The European debt crisis is inspiring public radio to literary analysis. Last week NPR’s Planet Money put the French-German relationship into a “threepenny opera”:

All

Everyone is counting on you
You’ve got the money
We’ve got the debt (Oh yes, we’ve got a lot of debt!)
And do we need a bailout—you bet

Germany

Zat’s it, I’ve had enough
Looks like it’s time now for me to leave…

France

Oh?

Germany

Vhy is ze door locked? You must let me out.

France

Dear when the times are tough
It’s better to give zan to receive

Then Monday Marketplace Radio turned to classics professor Emily Allen Hornblower and economist Bill Lastrapes to discuss Greek debt as classical tragedy—Oedipus? The ant and the grasshopper?

Loyal Cato readers will recognize Bill Lastrapes as the coauthor of the much-discussed Cato Working Paper “Has the Fed Been a Failure?”

And then, if you prefer prose and sober analysis to literary analogies, let me recommend Holman Jenkins’s perceptive column on why Europe hasn’t solved its crisis yet, which unfortunately appeared in the less-read Saturday edition of the Wall Street Journal. (OK, not less read than Cato-at-Liberty, but probably less read than the weekday Journal.)

Neither leader has an incentive to sacrifice what have become vital and divergent interests to produce a credible bailout plan for Europe. To simplify, German voters don’t want to bail out French banks, and the French government can’t afford to bail out French banks, when and if the long-awaited Greek default is allowed to happen….

There is another savior in the wings, of course, the European Central Bank. But the ECB has no incentive to betray in advance its willingness to get France and Germany off the hook by printing money to keep Europe’s heavily indebted governments afloat. Yet all know this is the outcome politicians are stalling for. This is the outcome markets are relying on, and why they haven’t crashed.

All are waiting for some market ruction hairy enough that the central bank will cast aside every political and legal restraint in order to save the euro….

And then the crisis will be over? Not by a long shot.

All these “solvent” countries and their banks will be dependent on the ECB to keep them “solvent,” a reality that can only lead to entrenched inflation across the European economy. That is, unless these governments undertake heroic reforms quickly to restore themselves to the good graces of the global bond market so they can stand up again without the ECB’s visible help.

It’s just conceivable that this might happen—that countries on the ECB life-support might put their nose to the grindstone to make good on their debts, held by ECB and others. Or they might just resume the game of chicken with German taxpayers, albeit in a new form, implicitly demanding that Germany bail out the ECB before the bank is forced thoroughly to debauch the continent’s common currency, the euro.

The Euro Crisis in Prose and Poetry is a post from Cato @ Liberty - Cato Institute Blog

The arrest of Ratko Mladic is a welcome development that should remove the last major obstacle to closer relations between Serbia and the United States and the EU nations.  For too long, the Western powers have placed an excessive emphasis on his apprehension as a condition (explicit or implicit) for Serbia’s full inclusion in the Western community.

If the objections now continue, Serbs will understandably conclude that the Mladic issue was little more than a convenient excuse that Western governments used to justify a less-than-friendly policy toward Belgrade.  An expected improvement in relations now that Mladic has been apprehended is especially pertinent with respect to Serbia’s path toward membership in the European Union.

The arrest will have little substantive impact on prospects for reconciliation in Bosnia-Herzegovina or anywhere else in the former Yugoslavia, however.  The trend in Bosnia over the past year or so is toward renewed tensions rather than reconciliation, and that trend is being driven by factors that have little to do with the Mladic issue.

Ratko Mladic Arrested is a post from Cato @ Liberty - Cato Institute Blog

Paul Starobin at the National Journal‘s Security Experts Blog has kicked off a spirited debate surrounding Europe’s military capabilities (or lack thereof). The jumping off point in the discussion is Robert Gates’s speech to NATO officers last month, in which Gates lamented that:

“The demilitarization of Europe — where large swaths of the general public and political class are averse to military force and the risks that go with it — has gone from a blessing in the 20th century to an impediment to achieving real security and lasting peace in the 21st.” [Justin Logan blogged about this here.]

Starobin asks: “Can America Count On Europe Anymore?”

Is Gates right? What exactly does “the demilitarization of Europe” mean for U.S. national security interests? Should Americans care if Europe has to live in the shadow of a militarily superior post-Soviet Russia? Is NATO, alas, a lost cause?

[...]

In short, should the U.S. be planning for a post-Europe world? Does Europe still matter? Can we count on Europe any more?

