Frances Coppola and Simon Wren-Lewis on the ‘Modest Proposal vs Austerian Federalists’

Screen Shot 2014-06-11 at 4.02.33 PMIn Whither Europe? The Modest Camp vs the Federalist Austerians James Galbraith and I attempted to chart the evolution of various plans to save the Eurozone. In that survey, we juxtaposed a Modest Camp (that includes our own Modest Proposal), whose philosophy is to promote a minimalist agenda for stabilising the Eurozone and ending its socio-economic crisis before Europe’s future can be discussed cooly and properly, against federalist plans (like those of the Piketty and Glienecker Groups) for political union. Our argument (also augmented here) was that the prescribed federalist moves are, by definition, austerian in logic and, thus, ultimately detrimental to Europe’s integrity and even its… soul.  Most recently, Frances Coppola and Simon Wren-Lewis, at the behest of Open Democracy (who published our original paper), responded to our musings. Here are their responses:


  • Unfortunately, I find much of this unconvincing. Not because the ideas are not worth contemplating, but because they are very unlikely to find a welcome reception in Germany. I still believe that political, fiscal and banking union are preconditions of monetary union. At the same time, it is almost entirely implausible that there is even remote consensus on that. I, therefore, continue to hold that the Eurozone is unsustainable. Unfortunately, policy-makers are not “man” or “woman” enough to accept their failure. While acting based on this sober assessment would lead to the end of the Euro as we know it, failing to act will unfortunately put at risk not only the Euro, but the European Union.

    • I agree. Our proposals will probably be rejected in Germany. But federation and fiscal union are even less likely. Thus Europe is heading for the rocks. Again

    • “Thus Europe is heading for the rocks. Again”

      Exactly. Why should Germany pay for the mess of everybody. It is much better to have an end with horror than p(l)aying for generations the the piggy bank of the EU! If we die you all go with us!

  • “Thus Europe is heading for the rocks. Again.”

    It is a relief and heartening that both economists – FC and SWL – acknowledge the political factor driving the insane economics of the EU, which ensures that NO remedy for today’s economic catastrophe will be applied. The cat is out of the bag!

    It is clear that since economic solutions have been available for several years – and 100% ignored, 100% stonewalled – that the real problem Europeans face is political. An undeclared, unacknowledged ideology has been forced on Europeans through a set of undemocratic and non-representative EU institutions. In short, a type of putsch. “Type” because without the existence of these unrepresentative, undemocratic institutions, set in place by the Maastricht Treaty in 1992 and further refined in the Lisbon Treaty of 2009, none of this would have been possible. And indeed, the corporatist and anti-democratic nature of both treaties – for which no European voted – shows this to have been a long term project. And wholly anti-European both in nature and constitution.

    The problem is what to do? The European Parliament is a toothless, powerless institution: unable to initiate legislation and only recently granted one power: veto. Furthermore veto has no power to effect institutionalised ideology, nor malignant structures – of which it is one. This leaves only national secession, or at the very least (since the ideology is economic) default – and these two actions are dependent on national politics.

    A question though: what legal obligations would Greece face re its ‘debts’ and ‘loans’ if it defaulted or seceeded? Should we be looking at Argentina and the US Vulture funds for an example?

    • As for vulture funds, Greece – in contrast to Argentina – paid all holdouts in full. Hence, there are no vultures anymore. Of course, vulture funds could buy the current bonds if a Greek default were expected. I am not sure, but I would suspect that the current set of Greek bonds include “collective action clauses” which would allow a super majority to restructure them mitigating this risk.

      However, default or leaving the Eurozone would be extremely costly for Greece. It would truly cause a depression. The least painful of options would be, if Germany had the wisdom to leave the Eurozone. The Euro would dramatically fall in value allowing for external devaluation to help countries which are also restructuring inefficiencies in their internal markets. But because all of their debt would be in euros, they would be able to service it. Germany on the other hand would have a currency at a much higher comparative value than the Euro. It is estimated that Germany currently receives a “subsidy” of approximately 8% from the so-called periphery in terms of its exports. In other words, a stronger German currency would have a severe negative effect on German exports.

      However, the German economy could absorb this shock. The major unknown of such a German exit would be the effect on its very fragile banking system. However, all of this is just hypothetical, because Germany will not leave the Eurozone for many reasons. Some are political, but others are economic. Germany greatly benefits from a weak Euro.

