Euro Area Member States and non-Euro Member States

searching for the lost cords

How to tie the knots in the cords necessary to make the Euro Area a winning team and get the others to join. My very personal views.

Yesterday I mentioned that unemployment was higher in de Euro member states than in the non-member ones and that this was remarkable.

Why remarkable? Well, the euro area member states were the ones that met the requirements for entering the euro area, the 3 and 60% rules and the others had not achieved that yet. So you would expect them to be below the achievement euro area member states. But they are not as far as unemployment is concerned.

The following table shows the data of those non-euro member states and of the prospective candidate members (forgive the spelling error in the  table).

  

Mind that the GDP and debt figures in this table are in millions of euros (converted to euros from the national currencies), whereas in the euro members table they are in British billions (equivalent to EU miljard).

From Bulgaria to the UK they form the group of non-euro member states, Albania to Turkey are possible future member states.

It is apparent that the public debt of the non-euro members is far lower than those of the euro members in yesterday's table.

Three states have a deficit  distinctly higher that 3% and only two a public debt higher that 60%. One of them, the UK, both.

Also as regards unemployment do they score better that the euro area members.

In fact five of them meet the euro area requirements.

But as I said, there is no great desire to join the euro area.

Not inexplicable comparing the two tables.

Yesterday I wrote that only structural money transfers could level the financial situation of the Euro area.

That is true, of course, but first of all it does not solve the underlying problem,  the economic weakness of the southern member states which is principally due to their lower economic potential.

It is supposed by the Euro Area management (mind you, not government) that reforms of labour laws and streamlining of bureaucracy and cuts in government expenditure would diminish and finally  put an end to the differences. Lowering wages would enhance competitiveness and so promote export. Liquidity problems could be met by loans, bail-outs, and further cuts in expenditure.

Fifteen years of Euro area have shown that this approach does not work and that even stronger economies ended in deep water. See yesterday's table for confirmation.

But there is another fundamental reason why these structural financial transfers would not work. In the Euro Area there are nineteen different sets of labour laws, tax laws, pension laws. In order to make these financial transfers reasonable all these law systems would have to be homogenized in order to prevent inequalities. Take e.g. the different retiring ages and pension schemes.

That would mean a political union of part of the European Union. Unacceptable.

It has been proposed to create a separate Euro Area parliament with a Euro area finance minister. But that would not solve the differences in legislation and consequent unequal treatment.

And that gave rise to the objection that weaker countries would refrain from essential reforms because the money would be there anyway. And it is true that a number of Euro member states have shown a persistent avoidance of reforms.

In fact,  today the German president of the German Central Bank has again rejected such a scheme as perhaps possible in the far future.

And the stronger northern countries are unwilling to give the weaker brothers a blank cheque though Brussels would like that.

So that leaves the Euro area between the Scylla and the Charybdis or if you wish  between the devil and the deep blue sea.

Only stop gaps are possible.

  

That is the way I see it.