My response:

It would be unwise for Americans to write off Europeans as a lost cause, congenitally dependent upon U.S. military power, and unable to contribute either to their own defense or to policing the global commons. We can’t count on Europe — right now — but that doesn’t mean we can never count on Europe in the future.

Americans who complain about Europe’s unwillingness to play a larger role in policing the globe, and who would like them to do more, should start by exploring the many reasons why Europe is so weak militarily.

Consider, for example, Europe’s half-hearted and inconsistent steps to establish a security capacity independent of NATO — and therefore independent of the United States — since the end of the Cold War. Such proposals have failed for many reasons, but we shouldn’t ignore the extent to which Uncle Sam has actively discouraged Europe from playing a more active role. Most recently, Hillary Clinton expressed the U.S. government’s position that political and economic integration would proceed under the EU, but security would continue to be provided by NATO. This echoes similar comments made by the first Bush and Clinton administrations with respect to European defense. (See, for example, Madeleine Albright’s comments regarding European Defence and Security Policy (EDSP) in 1998).

We can dismiss such comments as useful cover for Europeans who were looking for an excuse to cut military spending in the first place. The demographic pressures of an aging population consuming a larger share of public resources are being felt in many advanced economies, but are particularly acute in Europe.

But the problem goes well beyond the fiscal pressures associated with maintaining an adequate defense. Washington has been openly hostile to any resurgence of military power in European, no matter how unlikely that might be, on the basis of what political scientists call hegemonic stability theory. That theory holds that it is better for security to be provided by a single global power than by regional players dealing chiefly with security challenges in their respective neighborhoods. The argument is that such self-sufficiency is dangerous, that it can lead to arms races, regional instability, and even wars. One can think this a smart philosophy or a dumb one, but we can’t ignore that it has guided U.S. foreign policy at least since the end of the Cold War.

It could be argued that the costs to the United States of providing such services for the rest of the world are modest, but that is ultimately a judgment call. To be sure, the dollar costs will not bankrupt us as a nation, but Americans spend $2,700 per person on our military, while the average European spends less than $700. The bottom line is that Europeans have little incentive to spend more because they don’t feel particularly threatened, and they aren’t anxious to take on responsibilities that are ably handled by the United States. The advocates of hegemonic stability theory would declare that a feature, not a bug. Mission accomplished.

And that might be true, if the greatest threat to global security were a resurgence of conflict in Europe, and if it is truly in the U.S. interest to forever have allies with few capabilities and many liabilities. But that seems extremely shortsighted. The sweeping political and economic integration in Europe has dramatically reduced the likelihood of another European war. In the meantime, the fact that we have many allies with little to offer by way of military assets, and even less political will to actually use them, is forcing the U.S. military to bear the disproportionate share of the burdens of policing the planet. And in the medium- to long-term, while I doubt that we will be facing “a militarily superior, post-Soviet Russia,” allies with usable military power might ultimately serve a purpose if Moscow proves as aggressive (and capable) as the hawks claim.

In short, Secretary Gates’s comments last month suggest that he has stumbled upon the realization that being the world’s sole superpower has its disadvantages. This by itself would be a significant shift of U.S. policy, and therefore drew favorable comments by others who welcome such a change. (See, for example, Logan, Steve Walt, and Sean Kay.)

Getting Europeans to take a more active role — even in their own backyard — will be difficult, but not impossible. It starts with blunt talk about the need to take responsibility and to assume a fair share of the burdens of policing the global commons. But we’ve heard such comments before. What is also needed is greater restraint by Washington, behavior that over time will force the Europeans to play a more active role.

Is Europe Irrelevant? is a post from Cato @ Liberty - Cato Institute Blog

The Senate Homeland Security and Government Affairs Committee is holding hearings today focused on Senator Kent Conrad (D-ND) and Judd Gregg’s (R-NH) idea to set up a special Task Force to draft a deficit-reduction plan. The plan would get fast-tracked through Congress for a vote and “everything would be on the table.”

For taxpayers, this idea creates the threat of large tax increases on top of all the other tax increases being discussed in Congress. While the senators supporting a Task Force express valid concerns about the government’s exploding debt, the plan could launch a drive to impose a European-style value-added tax in America.

In theory, such a Task Force could come up with some meaty and long-overdue cuts to the federal budget. But nine of the senators co-sponsoring the Conrad-Gregg Task Force, including Conrad, voted in favor of the massive spending bill passed by the Senate on Sunday, which increased appropriations by 10 percent in a single year.