      So, yes we are heading inevitably for the rocks sooner or later. A never ending no-growth/slow-growth environment in the countries of the periphery (and others), chronically depressed labor markets and their social consequences will eventually lead to an implosion. Sadly, the consequences of such implosion are unpredictable.

    • I don’t think so. The solution is to stop looking at Greece altogether, mainly because Greece could neither do anything significant nor that she ever could . Greece is trapped and any action along the lines you suggest will penalize Greece much harsher by producing an injury much larger than the one she already suffers from.

      The solution lies with the euro. Greece was victimized to save the euro. So if you want to do harm to those who harmed Greece you have to hit the euro and the Eurozone. To seriously damage your enemies you either need to engineer a euro = $2.00 or above (which kills instantly German trade surpluses) or an abolition of the Eurozone (a multi coordinated exit from the Eurozone). Either of these two choices will do the trick. There is also a third way which is to kick Germany out of the Eurozone which also has great symbolic potency.

      But forget about Greece because Greece is and will continue to be a joke no matter what. No one cares or will ever care what happens to Greece. Greece is expendable material at the moment and will remain so regardless of political variations. Greeks are outclassed and outgunned in this game and they should have understood a long time ago what it means to be driven by an inferiority complex based on European identity. It’s way too late now.

    • @Uwe Bolt

      “However, the German economy could absorb this shock.”

      If by ‘the german economy’ you mean major corporations and their shareholders, you are propably right. But let’s not forget that, despite the constant sweet-talk of the german government and it’s loyalist media, there are already millions of people considered as ‘working poor’ in this country and many others who work for smaller businesses that are relying on foreign demand for their products who might not be as resilient against the effects of a eurozone meltdown. If all we have as a countermeasure against massive appreciation of our currency is more austerity and cutting prices via the reduction of labour costs it will eventually affect the already shrinking middle-class and there is a limit to ‘tightening the belt’ without suffocating.

      On top of this, there are already signs of investment bubbles building up like e.g. real estate prices in major cities, because capital from all across Europe is transfered to Germany while the local private sector has seen a decline of investments in the real economy over the past few years and there seems to be no sensible way to use all that money. Unless they could magically execute a german exit witin 24 hours, wouldn’t it be safe to assume that even announcing it would lead to an immediate rush of foreign money into the country?

    • I agree, this is the legacy of Chancellor Schroeder. There is little reason to proudly point at low unemployment numbers, when 25% of Germany’s jobs are part-time or mini-jobs. I also agree that Germany’s exit from the Eurozone would be very complicated, but I described it as the “least worst option”. I believe that a collapse of the Euro under its own weight would have devastating and unpredictable social and political consequences.

    • “To seriously damage your enemies you either need to engineer a euro = $2.00 or above (which kills instantly German trade surpluses) or an abolition of the Eurozone (a multi coordinated exit from the Eurozone). ”

      With 1 EUR = 2 USD you would hurt the South much more than Germany. A lot of Germanys exports are in not really Price sensitive segments like the tomatos of Spain…

      If you manage a way to kick Germany out of the Euro Zone, I would be very grateful for that!

    • @ SoundMoney

      Now I’m really confused.
      If german exports are not price sensittive, then why did we have to decouple wage increments from productivity gains and start to suppress labour costs back in the early 2000s in order to lose the alleged stigma of being ‘the sick man of Europe’ and become ‘competitive’ again?

      And if that is all just a big pile of horse manure, then why on earth are we telling the deficit countries to do exactly the same, only much quicker and more painful?
      (And if for some unimaginable reason the spanish people were forever incapable of producing anything but dirt-cheap agricultural products through the use of slave labour, what would they gain from starving their already half-famished slaves to death?)

      If all this talk about the german industry being so innovative and graced by engineering genius that people all over the world just bought their products without looking at the price tag was actually true, then why would same industry have spent millions of Euros on lobbying and propaganda campaigns to persuade union leaders, politicians and even the workers themselves that they would lose their jobs if they didn’t accept cuts on wages, health care and social security?

      And if indeed they are only doing this in order to reap the juicy fruits of rising labour productivity and keep them to themselves and their shareholders with total disregard for the needs of the rest of the population, then – my dear friends and members of Europe’s latest Tea Party clone – how would Germany leaving the Eurozone ever change anything about that?

