Wednesday, August 17, 2011

France-Germany Plot a Politically Centralized Eurozone with More Financial Repression

The struggle to save the Euro has been giving windows of opportunities for Euro politicians to adapt the Emmanuel Rahm doctrine/creed—use the crisis to implement things that could not be done before.

From the, (bold emphasis mine)

FRANCE AND GERMANY have agreed to introduce a joint corporate tax rate in their countries by 2016 – and have called on other Eurozone countries to establish a collective financial ‘government’ for the entire Eurozone.

Holding a press conference after a bilateral summit, German chancellor Angela Merkel and French president Nicolas Sarkozy said their countries would also try to introduce a so-called ‘Tobin Tax’ on financial transactions as a matter of priority.

Those who believe that the success of the Euro will depend on ‘fiscal and political union’ will acclaim this move as a necessity. They would see this as an elixir. Again, they would be wrong.

As I pointed out earlier, the Soviet Union (or Yugoslavia) had them both, but this didn’t stop these unions from dissolution. Proponents of the political-fiscal union nostrum, only look at the US as THE model, without looking at others. This is called the focusing effect.

Yet everything boils down to fundamental economics, where spending more than one can finance would extrapolate to insolvency, bankruptcy and or eventual political dismemberment. No amount of fiscal or political union will stop this. Politics will never supersede economics.

Moreover, the plan to establish a ‘Tobin Tax’ on financial transactions has proven to be ineffective that would only likely result to a backlash.

Notes the Bloomberg/SF Gate, (bold highlights mine)

A 1996 report on financial transactions taxes for the Canadian government found that Sweden's 1984 levy of 1 percent on equity trades, doubled two years later, caused half of the country's trading to move to London by 1990, a year before the tax was abolished. Capital gains revenues decreased as volume sank, "almost entirely offsetting revenues from the equity transactions tax," the report said.

We are seeing a world enduring dramatic strains from a transition. Accrued stress from democratization of information, widening of social connections and commerce via (globalization) which has been operating in stark conflict with 20th century welfare based governance system.

Politicians desire to preserve the status quo by proposing the same centralized vertical structured organizations that had been scuttled by the end of the 20th century.

Yet even under the same structure, boom bust policies and welfare spending, which has been the cause of this continuing crisis, has still been viewed as a sine qua non path to political survival or success. This is path dependency.

That’s why there seems no way out as welfare political economies are bound for collapse, regardless of ‘unions’. It’s just a matter of time.

Notice how French and German politicos have been propounding to adapt measures that would forcibly rechannel resources from the private sector of the region to the foundering politically privileged banking sector.

Eventually people will see through this tomfoolery and revolt. The growing incidence of the riots in developed economies (as in UK) could be imputed to such dynamics.

Notice too how desperate these politicos are, such that they would take upon any measures regardless of the consequences. Taxes on financial transactions will force investors to look elsewhere.

All these for the sake of saving the banking system who feeds or funds the welfare government and who has been backstopped by central banks.

Now Europe’s self-inflicted losses can be Asia, ASEAN and the Philippines’ gains. All we need is to assume the opposite policies of what Europe or the US has been doing. This means we should decentralize, liberalize trade, decrease taxes and repeal cumbersome laws and regulations, and most importantly is to diminish dependence on politics by embracing economic freedom.

In short, let entrepreneurs determine the prosperity of the nation.

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