Fiscal Union Nerd Link of the Day

The consistently very good Derek Thompson, a senior editor at The Atlantic, has weighed in with a timely comparison of the fiscal unions in America and Europe.

Although ‘Merica and much of Europe are currency unions, the underlying fiscal structures are very different. American states balance their budgets; European states do not. If an American state is having a rough go of it, the national government automatically sends money through formula based transfers to the poor and old.

Some states are perpetual “donor” states, and others are chronic net recipients of federal funds. Americans generally put up with this, because at the end of the day we’re all in it together (even Mississippi!); howEVAH, this sentiment scarcely exists in Europe at the moment. The ordinary functioning of the ‘Merican federal government, if superimposed on Europe, would be viewed as a “permanent bailout” of the profligate eurozone periphery, and therefore politically dead on arrival.

But this is what fiscal union is. Europeans want to have their cake and eat it too, they can’t do this, and the gordian knot tightens a little more each day.


The End of European Currency Union is Extremely Fucking Nigh

Your correspondent would like to point you to three interesting links that summarize the current state of affairs in the eurobanking crisis:

1. Sunday’s column by the Financial Times’ Wofgang Münchau (registration required; it’s worth the effort) argues that a disorderly breakup of the euro could begin in as soon as ten days at the December 9 summit meeting of the members of the European Union. Oh noes! At issue is whether Ze Germans will accept (or even can accept, based on their own constitution) enormous implicit fiscal transfers to the profligate spendthrift nations of southern Europe through a “eurobond” mechanism: a bond issued by the European Central Bank, the proceeds of which would secure the ability of troubled national governments to continue rolling over their debts at sustainable interest rates.

[Read more...]


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