Why Slovakia May Not Support Europe’s Bailout Plan
Slovakia is set to vote today on the European bailout plan and may well become a holdout. As my colleague David Boaz noted yesterday, this is due to Slovakia’s libertarian speaker of the house, Richard Sulik, who spoke at a Cato Institute conference in Bratislava last year, and who opposes bailouts of Greece and other EU countries based on sound ethical, political, and economic reasoning. Greece is already bankrupt and a bailout will only add to the country’s debt; an EU “rescue” will continue to create moral hazard, thus encouraging bad policies by reckless governments; relatively poorer and better behaved Slovakia should not be forced to support the irresponsible governments of richer European countries; the EU’s response to the Greek debt crisis has led to blatant violations of EU and European Central Bank rules, thus undermining democratic principles and the EU itself; the scare stories of not approving the bailout should not be believed; the best solution is for Greece is to declare bankruptcy once and for all.
In this document by his Freedom and Solidarity Party, Richard Sulik lays out his party’s opposition to the bailout fund. It is consistent with the views of other leading scholars including that of John Cochrane of the University of Chicago (and a Cato adjunct scholar) as expressed in his recent Wall Street Journal op-ed on how to save the Euro.
Sulik has tapped into popular sentiment among Europeans about the “democracy deficit,” or huge gap between the designs of Europe’s ruling elites and the desires of the region’s citizens. The widespread (and accurate) perception of Eurocrats imposing their agenda on Europe to the benefit of their cronies (e.g., big business, labor unions, and politicians in power) and at the expense of the majority is becoming increasingly difficult to ignore. The Slovak government, which supports the bailout, may well fall on account of this vote, but the prime minister has already indicated that the vote on the bailout fund will be held repeatedly until it is approved. (No doubt there will be little possibility of a repeat vote repealing the bill.)
On a related note, a new Finnish think tank, Libera, provides more evidence that Europeans are rethinking big government. It published a study today which reassesses the record of the Swedish welfare state and praises the numerous market reforms that country has introduced out of necessity since the 1990s.
Let Europe Be—and Defend—Europe
In the midst of difficult domestic political battles, Barack Obama begins a lengthy European trip today. He should encourage the continent to increase its defense capabilities and take on greater regional security responsibilities.
Presidential visits typically result in little of substance. President Obama’s latest trip will be no different if he reinforces the status quo. His policy mantra once was “change.” No where is “change” more necessary than in America’s foreign policy, especially towards Europe.
Despite obvious differences spanning the Atlantic, the U.S. and European relationship remains extraordinarily important. The administration should press for increased economic integration, with lower trade barriers and streamlined regulations to encourage growth.
At the same time, however, Washington should encourage development of a European-run NATO with which the U.S. can cooperate to promote shared interests to replace today’s America-dominated NATO which sacrifices American interests to defend Europe. Americans no longer can afford to defend the rest of the world. The Europeans no longer need to be defended.
Although World War II ended 66 years ago, the Europeans remain strangely dependent on America. Political integration through the European Union has halted; economic integration through the Euro is under sharp challenge; and military integration through any means is reversing.
Indeed, the purposeless war in Libya, instigated by Great Britain and France, has dramatically demonstrated Europe’s military weakness. Despite possessing a collective GDP and population greater than that of America, the continent’s largest powers are unable to dispatch a failed North African dictator.
President Barack Obama starts with visits to Ireland, the UK, and France. In the latter he will consult with the heads of the G8 nations, which include Germany and Italy.
His message should be clear: while America will remain politically and economically engaged in Europe, it will no longer take on responsibility for setting boundaries in the Balkans, policing North Africa, and otherwise defending prosperous industrial states from diminishing threats. Washington should expect the continent to become a full partner, which means promoting the security of its members and stability of its region.
The president should deliver a similar message when he continues on to Poland. Part of “New Europe,” which worries more about the possibility of revived Russian aggression, Warsaw has cause to spend more on its own defense and cooperate more closely with its similarly-minded neighbors on security issues.
In fact, Poland, Slovakia, Hungary, and the Czech Republic, members of the “Visegrad Group,” recently announced creation of a “battle group” separate from NATO command to emphasize regional defense. The president should welcome this willingness to take on added defense responsibilities.
Friday Links
- They passed the bill, and now we’re finding out what’s in it.
- We’re finding out that the war in Libya could really be about protecting European interests.
