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The Euro and a European constitution The Euro and a European constitution
by Joseph Gatt
2020-10-28 09:33:42
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The Euro is complex turf. Everyone loves some of it. But many think it was a bad idea. Few are sure why it was a bad idea.

The good idea about the Euro and its launch on January 1st 1999 as a banking currency, and January 1st, 2002 as a paper currency is that:

In an integrated market like the European Union with zero trade barriers and zero tariffs, it's a good idea to have a common currency.

eut001_400The Euro prevented currency manipulation, or threats of currency manipulation within the European Union member states that would favor one state over the other.

That is Germany could no longer threaten to devaluate the Deutsch Mark and Italy could not threaten to devaluate or overvalue the Lira, neither could France play with the Franc or Spain with the Peseta.

The logic behind the Euro and its friends was:

“If the United States have the dollar and have 50 different states all with different laws, constitutions, philosophies and outlooks on life, we can have 27 member states in Europe all with different constitutions and ways of life and share a common currency.”

The difference to counter this argument is that the United States has a Constitution and Federal Courts that can arbitrate trade disputes, economic management and economic laws.

Europe, uhm, not so much.

The US constitution is fairly straightforward when it comes to the economy. There are, let's say, 4 major laws:

-One state can not favor another one (for example, California can not say “we will only import potatoes from Idaho).

-No trusts. The anti-trust law is robust in the US. Companies are not allowed to collude to lower prices. Companies are not allowed to merge in ways that would create monopolies. For example, table manufacturers are allowed to share table-making techniques, but are not allowed to negotiate price floors and price ceilings, or to collude on the price of raw materials or labor and the like.

-No bribes. Americans are not allowed to bribe, domestically or internationally. This is enforced, and bribing is a federal crime. This puts US companies at a disadvantage, because, let's say, if US companies have to compete with French or German companies for construction markets in Wakanda, the French are legally allowed to bribe Wakandan generals and politicians, the Germans can even get tax breaks and tax deductions on their bribes to Wakandan ministers and senators, but Americans are not allowed to bribe, be they from Idaho, Wisconsin or New Mexico.

-The government issues currency. This basically means that if you're Texas, you can not vote a law saying “we will ban the dollar. In Texas, you will pay with Texas Pesos (or Liras or Shekels). This is not allowed.

So these simple laws are what make the United States of American work when it comes to a common currency, albeit with imperfections and technicalities that I will not get into.

Now Europe is a whole different game, which makes the Euro a bit fragile.

In Europe, there is no Constitution, and there are 27 completely different economic models, with different languages, customs, and economic and social traditions.

For example:

-Europe does not have strong laws against trusts. For example, companies in Europe tend to be allowed to collude on things like price fixing or hiring practices or cartels that limit the production of certain products to inflate the price, as in the car industry in some countries.

-The European Union does not have laws that prevent countries from engaging in certain practices, notably when it comes to subsidies.

In the EU there is the “Common Agricultural Policy” that was voted in the early 1990s to prevent countries from subsidizing farmers too much or too little. So farmers obey the same regime all over Europe, and European farmers dislike that, because the cost of living in France is not the same as that of Malta or Slovenia or Poland. So if I sell Slovenian beef or lamb in France, I can sell it cheaper than French-made beef, because life in some farm near Ljubljana is a lot cheaper than life in the French flatlands.

But the EU does not have a common industrial policy, does not have a common welfare policy, does not have a common government spending policy, does not have European taxes, does not even have MoUs on tax policy (actually they exist, but are not enforced at all).

In macro terms, this means France spending a lot more in terms of social welfare than Poland, which technically means that I could be a small town boy from Poland, move to some small French town, rent a subsidized apartment, I would be eligible for lifelong unemployment benefits, and I could spend all day in that apartment drinking beer and watching YouTube videos with the unemployment benefits.

-European countries do not have a MoU on domestic financial policy (they do, but not enforced).

What does this mean?

This means (sorry Thanos) Greece wins the Euro 2004 against all odds (one of the sweetest memories in my young adult life) and then Greece organizes awesome Olympic Games in Athens in 2004 (those were great games). And then Greece wins the Eurovision in 2005 and organizes the Eurovision in 2006 (great success!).

Now the Greeks think they're invincible. They think their business can grow against all odds. They think the Shadow of Hercules lies in Greece.

So you have our wonderful Greek friends take out loans and start risky business ventures, because they think that, just like the Euro in 2004, the odds will play in their favor.

2008 recession hits. Turns out the Euro was like the lottery, you only win once.

Greece was not the only country with those impulses. Spain had the same impulses. So did Portugal, Ireland and Italy.
So when the Greeks had the Drachma they tended to be careful who they loaned their money to. They wouldn't loan Drachmas to someone who would say “we won the Euro and the Eurovision, so my project will work out just as fine.” But now that it was the Euro as a currency, that's like other people's money.
In sum, unlike the US where most people live by the same values of freedom, speak in the same straightforward manner, and study the same history, and look up to the same heroes and landmarks (sort of), you have the EU where every different country has their own different version of history, their own heroes, and their own perceptions of economic reality.
Should the Euro stay? I would say yes, but.
Yes, but, there should be some kind of European constitution. Not Giscard d'Estaing's 100 page constitution. Something a bit simpler, guided by a few economic and legal rules that the Europeans all agree upon.

What would I put in that constitution? I would put freedom and free speech in there (many won't agree with this one, because to many free speech equal Holocaust denial and nothing else). What I mean by free speech is that, in many European countries, libel law are a bit too harsh.

European comedians for example are not really allowed to make fun of their elected public officials the way you are allowed to make fun of elected officials in North America. European comedians are not allowed to make fun of private companies, or even movies or books or products, as that could constitute libel. Much less public actors or singers or anyone really. That makes European comedians kind of boring, because all they can make fun of is vague social topics, or they do imitation and mimic famous people without being too offensive.

I would also consider adding things like anti-trust laws and laws that ban countries from favoring other countries in one way or the other. For example, most European countries offer Spanish, German, French and English as foreign languages, fewer schools offer Italian, but I've never heard of a high school in the EU that offers Maltese or Hungarian or Slovakian or Bulgarian as a foreign language, much less Finnish or Swedish. That's a form of favoritism.

Other forms of favoritism include favoritism in cultural products. In the pre-Brexit days British music was a lot more accessible than Greek music (and it still is). British literature and science are a lot more accessible than Danish or Portuguese literature and science. French and British history and law tend to be studied, but few people know anything about the history of Cyprus or Slovakia.

And of course, in economic terms, French and German industrial products tend to sell a lot better than Eastern European industrial products. I'm not saying that there is overt favoritism, but due to the many factors listed above, it's a lot easier for France and Germany to sell products in Europe than for Cyprus or the Czech Republic.

So much more than could be said. I'd add a European supreme court in the mix to arbitrate complicated cases involving trade disputes or unfair legal practices. But you need a constitution for that. 

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