries by resorting to international transfers, but these transfers would cement their lack of competitiveness and drive Europe into permanent stagnation. The travails of German reunification should be a warning against pursuing this course."

In other words, East German experience, per Sinn, suggests that fiscal (tax and transfers) union even with debt mutualisation (aka replacing national debts with federal debt) is not a road to achieving economic convergence across the EU Member States, but a road to human capital and investment transfers from uncompetitive 'South' to competitive 'North'. In effect, dressed up as a social ills salvation, it bears a prospect of sealing tight existent competitive differentials and making 'South' a permanent dependency sub-Union.

Pretty darn tough stance.

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