    • True, there are exports that are more income than price sensitive. Let’s say you are in the market for a $85,000 Mercedes, you probably will buy it for $95,000, because money is not an object. If you are looking at a C-Class, on the other hand, money may make the difference. But in the end, much of Hartz IV was just a union-busting scheme for the benefit of shareholders. One only needs to look at the company Mr. Schroeder keeps today to understand his allegiances.

      What’s more “low” unemployment in Germany today is brought about be high marginal employment, with 25% holding part-time or mini-jobs. 15% of Germans live at or below the poverty line now. Let me add to that Germany is underperforming in productivity gains, for example compared to the U.S., not because of labor costs, but because of lack of R&D and investments by the private and public sectors due to “cash hording”. Hardly, a great example.

      So, in answer to your question the recipe of internal devaluation was always a poisoned chalice. True many of the deficit countries need structural reform. They themselves acknowledge that, but many of these reforms have more to do with corruption and red tape. Second, no internal devaluation will ever suffice to re-establish their competitiveness. They cannot and should not compete with the lowest cost producers in the world. Instead, they must improve education, economic frameworks and INVEST. There are some political complications that have made it difficult to implement such reforms in the past, but they are doable.

      And yet, this is not enough. Their exchange rate must be flexible and be a reflection of their economic strength. In other words, the euro must fall in value and dramatically so for an extended period of time (because these reforms take time to show economic results). Therefore, Germany must leave the Eurozone. Let the German people decide, whether they want to continue a mercantilist (Merkelantilist 😉 approach that impoverishes more and more of their citizens and let the rest of Europe find the way to greater prosperity.

    • “then why did we have to decouple wage increments from productivity gains and start to suppress labour costs back in the early 2000s”

      Easy answer: Because they could! I am not saying it was right or wrong. But at the end of the day a lot of idle cheap labor in East Germany and Eastern Europe was available Close by in this period.

    • Hubert:

      The bottom line is that Germany is threatened much more from the Right than from the Left in Europe. The Left is sentimental and impotent. The Right is – for lack of a better word – really pissed off and dangerous at this particular point in time. That’s a reality no strategist could ignore. Why and how Merkel has managed to check mate herself by the followers of her own ideology in Europe it would be a matter for historians to examine.

      The main reason why Germany should leave the eurozone is that she is freeloading on 28 other member states and obstructs them in adopting the necessary measures to exit from perpetual crisis mode.The issues German labor has with its own government are irrelevant to Germany’s eurozone status. If German labor thinks they have an issue(or many issues worth correcting) then they ought to fix it(them). If they can’t then they should accept the label of “impotent Left” and forget about it because a very weak European Left can do nothing(or very little) to improve the declining fortunes of German labor. Just because German labor has lost pretty much every fight against a traditionally authoritarian German state it gives it no right to export such failure to the rest of Europe. I am not exactly sure what you mean by your rhetorical question of how German labor would benefit from Germany leaving the eurozone. The short answer to such question is that German labor benefits little from Germany staying or leaving. Eurozone = currency use, labor issues = political and sovereign matters. Are you suggesting that the subsidy Germany receives through the use of the euro ( a roughly 35% currency devaluation) is somehow beneficial to German labor issues? You mean German labor is more fully employed with unsatisfactory wages via a european subsidy and that is a good thing?

    • @Dean

      “The main reason why Germany should leave the eurozone is that she is freeloading on 28 other member states and obstructs them in adopting the necessary measures to exit from perpetual crisis mode.”

      Your argument is, of course, morally justified. The member states currently under the yoke of german austerity have every right to demand that Germany stop its neo-mercantilist behaviour. Whether a german exit alone would actually bring about such relief, I am not in a position to predict.

      “I am not exactly sure what you mean by your rhetorical question of how German labor would benefit from Germany leaving the eurozone.”

      As you already pointed out, it was a rhetorical question aimed at the (unfortunately) increasing number among my countrymen and -women who claim that exiting the eurozone would benefit all of the german population, including labour (hence my reference to the german equivalent of the US Tea Party). Which, in my opinion, is at least an ill informed notion if not a blatant lie. But that’s not the point.