In calling for deficit reduction, Senator Conrad says that “it is no longer enough for Congress to simply talk about reform; it is time for action and leadership.” But Senator Conrad certainly hasn’t shown reform leadership on farm subsidies. So until he and his colleagues start restraining their own spending appetites, it’s safe to assume that ”everything on the table” really just means a sneaky, under-the-table tax increase.

Tax Hike Commission is a post from Cato @ Liberty - Cato Institute Blog

Bastien François, a professor of political science at the Sorbonne, writes that “The French political system is incomprehensible to the rest of the world… In France we call it a republican monarchy. That phrase says it all.”

Indeed, according to the press, a £250,000 ($413,000) shower with air conditioning and radio surround sound that was “built to the exact specifications of the French President Nicolas Sarkozy” was paid for by the EU taxpayer during the French Presidency of the European Union in July 2008.

 It was “disposed of soon afterwards, unused, together with most of the equipment bought for the £16million ($26 million) conference.” The press also reported “other expenses included £1million ($1.65 million) spent on the opening dinner alone – more than £23,000 ($38,000) for each of the 43 heads of state.”

It Is Good to Be the King: Taxpayers Pay $413,000 for French President’s Unused Luxury Shower is a post from Cato @ Liberty - Cato Institute Blog

Based on five criteria, James Pethokoukis of Reuters connects the dots and warns that President Obama is going to propose a value-added tax.

Does President Obama have a secret plan to raise taxes on middle-class Americans — and,well, pretty much everybody else — with a European-style, value-added tax? Actually, it’s not such a big secret. …Obama’s campaign promise to not raise taxes on households making less than $250,000 a year was always considered a joke here inside the Beltway. …Maybe it was a joke inside the campaign, too. Since being elected, Obama has raised cigarette taxes and has advocated raising healthcare taxes, energy and small business taxes, in addition to corporate taxes. What’s more, economic advisers like Larry Summers seem eager to get rid of all the Bush tax cuts, not just those on so-called wealthy Americans. And it’s also no secret that economists love the idea of a VAT. It promotes savings over consumption, and its hidden nature may mean it has less behavioral impact on taxpayers. …Liberals love the idea of a VAT because it’s, well, so European — also because it does raise tons of revenue to expand government. And that is what Obama wants: more revenue to pay for bigger government. Is a VAT better than the soak-the-rich approach favored by Democrats such as Nancy Pelosi and Charlie Rangel? Sure. Of course, the concern is that a VAT would be in addition to new soak-the-rich taxes.

While the timing is unclear, his prediction is correct. The politicians in Washington want much bigger government, but they know that it will be difficult to achieve that goal without a big new source of revenue. The VAT would be perfect from their perspective. It is a form of national sales tax, but would be hidden in the price of products and therefore easy to increase. Moreover, every time they increase the VAT, they would use that as an excuse to raise income tax rates for “distributional fairness.” It is no exaggeration to say that the VAT is the biggest fiscal threat to the cause of limited government.

One final point about the column. Economists don’t love the VAT, per se, but they do view it as being less destructive – per dollar raised – than the income tax. But less destructive is still destructive. And since the VAT would be in addition to the taxes we have now (and actually create the conditions for higher income tax rates), its enactment would create a lose-lose situation for taxpayers.

The VAT Debate: Should Politicians in Washington Get a Huge New Source of Tax Revenue as a Reward for Overspending? is a post from Cato @ Liberty - Cato Institute Blog

The burden of government spending has skyrocketed during the Bush-Obama years. Many politicians claim that all this new spending represents necessary “investments” to boost economic growth. But as this new video explains, both cross-country comparisons and empirical analysis suggest government is far too big — not only in Europe, but also in America.

This is the second of a two-part series. The first installment, which focuses on eight theoretical reasons why excessive government undermines growth, can be viewed here.

New Video Reviews Evidence against Big Government is a post from Cato @ Liberty - Cato Institute Blog

New York Times columnist Nicholas Kristof cites the Cato report about Decriminalization of Drugs in Portugal by Glenn Greenwald.  Here’s an excerpt:

Above all, it’s time for a rethink of our drug policy. The point is not to surrender to narcotics, but to learn from our approach to both tobacco and alcohol. Over time, we have developed public health strategies that have been quite successful in reducing the harm from smoking and drinking.

