The European Union Must Think Local To Address Global Challenges

Authored by Daniel Lacalle via The Mises Institute,

The recent elections in the Eurozone have shown that the risks to the European project remain.

 

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In Germany, an insufficient victory from Merkel, the collapse of the social democrats and the rise of the alternative right and extreme left have surprised many.

However, it was predictable. The relief rally in the Euro versus its trading currencies and the bullish tone of equity and bond markets after the French elections and the victory of Macron were, in many ways, based on a very optimistic view of strengthening of the current European model. Markets quickly forgot that almost 40% of the voters in France decided to support radical anti-EU parties at both sides of the political spectrum. The German elections showed that this bullish perception was a mirage. In Germany, almost 30% of the vote went to radicals.

The European Union is ignoring this trend and soldiering on with what Brussels calls “more Europe”, which often means more interventionism and central planning. And citizens are not happy with this. Instead of seeing Brexit as a warning sign and an opportunity to improve the European Union strengthening freedom, openness and diversity, the separation of the UK has been taken as an opportunity to advance in an incorrect model that mirrors the French “dirigisme”, a central-planned, heavily intervened model.

The European Commission published in September a surprisingly euphoric docu- ment declaring the end of the crisis thanks to “the decisive action of the European Union”. However, that positive tone contrasts with a growing discontent among European citizens. There is no denying that the European Union is in recovery mode, and that is a positive. Business confidence is rising, and manufacturing indices are in expansion. However, the pace of said expansion has moderated in the past months, and challenges remain. The European economy is not “in shape”, as the European Commission boosts, and this explains a significant part of the rising populist and radical vote.

According to the Bank of International Settlements and Merrill Lynch, Europe has more zombie companies today than before the crisis, i.e. companies that generate operating profits that do not cover their financial costs, despite all-time low-interest rates and an unprecedented monetary stimulus. European banks, at the end of 2016, had more than 1 trillion in non-performing loans, a figure that represents 5.1% of total loans compared to 1.5% in the US or Japan. Europe has gone from financial crisis to financial crisis, and recently we have had new episodes in Italy, Spain and Portugal.

But the key problem is unemployment. The European Commission “certifies” the exit from the crisis with unemployment of 9.1%, maintaining all its labour market rigidities, an unemployment rate that is more than double that of countries with flexible work legislations and dynamic business environments, such as the United States or the United Kingdom. More importantly, underemployment is still very high. In 2016 there were 9.5 million part-time workers in the EU-28. In addition to this, 8.8 million persons were available to work, but did not look for a job, and another 2.3 million persons were looking for jobs, without being able to start working in one within a short time period, according to Eurostat.

The tax burden in this period has been raised throughout the EU -with some exceptions, such as Ireland- with an average tax wedge of 45% on workers and 40% on companies. If we look at economic imbalances, the main ones are public debt of almost 90% of GDP and poor growth which, at an estimated 1.7%, is almost half its potential. Many politicians blame the European crisis on austerity. However, data debunks that myth. The winner of the crisis in Europe has been the bureaucratic system. With public spending averaging over 46% of GDP, an annual deficit of over 1.7% on average, and 90% debt, talking about austerity is simply incorrect.

These figures show that the European Union is far from being “in shape”, as the Commission states, and the election results prove that authorities and member states cannot continue to ignore the lack of engagement of a growing part of the population with the directed-economy and bureaucratic nature of this European model.

According to the Intelligent Regulation Forum and with the official data of the European Union for 2015, the member countries are subject to more than 40,000 rules by the mere fact of being part of the EU institutions. In total, including rules, directives, sector and industrial specifications and jurisprudence, they estimate that there are some 135,000 obligatory rules.

The European Union is 7.2% of the world population, 23.8% of the world’s GDP and 58% of the world’s welfare spending. If this model wants to survive, it needs to pay more attention on boosting growth and supporting job creators, or the whole of it will crumble under the rising debt and ageing population problem. The biggest problem for the Eurozone is demographic. Average age in the largest Eurozone countries ranges between 44 and 47. At the same time, United Nations estimates that the European Union population will peak and start shrinking in less than two decades. Less people, and older.

Ageing presents many challenges. The cost of healthcare and pensions rise, while tax revenues decrease as consumption and investment slow down. This demographic challenge creates a fiscal and productivity challenge that can only be reversed by attracting high added-value investment and incentivizing high productivity sectors. By ignoring these risks, the EU runs the risk of falling into the glorification of centralized planning first and foremost, absolute uniformity, and obsolete interventionism that has nothing to do with the plural, free and diverse United States of America.