      I do think, however, that stopping the austeritarian nonsense within Germany itself and allowing wages to rise and make up for two lost decades would not only benefit german labour, but also increase demand for imported goods and services from other members of the common market within Europe’s largest national economy.
      People always forget to mention that Germany’s constant export surplus is not only built on foreign debt (for which germans then passionately scold foreign debtors for their irresponsible, profligate behaviour), but that it is mirrored by an import ‘deficit’ towards the rest of the eurozone.
      But then again the point is moot because before anything remotely like that will happen in my country, hell must freeze over.

    • Oh, come on SM. If a state wants to die then it could die alone. You sound like a terrorist issuing threats to blow up everybody if you don’t get your own way.

      This is precisely the german attitude almost everyone dislikes. Who told you that we are bound together? or that we will ever will be bound to a common fate with you? This is total arrogance squared. Think of what you just said. Are you people jihadists in disguise or the Talibans of Europe?

    • @SoundMoney

      “Easy answer: Because they could! I am not saying it was right or wrong. But at the end of the day a lot of idle cheap labor in East Germany and Eastern Europe was available Close by in this period.”

      Because they could? Why do dogs lick their own balls? Because they can?
      My apologies for the cheap reference. After all, we are not talking about household pets enjoying themselves here but about people treating other people like they were little cogs in a giant machine that could easily be replaced by cheaper ones at the earliest convenience.
      Of course, if one were of the so called ‘libertarian’ persuasion, one would propably loathe the idea of having evil federal governments keep this kind of private socio-economical engineering in check and deny our furry little friends their god-given rights to pleasure themselves.

      Anyway, I have to ask: What makes you think that Germany leaving the eurozone would make these dogs stop doing what they can do and enjoy so much? Or does it even matter to you?
      Because on the other hand, if eastern and southern Europe were to have their own currencies at significantly lower exchange rates vis a vis the new Deutsche Mark (or whatever you plan on calling it), wouldn’t that make ‘idle’ cheap labour in those countries even more attractive for german firms to take advantage of?
      In other words: If we (germans) are already prescriping the kind of medieval medicine to our european neighbours that used to be reserved for developing countries, why not go all the way and entirely treat them as such – as providers of cheap labour and natural resources?

    • “why not go all the way and entirely treat them as such – as providers of cheap labour and natural resources?”

      I have no problem with that as long as individuals participate by free will. You would be amazed that there are still cost differences of factor >2 within 50 km if there is a border between Germany and Czech Republic.

  • Hi Yannis
    what are your thoughts on a Euro Break up i can see many way’s that this can happen the ECB and EU have not protected the Countries that were most vunerable since the crisis emerged
    They consistantly failed the citizen’s of the EU and are more in tune with Frankfurts financial market than the people they purport to represent
    when the break up happens how will this effect the people of Europe looking to work with their own currencies

    • My views on this make for sad reading: I wish we had never formed the Eurozone. But, I insist that, once we are in, we face a vicious case of path-dependence. Meaning that the path that brought us into the euro no longer exists, so that we can reverse our route. If we try to go where we would have been had we not entered the Eurozone, we shall all fall a terrible cliff. This is why this severe critic of the euro is struggling, with decreasing hope, to find ways of fixing it.

  • I wonder – has the modest proposal ever even reached the eyes and ears of high-ranking german government officials and if so, what was their response? Not that I believe they would, for even a minute, consider it valid, but I would love to be proven wrong there.

    • Yes! Here is the response of one of them (who will remain anonymous): “A very sensible, feasible proposal. One that the Chancellor will never consider as it would release the French President from the fear that keeps him mute in Summits…”

    • A “poisonous combination” of record debt and slowing growth suggest the global economy could be heading for another crisis, a hard-hitting report will warn on Monday.

    • Oh my. Now I must assume that my beloved chancelor is not merely plagued by a total lack of imagination but that she is also a power-crazed madwoman who is playing petty political games in Brussels while people are suffering all over the continent.

      Well, at least it appears that not all of these politicians are completely devoid of intelligent thought.
      Now I will go and speculate on who your anonymous source might be.

    • I would not call her power crazed. In fact I, sort of, understand her position – even though I disagree violently. Her perspective is, most likely, that, even if she does not care for the power to silence the French President herself, she does not believe that she has the moral authority to “diminish the Office of Chancellor” by accepting a proposal (however “modest”!) that will allow the French side “out of the bottle”.