If we want to try a public health approach to drugs, we could learn from Portugal. In 2001, it decriminalized the possession of all drugs for personal use. Ordinary drug users can still be required to participate in a treatment program, but they are no longer dispatched to jail.

“Decriminalization has had no adverse effect on drug usage rates in Portugal,” notes a report this year from the Cato Institute. It notes that drug use appears to be lower in Portugal than in most other European countries, and that Portuguese public opinion is strongly behind this approach.

A new United Nations study, World Drug Report 2009, commends the Portuguese experiment and urges countries to continue to pursue traffickers while largely avoiding imprisoning users. Instead, it suggests that users, particularly addicts, should get treatment.

Senator Webb has introduced legislation that would create a national commission to investigate criminal justice issues — for such a commission may be the best way to depoliticize the issue and give feckless politicians the cover they need to institute changes.

Good stuff.  Read the whole thing.

Kristof on the Drug War is a post from Cato @ Liberty - Cato Institute Blog

Following the dubious example set recently by U.S. legislators, French politicians have informally proposed slapping punitive tariffs on goods from countries who refuse to curb greenhouse gas emissions. The German State Secretary for the Environment has, quite rightly, called foul:

There are two problems — the WTO (World Trade Organization), and the signal would be that this is a new form of eco-imperialism,” Machnig said.

 ”We are closing our markets for their products, and I don’t think this is a very helpful signal for the international negotiations.”

I have a paper forthcoming on the carbon tariff issue, but in the meantime here’s a recent op-ed (written jointly with Pat Michaels) on climate change policy mis-steps.

French Folly is a post from Cato @ Liberty - Cato Institute Blog

Europe has come into a lot of criticism lately.  Much of it is justified.  For instance, cutting military forces while expecting the U.S. to maintain security guarantees is more than little irritating for Americans facing trillions of dollars in deficits and tens of trillions of dollars in unfunded liabilities for various bail-outs and social programs.

However, predictions of a radical Islamic takeover of Europe look  less realistic these days.   Forecasting the future is always risky.  Nevertheless, the feared growing population of Islamic extremists hasn’t appeared.  Reports the Guardian:

A district of derelict warehouses, red-brick terraces, and vibrant street life on the canals near the centre of Brussels, Molenbeek was once known as Belgium’s “Little Manchester”. These days it is better known as “Little Morocco” since the population is overwhelmingly Muslim and of North African origin.

By day, the scene is one of children kicking balls on busy streets, of very fast, very small cars with very large sound systems. By night, the cafes and tea houses are no strangers to drug-dealers and mafia from the Maghreb.

For the politically active extreme right, and the anti-Islamic bloggers, Molenbeek is the nightmare shape of things to come: an incubator of tension and terrorism in Europe’s capital, part of a wave of “Islamisation” supposedly sweeping Europe, from the great North Sea cities of Amsterdam and Rotterdam to Marseille and the Mediterranean.

The dire predictions of religious and identity-based mayhem reached their peak between 2004 and 2006, when bombs exploded in Madrid and London, a controversial film director was shot and stabbed to death in Amsterdam, and angry demonstrators marched against publication of satirical cartoons about the Prophet Muhammad.

For Bruce Bawer, author of While Europe Slept, the continent’s future was to “tamely resign itself to a gradual transition to absolute sharia law”. By the end of the century, warned Bernard Lewis, the famous American historian of Islam, “Europe will be Islamic”. The Daily Telegraph asked: “Is France on the way to becoming an Islamic state?” The Daily Mail described the riots that shook the nation in the autumn of 2005 as a “Muslim intifada”.

Yet a few years on, though a steady drumbeat of apocalyptic forecasts continues, such fears are beginning to look misplaced. The warnings focus on three elements: the terrorist threat posed by radical Muslim European populations; a cultural “invasion” due to a failure of integration; and demographic “swamping” by Muslim communities with high fertility rates.

A new poll by Gallup, one of the most comprehensive to date, shows that the feared mass radicalisation of the EU’s 20-odd million Muslims has not taken place. Asked if violent attacks on civilians could be justified, 82% of French Muslims and 91% of German Muslims said no. The number who said violence could be used in a “noble cause” was broadly in line with the general population. Crucially, responses were not determined by religious practice – with no difference between devout worshippers and those for whom “religion [was] not important”.