- In Atlas Shrugged, Ayn Rand described a world in which government both partly produced and partly subsidized goods; we’re finding out she wasn’t far off the mark.
- We’re finding out that “American exceptionalism” is a cloak for military adventurism.
- The longer America fights a war on drugs, the more we find out about how detrimental it is to our fiscal outlook:
The New Year and Financial Crises
The New Year is likely to bring renewal of financial problems in the European Union. In Greece, the crisis was fiscal in origin and spread to Greek banks and banks in other countries that had lent to Greek banks and the Greek government. In Ireland, the crisis began with problem real-estate loans at Irish banks. That spread to European banks, mainly British, that had lent to Irish banks.
In its year-end issue, the Economist reminds us of the 2008 banking crisis in Iceland. The Icelandic government responded much differently in that crisis than did the Irish government to its banking crisis. Iceland let its banks go under and to some extent stiffed their creditors. It did so out of necessity. Banking assets there were 10 times the country’s GDP, while they were “only” 2-3 times the Irish GDP. Iceland’s defiance did not cost its citizens more than did Ireland’s acquiescence.
Irish taxpayers are now burdened with their banks’ debt. The ultimate beneficiaries of the Irish bailout are British banks and, indirectly, British taxpayers. The political irony of that has not been lost on Irish voters, and in the upcoming elections in March the populist political left is likely to gain. Then, whether by necessity or choice, look for calls for renegotiating (i.e., defaulting on) the debt. Calls for that are already being heard in Ireland.
If the Irish domino falls, look for others to topple. Portugal, Italy, Greece and Spain are all candidates. (Together these 5 countries are called the PIIGS.) The Fed has backed EU banks through currency swaps and thus exposed US taxpayers to the EU crisis. In the words of former Fed Chairman Paul Volcker, the Fed continues to operate at “the very edge” of its legal authority. (Words spoken in April 2008 speech after the bailout of Bear Sterns.)
The New Year will be an interesting one.
Promoting Free Trade–Sort Of
The U.S. and South Korean governments have agreed to changes in the free trade agreement negotiated by the Bush administration. The president rightly lauded the FTA as a good deal for Americans:
“This agreement shows the U.S. is willing to lead and compete in the global economy,” the president told reporters at the White House, calling it a triumph for American workers in fields from farming to aerospace.”
Approving the FTA has taken on added urgency after the European Union negotiated a similar accord with the South. Once that agreement takes effect, Europeans would have better access than Americans to the world’s 13th largest economy. Protectionism is always foolish, but especially so when one’s competitors are promoting open markets.
The accord also offers important geopolitical benefits. With much nervousness in the U.S. and throughout East Asia over an increasingly assertive China, Washington should work to break down barriers to Americans trading with China’s neighbors. Already Koreans do more business with China than the U.S. While the FTA won’t reduce the appeal of products from next door China in South Korea, it will allow American producers to compete more freely in that market.
The president deserves credit for pushing the agreement forward, but he also needlessly held up ratification by two years. Moreover, his “fix” punishes American consumers. As the official government fact sheet explains:
Car Tariff Elimination: The 2007 agreement would have immediately eliminated U.S. tariffs on an estimated 90 percent of Korea’s auto exports, with remaining tariffs phased out by the third year of implementation. The 2010 supplemental agreement keeps the 2.5 percent U.S. tariff in place until the fifth year. At the same time, Korea will immediately cut its tariff on U.S. auto imports in half (from 8 percent to 4 percent), and fully eliminate that tariff in the fifth year.
Truck Tariff Elimination: The 2007 agreement would have required the United States to start reducing its tariff on Korean trucks immediately and phase it out by the agreement’s tenth year. The 2010 supplemental agreement allows the United States to maintain its 25 percent truck tariff until the eighth year and then phase it out by the tenth year – but holds Korea to its original commitment to eliminate its 10 percent tariff on U.S. trucks immediately.
That is, the Obama administration forced a delay in the reduction of U.S. auto tariffs. This obviously hurts Korean exporters, but the highest price will be paid by American consumers. The provision is simply a special interest payoff to the auto industry, which already has benefited from a big federal financial bail-out. So much for bringing “change” to Washington.
Free trade is good for Americans. That means bringing down foreign trade barriers. It also means bringing down U.S. trade barriers.
