Fairly starkly put

Andrew Bosomworth, head of Pimco\’s portfolio management in Europe, said current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro.

\”Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments,\” he told German newspaper Die Welt.

Those really are the only two choices available.

Either the richer countries have to pour money in, in the same way that the richer parts of the UK or US have to pour money into the poorer parts, or different currencies are needed.

And this is nothing, nothing at all, to do with Keynesian or neo-liberal solutions to anything at all. With left or right.

There is one more thing though. How much will those richer areas have to pour in? I know I\’ve asked this before but I haven\’t been given a good answer.

It obviously has to be more than 1 or 2% of GDP: for those are the sorts of amounts that the EU budget already shifts around and we\’re all clear that that isn\’t enough.

So it will have to be more than that. 5% of GDP maybe? 10% of GDP?

But here\’s the real crunch point. Given the generally high tax regime in those richer areas of the eurozone already, is there actually room to lift another 5 or 10% of GDP in taxation? Don\’t forget, this won\’t be a transfer within that domestic economy, it\’d be a transfer out of it.

Is there room to tax 5% of GDP in, say, Sweden?


I am told by my man in the know that the numbers are:

Bigger than Versailles as a share of German GDP. Perhaps 4pc, or 100bn euros a year from Germany alone. About 160bn for the teutonic bloc, forever.

Is this economically viable? Raising another 4% of GDP in taxation in the rich countries without entirely screwing over economic growth?

And if not, what should be cut from what government currently does to pay for it?

And finally, does anyone at all think this is politically viable?

9 thoughts on “Fairly starkly put”

  1. Versailles – it has been argued – more or less caused WW2 by bankrupting Germany, giving rise to nationalist anger etc etc.

    So in short, we are suggesting that in order to keep Europe together which is necessary to prevent Germany going to war again, we are going to have to do the very thing that has in the past caused Germany to go to war.

    Aha. Ha ha. HA HAHA HA HA HA HA HA HA!!!

    It is to laugh if it weren’t so serious.

  2. “Is there room to tax 5% of GDP in, say, Sweden?”

    No, but since Sweden is not in the euro, it’s not relevant.

  3. “current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro.”

    I don’t think so.

    The colleagues view will be “current policies are untenable in the absence of fiscal union and will lead to fiscal union”.

    That is the aim and intent. Based on their track record, I am not betting against.

    Nor am I betting against call-me-Dave finding a way to drag us into said union.

  4. “Ever closer union” and “never let a good crises go to waste”, a perfect storm.

    Those Eurocrats must be creaming themselves at the thought of getting fiscal union years ahead of their wildest dreams.

  5. The Euro was always a political project to promote European integration, so economic concerns were ignored if they did not advance the political goal. A fiscal union would be constructed on the same basis. It would be intended to get as many countries in as possible and to lock them in forever. Those political goals would take precedence over the practical economic questions of how it was actually going to work.

    So how stable would a fiscal union actually be? Would the structure and institutions be so compromised by the political requirements that it would only lead to a new and different crisis in a few years time?

  6. There’s nothing in OCA theory to suggest rich countries need to subsidise poor countries. A similar argument would be saying insurance schemes work by rich people transferring money to poor people.

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