Can fiscal transfers solve the Eurozone's problems?
By Alberto Mingardi
I take a skeptical view in an article for Politico.eu: I don’t think transfers will automatically produce economic convergence. My point is based on the Italian experience, which I summarise this way:
Since its unification in the nineteenth century, Italy has had a common currency and fiscal transfers from north to south. And yet, the different parts of the country have grown at very different rates.
More than 60 years ago, at the end of World War II, the per capita GDP in the south of Italy was just half of what it was in the North. In response, a newly democratized Italy pledged to address the problem and established the so-called Cassa del Mezzogiorno, a government fund whose purpose was to update the South’s infrastructure and pave the way for economic development. But the fund soon became a device for channeling public spending into industrial projects in the South for which demand was, to say the least, dubious.
… And as government investment poured South, public employment in the region boomed. Between 2005 and 2007, for example, the central government yearly has taxed some €76 billion more than it spent in the North and spent some €37 billion more than it taxed in the South. To put these figures in perspective, the fiscal transfers from North to South roughly equaled the entirety of the income taxes paid in the North.
And yet, the South has little to show for all the money it received. Today, the region remains on average half as rich as the North — just as it was at the start of the project. Government redistribution may have worked well for other purposes — such as growing political consensus — but it failed to bring about economic convergence.
The piece is here.
I fear the “fiscal union” has became some sort of a mantra. There is a surprising consensus among European intellectuals that the Eurozone’s problems are easily solved, on paper, if only nation states were not standing in the way. That is, more European centralisation would do it. I find this a disturbing shortcut. By saying that we need “more Europe”, people avoid the far more interesting question: what kind of Europe do we need?