No solution

One of this modest blogs favourite writer on matters economic, Tim Worstall, on the state of the Eurozone:

Eurozone: There Might Not Actually Be a Solution To The Euro Crisis.

Leave aside the willingness of the European North to make [large money] transfers to the European South. Ponder instead whether it is actually possible. This depends on how much actually needs to be sent south.

We might take at the low end that, what, four or five percent of GDP that is incorporated in the military and health care. Or we might take at the top end the 20 odd percent of GDP that is collected and spent by the federal part of the US Government. Neither of these numbers is right but a useful assumption would be that the necessary fiscal transfers inside Europe would be somewhere between these two numbers [5% and 20% GDP] that make the US system work.

The thing is though, in northern Europe the government already takes 40-50% of the entire GDP to pay for those lovely welfare states and free health and child care and so on. It’s extremely dubious that there’s room to collect another 5% of GDP to send south and absolutely impossible to imagine another 20% being so sent.

All this leading to what Mr Worstall calls a ‘depressing conclusion’: If we use the US as an example of the size of the transfers necessary then we find that the EU simply cannot do this. Not at the required size: EUnion governments already are too large to make it possible to collect the taxes required for the fiscal transfers needed to keep the eurozone functioning. Hence, there is no solution to the euro problem. Worstall reckons that the best we can hope for is break up and starting again, however messy and painful that would be while it was actually happening.

Indeed.

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