OK so we all know that for the euro to survive into the long term it\’s goiing to have to have fiscal transfers.
No, not just a bit here and there for farming or motorways, as the current roughly 1% of GDP EU budget privides.
But serious sums, the sort of transfers that we have from London and the SE to the NE within the UK. I don\’t know what those are as a %ge of GDP, but I do assume that they\’re quite large: 5% mebbe? 10%?
And these sums are going to have to be raised from the rich countries and sent off to the poor.
No, this isn\’t just a one off, to pay for the current debts or anything. This is a permanent system of income redistribution: that\’s what we do mean by the fiscal policy that will allow the euro to survive.
Maybe my numbers are a bit too high. But we are certainly talking about something larger than 1% of GDP: for that\’s what the EU already spends and it isn\’t enough. I think it\’ll need to be higher than the German solidairty tax for example: that\’s 5.5% on the income tax rate.
But here\’s the thing. Is such additional taxation even possible? Certainly, in a political sense it\’ll be difficult to get people willingly paying more tax for what they see as the idle scroungers of the South. But more than that, is it even possible to squeeze a few more percentage points of GDP out of people? Can, say, the already high tax economies of Denmark or Sweden cough up another 3/4/5 % of GDP to pay for the poorer countries?
I don\’t really know the answers to any of this: would like a little bit of help actually.
1) How much of this fiscal transfer stuff would we need for the euro to continue to work?
2) Is it actually possible to increase taxation by that much?
3) If not, what will people be willing to give up that government already provides them with in order to pay for this fiscal transferring stuff?
As 3) is an empty set, it really all depends upon the answer to 1).
As an example, the non-defence part of the US Federal budget is about 12% of GDP. That might be the number that is necessary.
Anyone really think we can get another 12% of GDP out of what are already high tax social democracies?
It\’s not going to work, is it?