There are evident solutions. There are clear positives about uniting countries to boost growth, employment and opportunities, but it makes little sense to try to copy a model, the French one, that has created stagnation for the better part of two decades, high taxes, unemployment and diminishing competitiveness. As such, the main solutions come from more Europe but less Brussels, something that many politicians might dislike, but it is an absolute necessity in the face of growing opposition to the existing model.

First and foremost, the taxation system cannot continue to be a burden on small and medium enterprises, who are responsible for more than 70% of added value and employment in the European Union, and a growing weight on the middle class, which suffers a tax wedge that ranges between 10 and 20 points higher than in the United States or the UK. The European Union needs to understand that consumption and job creation are not going to improve if the burden of the ever-expanding welfare state and government spending falls on the two economic agents that can drive the economy to a better shape, companies and the middle class.

The European Union must look at the diversity of cultures and stop pursuing uniformity at any cost. Inequality is not a policy, but a result. There is no improvement in inequality if all the measures are directed at redistribution of a diminishing pie. The best solution to inequality is jobs. And this cannot come if excessive regulation and uncompetitive taxation continue to drive the policy of the Union.

According to the PriceWaterhouseCoopers report “Paying Taxes”, average number of hours used to comply with regulation and taxes is higher in the European Union than the average of the OECD and the US, by between 6 to 15% more. These burdens make it more difficult for small companies to grow and become large enterprises. The European Union also shows a worrying trend of weaker transition from small to medium and large company, as well as relatively smaller companies than the US in each of the categories. A small company in Europe has, on average, less employees than one in the US. The high cost of labour, particularly social contributions, and the rigid legislation make it more difficult to make hiring decisions.

Therefore, the European Union must think local to address global challenges. Boost the positive differences of each community, reduce the tax wedge and bureaucratic requirements for small and growing businesses, improve the disposable income of the middle class by cutting taxes and supporting families to address the demographic issue by providing income tax deductions and making it easier for families to raise children.

The solution is simple but complex. Politicians in Europe like to believe that all must be organized and directed by them. But they should pay more attention to the rising radicalism. Radicalism cannot be fought by doing more of the same, but by giving those that felt left behind the tools to thrive. Not through inefficient subsidies and government spending, but through freedom. 

Comments

Planet ZOG 07564111 Thu, 01/04/2018 - 05:11 Permalink

Those Russian sanctions were just one example of where decisions are made that are completely counter to the welfare of the people.  Other examples would be the ongoing muslim "refugee" invasion, Nato expansion, bringing Ukraine and Georgia into the EU.

The author says it himself:

"The European Union is ignoring this trend and soldiering on with what Brussels calls “more Europe”"

In the US examples would be the never ending wars for Israel, the invasion of muslim "refugees", or even GMO's.

Europe is like a 26-core Intel CPU.  They all thing they are independent, but they are all being run by one central control CPU linked directly to its creators in Haifa.

In reply to by 07564111

hooligan2009 Thu, 01/04/2018 - 04:15 Permalink

europe needs blockchain for every common supply chain, plus common standards for health, education, welfare, taxes, housing, policing, sewage - in other words it must use blockchain to remove arbitrage across the continent.

so does the US.

Islamaphobe hooligan2009 Thu, 01/04/2018 - 04:43 Permalink

Europe is too diverse to be able to impose "common standards". They've been trying for some 40 years and it's been a disaster (a number of colourful figures in the past have also tried and ultimately failed spectaularly). Danish or Dutch police will never uphold the same "standards" as Greek or Spanish police, irrespective of guidelines, protocols, decrees and directives issued by the bloated body of corrupt bureaucrats in Brussels.    

In reply to by hooligan2009

Joe A Islamaphobe Thu, 01/04/2018 - 04:56 Permalink

They have been trying for hundreds if not thousands of years to "impose common standards" in Europe. Every country/king/tyrant that tried to conquer Europe has tried that. In the end, people want to determine their own standards. But there are some things you can agree on through dialogue. Still some big countries (Germany, France) try to impose their will onto the rest. Differences are too big. Best performing countries are the ones that had the reformation and classical liberalism. Eastern Europe needs some of that but is stuck with orthodox religion and remnants of socialism. The growth potential in Europe however is in Eastern Europe. Get standards up to standard there in term of business, law and justice, media, etc and then Europe's GDP will rise. Whether the EU is the right vehicle for that, remains to be seen. For instance, the sanctions against Russia, the blocking of the flow of Russian gas via various pipelines are few of the obstacles that hamper and the migrant crisis are a few obstacles that the EU is too much playing a role in. What is needed is an Europe oriented view but with countries as players, not a supranational body.

In reply to by Islamaphobe

Planet ZOG hooligan2009 Thu, 01/04/2018 - 05:25 Permalink

All the EU states are slowly being fused into one.  The people have no spine anymore anyway, and the national characteristics are being miscegenated away.