“The numbers have been pretty steady over a number of years,” said Gallup’s Magali Rheault. “It is important to separate the mainstream views from the actions of the fringe groups, who often receive disproportionate attention. Mainstream Muslims do not appear to exhibit extremist behaviour.”

Obviously, the future is uncertain.  Terrorism will remain a threat to both America and Europe.  However, we must reduce the number of those hostile to the the U.S. and allied countries as well as stop those already determined to do us ill.  So far, thankfully, the news from Europe in this regard appears to be good.

Maybe Europe Isn’t Lost to Islamic Terrorism is a post from Cato @ Liberty - Cato Institute Blog

Daniel Hannan, the British Member of the European Parliament who gained fame with his devastating critique of Gordan Brown, has been equally trenchant in criticizing the excesses of the European Union.  On his blog he explains the latest self-serving intricacies of voting in the upcoming election for the European Parliament:

How many MEPs will be elected a week on Thursday? Wait! Come back! I’m going somewhere with this! I realise the issue might not sound intrinsically sexy but, believe me, it demonstrates everything that’s wrong with the Brussels system. Bear with me and you will see how flagrant is the EU’s contempt for the ballot box — and for its own rule book.

Had the European Constitution Lisbon Treaty been ratified, there would have been 754 MEPs in the next Parliament. But under the existing scheme — that provided for by the Nice Treaty — there are meant to be 736. Three countries have rejected the European Constitution in referendums, and it is not legally in force. So how many MEPs will be elected a week on Thursday?

You don’t need me to tell you, do you? The EU’s primary purpose is to look after its own. Eighteen unconstitutional or “phantom” Euro-MPs will be elected anyway (hat-tip, Bruno), and will draw their full salaries and allowances. The only concession to the letter of law is that they won’t be allowed to vote. In other words — in an almost perfect metaphor for the entire Euro-system — they will be paid without having any function. (Incidentally, a couple of BNP trolls keep posting here to asking when I’m going to publish my expenses. I did so ages ago — see here — and all Conservative MEPs have done the same: our Right to Know forms are available online here.)

The number of Euro-MPs in the chamber might seem a recondite issue, but it goes to the heart of how the EU behaves. Other, more important, parts of the European Constitution have also been implemented, without the tedious process of formal ratification: a European foreign policy, the harmonisation of justice and home affairs, justiciability for the Charter of Fundamental Rights.  These things would have been regularised by the European Constitution, but have been enacted despite its rejection.

It’s almost as good as unconstitutionally giving Washington, D.C. a congressman!

In fact, the attempt to consolidate continental government without giving the European people much say over the political system they live under is even more bizarre than electing MEPs who might never be able to vote.  If implemented, the Lisbon Treaty will reduce the ability of the European people to hold their government accountable, but that’s just the point to the Eurocratic elite actively pushing further centralization of power.  About the only barriers left to the implementation of the Lisbon Treaty are the Irish people and Czech President Vaclav Klaus, as I detail in a recent article on American Spectator online.

You’ve Just Got to Love the Way the European Union Operates is a post from Cato @ Liberty - Cato Institute Blog

World governments should be careful not to play politics with the Mexican swine flu outbreak. The health consequences should of course be rigorously addressed—but without adding economic consequences, which is what several countries appear poised to do.

Public health scares have a history of seeping into trade policy without anything resembling sufficient consideration of the evidence. Governments in Russia and East Asia are already banning pork exports from Mexico, even though there is zero evidence that they pose a health hazard. It hearkens back to unfounded bans of U.S. beef in recent years by the European Union and South Korea.

If the U.S. government jumps on board, U.S. exports could be targeted for retaliatory trade actions. One quarter of U.S. pork production is exported, as well as billions of dollars of our soybeans used as feed by foreign hog farmers.

Exploiting this crisis could turn what is so far a manageable health problem into an unnecessary trade and diplomatic conflict. Obviously the global economy does not need the extra strain.

The Global Economy Is Not Immune to Swine Flu is a post from Cato @ Liberty - Cato Institute Blog

President Barack Obama, like President George W. Bush before him, has gone hat-in-hand to the Europeans to request (beg?) for more troops for Afghanistan.  Alas, the European governments gave him the back of their collective hand:  they may like President Obama more than his predecessor, but that doesn’t mean they, or their peoples, want to do any more in Afghanistan.

But then, it’s not clear that getting more European troops would help much.  Reports the (Australia) Herald Sun:

When asked by the Britons to attack Afghan rebels, the commander of a [Czech] special operations unit (SOG) said “we’re not going to, it’s dangerous,” then ordered his men to get in trucks and return to the base.

