Europe's problems won't be solved by increased centralization
By Alberto Mingardi
The idea that “competition among states and regions […] lays the groundwork for technological progress and economic growth” is almost taboo in the European debate. Perfectly reasonable people, that may favor competition elsewhere, apparently came to the conclusion that competition between governments creates more problems that it solves.
The cry for tax harmonization encompasses the entire political spectrum. Efforts to curb “harmful” tax competition are part of the mix of recipes most widely advocated to exit the euro-crisis. Roughly, the idea is that member states’ public finances should be controlled altogether by Brussels: this being the stick, the carrot will be a harmonization of tax rates, so that businesses and citizens will no longer find any reason to move from one jurisdiction to another. Thus, the threat to reduce national discretionary spending goes together with the promise to consolidate national tax bases.
This is all supposed to be tantamount to the survival of the monetary union – but is that true?
German economist Otmar Issing, one of the founding fathers of the euro, has a very outspoken piece at Project Syndacate that explains that no, it ain’t.
In short, all of the measures that would implicitly support political union have turned out to be inconsistent and dangerous. They have involved huge financial risks for eurozone members. They have fueled tensions among member states. Perhaps most important, they have undermined the basis on which political union rests – namely, persuading European Union citizens to identify with the European idea.
Public support for “Europe” depends to a large degree on its economic success. Indeed, it is Europe’s economic achievements that give it a political voice in the world. But, as the current crisis indicates, the best-performing EU economies are those with (relatively) flexible labor markets, reasonable tax rates, and open access to professions and business.
The whole piece is worth reading. Issing defends competition between jurisdictions within a currency union and explains that further centralization actually endangers European integration. “Europe’s cultural richness consists precisely in its diversity, and the basis for its finest achievements has been competition between people, institutions, and places. Its current economic malaise reflects European leaders’ prolonged efforts to deny the obvious”. This is as sad as true.