American Taxpayers Should Not Bail Out the European Union
The fiscal disintegration of Europe is bad news, though I confess to a bit of malicious glee every time I read about welfare states such as Greece and Portugal getting to the point where they no longer have the ability to borrow enough money to finance their bloated public sectors (I have mixed feelings about Ireland since that nation at least has been a good example of low tax corporate tax rates, but I still think they should get punished for over-spending and bailouts). This I-told-you-so attitude is not very mature on my part, but one hopes that American politicians will learn the right lessons and something good will come from this mess.
I have not written much about the topic in recent months, in part because I don’t have much to add to my original post about this issue back in February. All the arguments I made then are still true, particularly about the moral hazard of bailouts and the economic damage of rewarding excessive government. So why bother repeating myself, particularly since this is an issue for Europeans to solve (or, as is their habit, to make worse)?
Unfortunately, it appears that all of us need to pay closer attention to this issue. The Obama Administration apparently thinks American taxpayers should subsidize European profligacy. Here’s a passage from a Reuters report about a potential bailout for Europe via the IMF.
The United States would be ready to support the extension of the European Financial Stability Facility via an extra commitment of money from the International Monetary Fund, a U.S. official told Reuters on Wednesday. “There are a lot of people talking about that. I think the European Commission has talked about that,” said the U.S. official, commenting on enlarging the 750 billion euro ($980 billion) EU/IMF European stability fund. “It is up to the Europeans. We will certainly support using the IMF in these circumstances.” “There are obviously some severe market problems,” said the official, speaking on condition of anonymity. “In May, it was Greece. This is Ireland and Portugal. If there is contagion that’s a huge problem for the global economy.”
This issue will be an interesting test for the GOP. I think it’s safe to say that the Tea Party movement didn’t elect Republicans so they could expand the culture of bailouts – especially if that means handouts for profligate European governments. Some people will argue that American taxpayers aren’t at risk because this would be a bailout from the IMF instead of the Treasury. But that’s an absurd and dishonest assertion. The United States is the largest “shareholder” in that international bureaucracy, and there’s no way the IMF can get more involved without American support.
In some sense, this is a corporatism vs. free markets battle for Republicans. Big banks and Wall Street often support bailouts since they like the idea of somebody else saving them from their bad investment decisions (though American financial institutions fortunately are not as exposed as their European counterparts). Economists despise bailouts, by contrast, since they subsidize risky choices and lead to the misallocation of capital.
Which side is John Boehner on? Or Mitch McConnell? And what about Mitt Romney, or Mike Huckabee?
Austrian Government Moves to Undermine Freedom of Movement in Europe
The European Union was meant to create a common market with free movement of goods, services, capital and people. The citizens of the “new” member states, such as the Czech Republic, should have been free to work in the “old” member states, such as Austria, from the date of accession of the “new” members to the EU on May 1, 2004. The Austrian government managed to postpone the horror of having laborers from ex-communist countries offer cheaper services to the Austrian citizenry until 2011.
With the 2011 deadline looming, Austrian politicians came up with an ingenious way to make it more difficult for the Czechs and other hoi polloi to enter the Austrian labor market. Beginning next year, it will be “illegal” for Austrian employers to pay less to a foreign laborer than they would to an Austrian. I am looking forward to seeing how this is to be accomplished without further wage regulations (collective bargaining and wage minimums in different sectors of the economy are widely used) and accompanying corruption.
I hope that the Czechs take the Austrian government to the European Court of Justice and pronto. If the Austrian measure is allowed to stand, it will undermine one of the four freedoms, and destroy an important source of competition and wealth creation in Europe.
Want a Free Vacation? Move to Europe
I recently returned from a short vacation — had to get it in before the Supreme Court begins announcing decisions in this year’s big cases and the president nominates a replacement for Justice Stevens — but it seems that I’m a chump for paying for it myself. While I was gone, the EU’s commissioner for enterprise and industry, one Antonio Tajani, declared that vacationing is a human right, one that ought to be paid for by the taxpayers:
Tajani, who unveiled his plan last week at a ministerial conference in Madrid, believes the days when holidays were a luxury have gone. “Travelling for tourism today is a right. The way we spend our holidays is a formidable indicator of our quality of life,” he said.
Tajani, who used to be transport commissioner, said he had been able to “affirm the rights of passengers” in his previous office and the next step was to ensure people’s “right to be tourists”.
As Dave Barry would say, I’m not making this up:
Tajani’s programme will be piloted until 2013 and then put into full operation. It will be open to pensioners and anyone over 65, young people between 18 and 25, families facing “difficult social, financial or personal” circumstances and disabled people. The disabled and the elderly can be accompanied by one person.
