The Modest Proposal as a Trojan Horse for the dreaded transfer union: Guest post by Hubert Marcks

17/09/2013 by

To all those who can’t help but feeling that an external surplus recycling mechanism as described in the modest proposal would just be an appeasing technical term for the dreaded transfer-union and that it would condemn the deficit countries into eternal servitude, I would like to point to an example within the mother of all surplus countries which shows that this is does not necessarily have to be the case.

After the end of WWII the southern german state of Bavaria was one of the least wealthy regions within the federal republic. It had no manufacturing Industries worth mentioning, its economy was mostly argrarian and the bavarians had a hard time catching up to the fast growing heavily industrialized north-western regions of West-Germany. So, up until the mid nineteen-eighties, there was in fact a major gap in productivity between the german south and the north, combined with a significant imbalance of current accounts within the monetary union of the Deutsche Mark.

Being not just a loosely defined area of common currency but also a federal state, Germany had to come up with some mechanism of transfering surplusses from one region to the other and did so by establishing the “Länderfinanzausgleich”, a mechanism for equalizing financial imbalances between the german states, that was written into the constitution. (Naturally, this is done by simply redistributing a portion of the respective tax revenues among the german states and therefore has been a thorn in the sides of the surplus states ever since the reunification.)

Today, Bavaria is the economic powerhouse of reunited Germany with a trade surplus of roughly 6% and while a large proportion of its territory is still dominated by agriculture, it is now home to a quite sophisticated and highly productive manufacturing sector and considered to be virtually free of unemployment.

Of course, the – as of last sunday – just recently reelected conservative bavarian government is permanently using the fact that Bavaria has long since evolved from a recipient of this transfer mechanism to one of its largest donours as an excuse to belittle and ridicule the less fortunate states, especially the city state of the capital Berlin and the hopelessly indebted former GDR-states of eastern Germany. They even went as far as filing a suit against this ‘transfer-union’ before Germany’s constitutional court. (Naturally, since the euro crisis, they were also the first and propably loudest among german politicians to call for the expulsion of Greece from the Eurozone.)

However, the fact remains that surplus recycling mechanisms can work and have done so. Bavaria may be paying a relatively steep price for being part of the political and monetary union that is Germany but, contrary to the ramblings of its populist leadership, this obligation to support other states even against their own will has neither in any way diminished the bavarians’ prosperity in the past nor is it threatening to do so in the near future.

One could argue that this german internal transfer mechanism is just another way of imposing nanny-state restrictions on the free market in order to force the sucessful to pull the losers along and – even worse for some, I’m sure – it does so by way of taxation. However, if this evil redistribution scheme hadn’t been effective in the past, those who are now the prosperous ones might have had to remain on the loosing side and never gotten to a position that allowed them to criticize the less fortunate in the first place.

The modest proposal by Varoufakis/Holland on the other hand goes a long way to make the surplus recycling not only more palpable for those who, like the Bavarian government, can’t get over the fact that prosperity comes with a price, but it also aims to establish it as a mechanism that is not just an ex cathedra imposition of yet another bureaucratic EU-rule but a rather self sustaining process, that could just as well be beneficial to the whole comunity.

It may not be the perfect solution, but at least it doesn’t cater to the kind of infantile mindset of people who can’t bare to see others play with their toys and that presently seems to govern the whole discussion in and out of the political process.

Changing this egocentristic state of mind however is a whole differnet animal.

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