    • @Yanis

      And that is exactly why I think that Ms Merkel is a mediocre conservative politician at best, who should never have been given the kind of power she now wields – even if she doesn’t get her kicks out of it. She just seems incapable of thinking outside the confines of her tiny little swabian housewife’s box.
      If you’re right and the notion of the french position being some kind of tax-crazy profligate keynesian/socialist djin that needs to remain bottled up at all costs is driving her decisions, then that is once again proof that she is putting her neocon belief system above democracy, the needs of her people and those of the other member states.

    • Hubert:

      The crazy part is that Merkel is doing precisely what she said (or better promised) to the German taxpayer that she won’t do. She is allowing a euro devaluation (at the expense of 18 eurozone states) in order to solve a export trade problem for her state. It’s not only that the poor Germans are being affected but all Germans. The theater part is that somehow bad Draghi is doing it when in effect Merkel has opened the door wide open. Once again: the centralized state (a la Soviet) wins at the expense of those governed. This internal devaluation has been practiced in Greece with total brutality with no beneficial results whatsoever. Merkel is now practicing internal devaluation on the eurozone for her own self-interest:

    • @Dean

      The crazy part is that Ms Merkel promised exactly nothing during the last federal election campaign and still got the majority of votes. And nothing (to resove the crisis) is indeed precisely what she is doing now.
      The germans – even the poor ones – are so consumed by their fear of losing what little advantage they have over the rest of the european ‘union’ that even the thought of any kind of change is driving them insane.
      On top of that, although it has been going on for two decades now, there is no understanding whatsoever among the german public about what internal devaluation even means.

    • “On top of that, although it has been going on for two decades now, there is no understanding whatsoever among the german public about what internal devaluation even means.”

      THAT is really tragic.

    • Hubert:

      It’s so sad how we have come to this point. As I write these lines I get teary eyed. I feel misunderstood, disconnected and generally incapable to convey the message of what is truly going on. No one is listening. No one. What a pity.

  • “(the) Eurozone has imposed entirely counterproductive debt controls on governments and thus far at least, denied them the luxury of debt monetization by the European Central Bank. The result is a crushing depression for much of the single currency bloc.

    Historically, big debt overhangs have tended to be dealt with via inflation and currency adjustment, the natural, market based way of haircutting creditors. Both these options are denied to the Eurozone economies, and when everyone is in the same high debt boat may in any case no long work as they once did.

    There is no sign of the inflation you might expect after such an unprecedented phase of central bank money printing, and judging by still historically low government bond yields, very little prospect of it.

    The world economy may have entered a vicious circle where excessive debt constrains demand to such a degree that both interest rates and inflation, and therefore growth too, remain permanently low. This way of thinking may be unduly pessimistic, but it is also worryingly plausible.

    And in conditions where excessive debt cannot be worked off through growth, restraint and inflation, adjustment will eventually be forced much more divisively through default. It’s a toss-up who is going to breach the dam first, but unless the European Central Bank rides to the rescue with debt monetization soon, the betting has to be on Italy, where debt dynamics already seem to have entered a death spiral. That this is not yet reflected in bond yields is down only to the assumption that the ECB will eventually oblige. Perhaps it will, but even if it does, it will only buy time.”

  • Well, it is Germany (and France) that insisted in the euro. It is Germany that fails to understand its structural inadequacies. It is Germany that benefits hugely from a cheap currency. Therefore, Germany should indeed pay and, in fact, ultimately it will (Germany just does not understand that either). Sadly, it will have global implications and the rest of the world is not at fault for the mess the Germans are making.

    • That is incorrect.

      France insisted and Germany gave in. But everybody signed up to it under specific rules. Some broke a few rules early and more want to break even more rules now.

      “Germany that benefits hugely from a cheap ”

      Who is Germany for you? A few people (including many foreign shareholders) that own export companies or a few bankers?

      In the past the majority of the German Population profited from a strong currencies that increased their purchasing power.

    • It’s a well known fact that Germany’s main export is depression to the rest of the world.

      As to the French (and I think we ought to forget the historical perspective of them as original collaborators) they now basically are saying that they have their own program, will not follow German austerity, and that they would comply when they will feel like it and at any rate not before 2017. There is no more French-German axis and that’s the new reality. Merkel is increasingly isolated and very soon she would be completely ignored because she has reached a predictable dead end (read the Startfor analysis below to her “lose-lose” predicament).