In the initial phase, northern Europeans will be encouraged to visit southern Europe and vice versa. Details of how participants are chosen have not yet been finalised, but it is expected the EU will subsidise about 30% of the cost.
Officials have envisaged sending south Europeans to Manchester and Liverpool on a tour of “archeological and industrial sites” such as closed factories and power plants.
With apologies to friends who are fans of the Man U and Liverpool soccer teams, I’m not sure those cities would be on my list of top 1000 places to visit. But still this program illustrates the logical culmination — one logical culmination – of a view that government exists to provide all things to all people and that everyone has a “right” to whatever makes life good and pleasant and fulfilling.
Libertarians are often assailed for exaggerating the problems inherent in large, unlimited government, or of making ad abusurdum slippery slope arguments, or of having “outdated” views of political theory. But really, when the “right” to a paid vacation is ensconced in so many countries’ laws, when it gets its own article (24) in the UN Declaration of Human Rights, is it that far-fetched for someone to come up with an actual state-provided vacation? Apparently Spain has already been doing it.
Regardless of the Problem, the European Political Elite Thinks More Centralization and Bigger Government Is the Answer
Greece is in trouble for a combination of reasons. Government spending is far too excessive, diverting resources from more efficient uses. The bureaucracy is too large and paid too much, resulting in a misallocation of labor. And tax rates are too high, further hindering the productive sector of the economy. Europe’s political class wants to bail out Greece’s profligate government. The official reason for a bailout, to protect the euro currency, makes no sense. After all, if Illinois or California default, that would not affect the strength (or lack thereof) of the dollar.
To understand what is really happening in Europe, it is always wise to look at what politicians are doing and ignore what they are saying. Political union is the religion of Europe’s political class, and they relentlessly use any excuse to centralize power in Brussels and strip away national sovereignty. Greece’s fiscal crisis is simply the latest excuse to move the goalposts.
The Daily Telegraph reports that Germany and France are now conspiring to create an “economic government” for the European Union. Supposedly this entity would only have supervisory powers, but it is a virtual certainty that a European-wide tax will be the next step for the euro-centralizers.
Germany and France have [proposed] controversial plans to create an “economic government of the European Union” to police financial policy across the continent. They have put Herman Van Rompuy, the EU President, in charge of a special task force to examine “all options possible” to prevent another crisis like the one caused by the Greek meltdown.
…The options he will consider include the creation of an “economic government” by the end of the year. “We commit to promote a strong co-ordination of economic policies in Europe,” said a draft text expected to be agreed by EU leaders last night. “We consider that the European Council should become the economic government of the EU and we propose to increase its role in economic surveillance and the definition of the EU’s growth strategy.”
…Mr Van Rompuy, the former Prime Minister of Belgium, is an enthusiastic supporter of “la gouvernement économique” and last month upset many national capitals by trying to impose “top down” economic targets. Angela Merkel, the German Chancellor, has called for the Lisbon Treaty to be amended in order to prevent any repetition of the current Greek crisis, which has threatened to tear apart the euro.
Great Moments in International Bureaucracy
Greece’s fiscal disarray is a visible manifestation of Europe’s future, but the most appropriate symbol of what’s wrong with the continent comes from Brussels, where there are three “presidents” fighting over the right to represent Europe at international gatherings. The contestants include the President of the European Commission, the President of the European Council, and the European Union President (which rotates every six months among different national leaders).
While these three personalities fight over who gets to sit where and shake hands first, the real problem is that they all agree that government should be bigger, taxes should be higher, and power should be more centralized as part of the effort to create a superstate in Brussels. Inside this gilded cage, insulated from actual voters, Europe’s technocratic elite is content to enjoy a parasitical existence while the welfare states of member nations slowly but surely collapse and lead to social chaos. Here’s an excerpt from the UK-based Express about the fight between the the philosophical descendants of Louis XVI. Or would Nero be a better analogy? How about the Three Stooges? Well, you get the idea:
Promises by EU leaders that the Lisbon Treaty would herald a new era of clarity have been shattered after attempts to settle a major internal power feud resulted in a typical Brussels fudge. Bureaucrats have decided to send not just one president and his entourage to global summits but a tax-draining three. Only four months after the fanfare of Herman Van Rompuy’s appointment as European Council president, his most jealous and powerful rival in Brussels has persuaded allies to allow him to muscle in too. José Manuel Barroso, president of the European Commission, has succeeded in his demands that he should also go to diplomatic summits, such as the G20, after insisting only he has the expertise to deal with specific policy matters. At certain summits there will even be a third representative – the leader of the country holding the EU’s rotating presidency. This seems to justify criticism that the Lisbon Treaty would add to the EU’s murky waters and not be a move towards transparency. …Since the Lisbon Treaty came into force at the end of last year, arguments have raged in Brussels over which department does what. Mr Van Rompuy, the former Belgian prime minister dismissed last month by Ukip MEP Nigel Farage as a “damp rag” and a “low-grade bank clerk”, is the permanent president of the European Council.