On another occasion, an SOG commander decided that the task the Britons had set ran counter to the unit’s mission.

Yet another time, a commander said he could not help as his soldiers were on vacation.

“I find it hard to recover from the news I get about this unit. It harms the reputation of the army,” Czech Defence Minister Vlasta Parkanova told the daily.

Some help.

Obviously, some European troops, including Czechs, fight hard and well.  But most of the countries deploy their forces to ensure that they don’t have to fight.  NATO provides precious few benefits for America in Europe or elsewhere.  After 60 years, the U.S. should leave NATO to the Europeans.

The Problem with the EU in Afghanistan is a post from Cato @ Liberty - Cato Institute Blog

Too many people in Washington look out upon the beauty and bounty of America and see a vast wasteland, enlivened only by government programs. If government isn’t doing it, they think, then it isn’t being done. When the Republicans threatened to nick the budget of the National Endowment for the Arts, First Lady Hillary Rodham Clinton wailed that the proposal “not only threatens irrevocable damage to our cultural institutions but also to our sense of ourselves and what we stand for as a people.” Seriously, she thought that if the then-$167 million of the NEA were eliminated, the $37 billion that Americans spent on the arts that year would somehow disappear in a puff of smoke?

Sen. Edward M. Kennedy was even more sweeping when he said  in 1992, “The ballot box is the place where all change begins in America” — conveniently forgetting the market process that has brought us such changes as the train, the skyscraper, the automobile, the personal computer, and charitable or self-help endeavors from settlement houses to Alcoholics Anonymous to Comic Relief.

And today the Washington Post weighs in with the chart below. It’s titled “Percent of GDP spent on social/family expenditures,” and it shows the United States at a shockingly low 0.7 percent, while Obama-esque countries like Sweden and France are above 3 percent. But could it really be true that America spends less than 1 percent of its wealth on families and children? Of course not. The proper title for the chart would be “Percent of GDP spent by government on social/family expenditures.” (Indeed, given the federal nature of the United States, it’s possible that the proper title would be “Percent of GDP spent by the central government on social/family expenditures.”) Every American family spends a large portion of its income on children’s needs, and a larger portion on the needs of children and parents.

The point of the article, as the caption above the chart indicates, is to argue that the Japanese government needs to spend more on programs that would encourage women to join the paid workforce. (If the government hired all the mothers in Japan and paid them to care for their neighbors’ children, would that be a better world? It certainly would raise Japan’s position on the Post’s chart!) If that’s what Post reporters believe, they’re certainly free to advocate that position. But they shouldn’t assume or imply that the government is the entire society. Families in Japan and the United States spend most of their income — or at least most of their after-tax income — on child and family needs. The chart ignores that reality and seeks to make Japanese and Americans embarrassed that government taxes and spends less in their countries than in the European welfare states.

Washington’s Government-Centric View of the World is a post from Cato @ Liberty - Cato Institute Blog

It is unclear whether European Union agriculture policy is more absurd or less absurd than American agriculture policy. Both systems reward special interests. Both systems distort markets. Both systems deprive people in the developing world. Both systems are bad news for taxpayers. The real issue is whether it is possible to reverse these terrible policies. Maybe a bit of satire will do the trick. Our friends at the Taxpayers Alliance in England have put together a video which uses humor to explain the absurdity of Europe’s so-called common agricultural policy.

After watching this video, I’m feeling a bit envious. My mini-documentaries on economic issues (see examples here, here, and here) have received some good feedback, but perhaps we could change more minds in America by using mockery instead of wonkery.

Amusing, but Tragically Accurate, Video on Ag Subsidies from the U.K.’s Taxpayers Alliance is a post from Cato @ Liberty - Cato Institute Blog

The G-20 Summit in London on April 2 will feature politicians from around the world jockeying to promote bad ideas. Thankfully, there is a silver lining to this dark cloud since the United States and Europe do not agree on which bad idea deserves the most prominence. As the Wall Street Journal explains, the United States wants more nations to squander money of Keynesian-style schemes (see here to understand why bigger government is not stimulus). The Europeans, meanwhile, want to persecute tax havens and give the Keystone Cops at the IMF more money:

The U.S. will press world leaders to boost emergency government spending to lift the global economy, risking a rift with European nations more concerned with revamping financial regulation. In President Barack Obama’s first foray into economic diplomacy, Washington will urge the shift at a summit next month in London, U.S. officials say, as markets look for a unified plan of action from the world’s most economically powerful nations. Washington’s focus is at odds with France, Germany and other European nations that want the Group of 20 summit on April 2 to focus on rewriting rules governing financial markets. … U.S. officials, who could receive support from China and other countries with big stimulus programs, contend additional government spending is needed to reduce the depth and length of the downturn. Britain also may have an easier time seeing eye-to-eye with the U.S. than other European countries because both London and Washington are concerned that tighter financial regulation could harm their financial centers. Administration officials also say the G-20 isn’t ready to put new regulations in place, so focusing in that area would be counterproductive. … Even if the U.S. gets its way, the G-20 won’t ignore financial regulation. The G-20 has approved the concept of regulating the world’s largest financial institutions through international “colleges” of regulators.

The International Herald Tribune has more details on the misguided European proposals. At no point, though, is there any explanation of why the global economy would benefit from a bigger and more powerful IMF. The IMF certainly did not correctly predict the current financial turmoil. Nor has the IMF either correctly identified the government policy mistakes that caused the crisis or proposed policies that would help resuscitate the global economy. So why reward the bureaucrats with more money and power? The attack against tax havens is even more dubious. Desperate politicians like Gordon Brown are seeking scapegoats to distract voters, but it is unclear why tax havens should be blamed for asset bubbles caused by weak monetary policy and housing subsidies in “onshore” nations:

European finance ministers intend to push for a doubling of resources for the International Monetary fund to $500 billion, and to back the use of sweeping new sanctions against tax havens, according to a draft document. Confronted by a deepening global economic crisis, the top financial officials in the 27 European Union member countries are expected to agree in principle Tuesday to provide additional temporary funding for the IMF if necessary, and to support significant tightening of financial regulation. At a meeting in Brussels, the EU finance ministers are due to endorse a draft document, already approved by senior officials from national capitals, that will align the positions of European governments before the meeting of the heads of the Group of 20 developing and emerging economies in London next month. “It is essential,” the document says, “that the IMF has the appropriate financial means to assist countries particularly affected by the current crisis. EU member states support a doubling of IMF resources and are ready to contribute to a temporary increase if needed.” … The draft document…calls for the definition of a set of criteria by which to judge those that do not comply with international standards. “A tool box of sanctions” would be used to deal with such tax havens, the draft adds. These would include “the capacity to prohibit sales of financial products generated in these jurisdictions and the capacity to restrict companies’ operations into and from these jurisdictions.”

Gridlock generally is a good thing in Washington. If Republicans and Democrats are fighting, it slows the pace of legislation – which almost always protects liberty and prosperity. On the international level, where politicians scheme to set up cartels for the benefit of governments, gridlock is even more desirable.

The Joys of Global Gridlock is a post from Cato @ Liberty - Cato Institute Blog

The Birmingham Star reports on how Switzerland, Austria, and Luxembourg are defending their human rights policies of protecting financial privacy:

Switzerland, Luxembourg and Austria are fighting attempts to put them on blacklist for being tax havens and over-secretive in banking rules. Luxembourg officials hosted discussions with the Swiss and Austrian finance ministers over the weekend, resulting in a demand for involvement in talks on the issue prior to the G20 summit next month. Luxembourg treasury officials said the small European group wanted to be involved in the debates about bank secrecy which were currently being discussed in meetings to which they did not belong, such as the G20.

Equally important, the Czech Republic is standing up for the sovereign right of jurisdictions to have strong human rights laws. The Finance Minister correctly explains that Switzerland’s laws should not be sacrificed on the altar of bigger government. The EU Business reports:

Czech Foreign Minister Karel Schwarzenberg defended Switzerland on Sunday against threats by EU member states to put it on a tax haven blacklist, saying sovereignty is “worth more” than lost taxes. “Certainly tax coffers here and there miss out on a couple of million euros… The independence of a country and the traditions of an independent, neutral Switzerland is however worth more than that,” Schwarzenberg said. “Why must one spoil that at all cost?” he added in an interview with the Swiss newspaper NZZ am Sonntag. The Czech Republic holds the rotating presidency of the European Union, and Switzerland has come under intense pressure in recent months over its banking secrecy laws.

Switzerland, Austria, and Luxembourg Defend Financial Privacy…and Get Support from the Czech Republic is a post from Cato @ Liberty - Cato Institute Blog