    • No disagreement on your assessment of the current position of the French government and Merkel’s increasing isolation. I do believe, in fairness, that it is relevant, however, to remember that France demanded that Germany agree to monetary union as a pre-condition for German unification. The German Bundesbank had been deeply opposed to such monetary union for decades. So, Germany simply decided to create a monetary union on their own terms. I will be the first one to blame Germany for many of the policy failures of the last few years, but fair is fair. After all, the U.K. did not impose such condition on Germany.

    • “Who is Germany for you? A few people (including many foreign shareholders) that own export companies or a few bankers?”

      Says the guy who calls all Southern Countries’ citizens all kinds of names.

    • Nice exchange. I wanted to add my 2 cents.
      I have moved beyond the belief that Germany is imposing austerity. It is a lot more serious than that. In Greece they are imposing unprecedented taxation in the form of income tax from the first euro earned and real estate taxes that are not tax deductible and that are based on values that are twice as much as the real values in the market.
      They are imposing a haircut by taxation, and the Greek politicians happily oblige.

    • Why should Greeks pay less taxes than Germans, and German taxpayers pay for the mess in Greece?

    • Greeks who pay taxes pay drastically more than Germans do. The rest tax evade because the troika, and Berlin, allow them to.

    • Exactly. But Sound-Money’s comment just underlines – once again – that you cannot have a monetary union given these asymmetries. Moreover, this has never been just about Greece. This is about Spain, Italy, France, Portugal and the list goes on and on. No fiscal union, no monetary union and before Yanis says it, by fiscal union I do not mean German austerity squared. But Germany is currently even considering a fiscal reform within Germany that would tear Germany apart. Merkel and Schaeuble are totally out of control.

    • “But Germany is currently even considering a fiscal reform within Germany that would tear Germany apart. Merkel and Schaeuble are totally out of control.”

      Could you enlarge on this? It would be interesting to hear your German-at-a-distance viewpoint.

    • The German Minister of Finance is currently contemplating to propose a law that would fundamentally change the way in which federal tax revenues (collected by each state) are re-distributed. His idea, like all the other bad ideas he has implemented in the past, seems to have the support not only of his own party (CDU), but also the Social Democrats (SPD) and the Greens.

      At the core of a system of mutual solidarity, the German constitution provides in Article 107 that federal income and corporate taxes should be redistributed among all states following a formula established by law to “ensure a reasonable equalization of the disparate financial capacities of the Länder (states), with due regard for the financial capacities and needs of municipalities (associations of municipalities).”

      This has served Germany very well since the Basic Law (the equivalent of a constitution) became effective for what was then West Germany in 1949. The states that benefited or contributed to this redistribution mechanism differed over time, but there have been some states that were fiscally stronger for some time and for a variety of reasons. These states have always complained that their residents pay-in more than they get back, but there was general consensus that fiscal solidarity was good for Germany.

      No longer. In another fit of fiscal austerity, Mr. Schaeuble wants to create what is neatly referred to as “competitive federalism”. He wants to give the creditor states the right to reduce “federal” income taxes and grant the deficit states the “wonderful opportunity” to raise federal income taxes. Moreover, he is contemplating to allow creditor states to give a greater tax break to the rich in those states than for the less fortunate (and allow the deficit states to raise more taxes from the rich than from the poor).

      In Mr. Schaeuble’s mind this would force the deficits states to become more austere. Of course, this would completely undermine pan-German solidarity. In fact, lower federal taxes in the southern creditor states of Bavaria and Baden-Wuerttemberg, in particular, would entice the rich to move to those states. This would rob the deficit states of an important part of their tax base. In the end, all of this would lead to gaping disparities between richer and poorer German states and further deepen income inequality.

      In fact, if Germany had its own currency it would seriously damage the viability of a German monetary union.

    • Sorry, but the Taxation on the personal level is (personal income tax) is almost identical after the increases in Greece. So where do Greeks pay “drastically more taxes”? Is it the dividends from Greek companies that are taxed at ZERO?