Thursday Links
- A few things you might not know about rail travel: “Automobiles in intercity travel are as energy efficient as Amtrak. Cars are getting more energy efficient, while boosting Amtrak trains to higher speeds will make them less energy efficient.” The list goes on…
- Quiz Time! Which was the only country in the 27-nation European Union to register economic growth without going through a recession last year? The answer might surprise you.
- Unionized teachers refuse to work 25 minutes more a day, so Rhode Island town fires all of them.
- Arnold Kling on Haiti, poverty, and capitalism.
- Podcast: This is what happens to American jobs when you have one of the highest corporate tax rates in the world.
Statism Update from Brussels
America may have dodged the bullet of Obamacare thanks to voters in Massachusetts, but even if the left ultimately succeeds in expanding government’s control of health care, the United States will still have more freedom than Europe. It seems that the European Union’s governing entities, the European Commission and the semi-ceremonial European Parliament, combine the worst features of statism and collectivism from the entire continent. The Euro-crats make lots of noises about subsidiarity and other policies to leave decision making in the hands of national and local governments, but virtually every policy coming from Brussels is a new power grab for unelected and unaccountable bureaucrats. The latest example is possible EU-wide driving laws for the purposes of imposing absurdly low speed limits and to requiring foolish rules against more comfortable and safer large cars. Here’s what the UK-based Express wrote about the topic:
Brussels bureaucrats want to slap draconian European Union driving laws on Britain’s roads in a new “green” campaign on motorists, it emerged last night. Measures being considered include a barrage of new maximum speed limits in town and city areas. British motorists could also be forced to undertake exams in “environmentally-friendly” road skills as part of an EU-wide overhaul of driving tests. And many large cars and other so-called gas-guzzling vehicles face being banned from newly-declared “green zones” in urban centres. The latest threat of meddling from Brussels comes in an Action Plan on Urban Mobility drawn up by European Commission transport chiefs. …Mats Persson, of the Euro-sceptic think tank Open Europe, commented: “This illustrates that the EU simply can’t stop interfering in every aspect of people’s lives.”
Meanwhile, a different tentacle of the European octopus is proposing that the European Union be given the power to audit budget numbers from member nations. Given the fiscal fiasco in Greece, this seems like it might be a reasonable step – until one remembers that the EU’s auditors every year give a failing grade to the EU’s own budget practices. The EU Observer reports on the issue, but the phrase “blind leading the blind” somehow did not get included:
…the European Commission has indicated it will seek audit powers for the EU’s statistics office, Eurostat, in order to verify elements of national government accounts. …Speaking to journalists after a meeting of EU finance ministers on Tuesday (19 January), outgoing EU economy commissioner Joaquin Almunia said greater Eurostat auditing powers could have avoided the mistakes that led to the Greek revision. He said the commission will propose “a new regulation in order to obtain powers, which we’ve already requested, to give Eurostat the possibility of carrying out audits.”
Last but not least, that same EU Observer story has a tiny bit of good news, or at least a dark cloud with a silver lining. Some of Europe’s governments want to impose an EU-wide tax on banks. This certainly fits the theme of ever-growing levels of bureaucracy and interference from Brussels, but the good news is that there is still (even under the statist Lisbon Treaty) a national veto on tax matters. So even though some of the big nations in Europe want to demagogue against the financial sector, the EU’s taxation commissioner (and former communist apparatchik from Hungary) indicated with sadness that such a tax probably would not make it through the process:
While discussion on Greece took up considerable time, EU finance ministers did have an opportunity to discuss a Swedish proposal for an EU-wide bank levy to mitigate the effects of future financial crises. …British, Belgian and German ministers were amongst those who showed moderate support for the idea. However, outgoing EU taxation commissioner Laszlo Kovacs said it was unlikely to fly because of EU unanimity voting in the area of taxation.
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