      Elenits,, There is talk about having different tax levels in diffferent states. It would be one tax code, but there would be extra charges and discounts that could be set by the individual states. Something very common in federal countries. The US has it, Switzerland has it etc. Actually a good idea, I just do not believe that Schäuble really wants this. He is one of the strongest promoters of a Minimum tax Level within the EU. He is a disgusting Statist and hates competition.

    • @Sound-Money. I think my description above fairly reflects Schaeuble’s thinking. They only label it “competitive federalism”, because it sounds good. In a federal state, a fiscal equalization system is indispensable and, in fact, it does exist in the United States too. For each dollar in federal income taxes I pay as a resident of New York, I only get a fraction back in federally financed programs, because New York is richer than many other states. In fact, many of my federal tax dollars go the so-called red states run by Republicans who wish to do away with federal taxes altogether. Quite ironic.

      Now, states may raise states income taxes (personal and corporate) in the United States. All states but Texas and Florida do have personal income taxes. It makes no difference whether you allow states to apply “extra charges” or “discounts” to federal taxes or whether you allow them to raise their own state income tax. The end result is the same.

      It does indeed create competition with all the wrong incentives. For example, for years the state of New Jersey has offered huge state tax breaks to corporations that reside in New York. Therefore, many of these corporations have resettled in New Jersey. The only winner? Corporations! Why? Because the so-called job creation never creates enough tax revenue in NJ to make up for the corporate tax breaks and, therefore, fiscally NJ is worse off (which impacts state programs in NJ). But NY is also worse off because of the exodus of companies. Then, there is Delaware, our own home-made tax haven. And Florida. If you go bankrupt as an individual it is best to move all of your assets into real estate in Florida because personal real estate cannot be attached there (only state in the union). So, go big!

      So, whether you call it tax discount/extra charge or a state tax, this kind of competition ends badly for the system as a whole. It’s bad for the states, bad for the federal government, bad for equality and good for corporations and the rich.

    • @ Uwe Bott

      Not that I wouldn’t believe that Mr Schäuble was capable of coming up with such an insane proposal, but I haven’t heard of it yet. Where did you get this information?

    • @Uwe Bott: With tax competition everyone but the corporations is worse of?? So in your logic unlimited taxes would make everyone but corporations better off.

      Either you are very yound and have never traveled outside North America and Europe or you assumption is that the government spends money more effeciently than individuals.

    • @ Sound-Money. Now, with all due respect that makes no sense. Nobody has stated that unlimited corporate taxes would be good for everybody and no, you cannot simply make that argument by reversing mine. But since you ask, I am 58 and I have traveled to over sixty countries and met with the political and private sector leadership in each to assess their economic and financial stability. And no, I do not work for the IMF. Cheers, Uwe

    • Uwe “In fact, lower federal taxes in the southern creditor states of Bavaria and Baden-Wuerttemberg, in particular, would entice the rich to move to those states”

      This will not happen to a meaningful extent. The reason is that plan only Targets personal income tax. Rich people have a very low share of their income in this category. Most of their income is taxed at 25% plus Soli, which will remain the same.

    • So basically Schaeuble is trying to dismantle an internal surplus recycling mechanism existing in most economies, federal or not.

      Well good luck with that.

    • UWe, so who is wise enought to determine the perfect (everywhere equal) corporate tax rate? You, me, god?

      Competition is always good for the consumer, this is also true for tax competition. The willingness of politicians to collect taxes is limitless as their stupidity in spending them.

    • So, let the market rule! The invisible hand, even on taxation. Been there, done that. Ain’t working.

    • It is not perfect, but results have been better than all the centrally planned experiments, which we are still paying for as of today…

    • Hi Dean…
      I wonder if those occupying “Seats of Power” in Europe would be woken up from their hallucinations & change their austerian logic…If Mighty G~d & all the Angels in heaven were to descend on Greece tomorrow in order to demonstrate to Europeans & especially the Greeks (including the bankrupt bankers & idiotic politicians) that their sins will be forgiven and that their pain, tears, suffering and prayers were not in vain??

  • @UWe Bott “Therefore, Germany must leave the Eurozone. Let the German people decide, whether they want to continue a mercantilist (Merkelantilist 😉 approach that impoverishes more and more of their citizens and let the rest of Europe find the way to greater prosperity.”

    Sp true. I always wonder why the central planners are so afraid of a referendum? Maybe they jnow that there planning is not for the benefit of the People, which makes them NOT innocent!

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