The elimination of trade barriers and the ability of states or even communities to protect industries that they deemed important to their heritage or culture has been destroyed by the EU bureaucracy. 

Globalization of all supply chains has removed control over entire industries from the old nation states.  Even Germany's auto industry would collapse if she tried to a strategy of "autarky" like Hitler was forced to do because of Judea's war against her in 1933.

The first result of the fall of the iron curtain was the destruction of thousands of formerly eastern European companies through buy outs and unfair monopolistic price dumping by western international corporations.  Within a decade, eastern Europe was completely brought under globalism's control.

This global control network is part of a very old plan and the reigns lead back to Jerusalem.  It was necessary to co-mingle and then obliterate all the minor cultural attributes of the various European nation states in order to consolidate the control.  Otherwise controlling Europe would have always been like herding cats, and that never would have been satisfactory for gods chosen.

In reply to by hooligan2009

Islamaphobe Planet ZOG Thu, 01/04/2018 - 06:25 Permalink

"All the EU states are slowly being fused into one.  The people have no spine anymore anyway, and the national characteristics are being miscegenated away."

 

Go to Poland on Nov 11 and tell me there's "no spine".

 

Having experienced being colonies of a totalitarian state in living memory, the nations of eastern Europe value sovreignty in a way most nations in w Europe have long forgotten. The tide is turning and the project to homogenize Europe's nations into a single entity will fail, and a lot sooner than many can forsee.  

In reply to by Planet ZOG

OverTheHedge hooligan2009 Thu, 01/04/2018 - 06:17 Permalink

How about Europe can, if it wants, make use of blockchain technology where the market thinks it appropriate?

Too much "MUST" already in the EU.

I also don't think that arbitrage of the system is the main problem - the multi-tiered anti-business ethic of the bureaucracy is more the issue. Arbitrage happens when rules make for artificial imbalances - lose the imbalance and the arbitrage goes away.

In reply to by hooligan2009

Golden Showers Thu, 01/04/2018 - 04:27 Permalink

"The solution is simple but complex."

Obviously in that last paragraph the truth is revealed: radicals must be placated or else the entire shit show is going to swallow a big dick.

You know what? This isn't anything of concern for anyone because the jargon is that radicals are actually conservatives and conservatives are radicals and the real issue is how long assholes are going to punk their own voters and pretend that everyone is some kind of paragon of virtue while girls and boys get raped all day long and the dependable voters turn into "radicals" who have a problem with dumb fuck liberal wankers, all dozen of them, who work for Brussels. The solution is simple but complex. The only "radicals" are the ones allowing your blondies to get beaten, raped and murdered while telling you that you must be a nutter to object.

Look how they play you. I guess you like it. That really sucks for your kids.

gn28 Thu, 01/04/2018 - 04:31 Permalink

The solution is simple:

- fixed tax on all corporate earnings (any currency they receive) and this means all corporations, so it also includes ngos, churches and sports clubs >> removes all loopholes

- fixed tax on any money leaving and entering a country >> blocks large subsidies and stops tax digibg via so called franchise fees

- make running at a loss illegal >> guarantees real competitivity

- equal pay for people doing the same job for the same company (removes the money laundering and discrimination via contracting, outsourcing and consultancy services)

- companies are no longer allowed to own la d and buildings, they can just rent it from the city >> stops all this tax doging by buying out local residents and forcing prices up

- redistribute equaly 50% of all collected money to all the residents >> provides an equal playing field

- use the other 50% to build everyone a house and remove all taxes on individuals

- make the woeking week 4 days

- remove all gov social security and just give everyone one equal large payout then make pensions and all insurances illegal... you are only responsible for yourself and any damage you might cause

..  and, just like that, with a roof over head, no crazy beurocracy to maintain and some guaranteed miney based on what is traded in the economy .. everyone has a chance to raise 3-4 kids.. magic

WAKE UP

kellys_eye Thu, 01/04/2018 - 04:49 Permalink

The solution is simple but certainly not complicated.  Government should butt the fuck out of peoples lives.  The fewer interferences by .gov, the more people learn to look after themselves.

Thats what Xi said kellys_eye Thu, 01/04/2018 - 09:21 Permalink

Exactly!

The problem with the EU is the EU itself. It isn not that the people in power are stupid and dont know what is going on, they know. The problem of Europa is the parasitic EU itself, along with the UN, etc. TOTALLY corrupted, and are now just tools for "gawds elite people", to slow down the European economy so that their new star in Asia can rise and shine. To import islam so to control the European people from cradle to the grave. And while at it, party on its rotting dying corpse. Total abuse of the European people; So fekking bad that it is too much for people to take in and react. And their gouvernments are in on it, like a sick and twisted nightmare.

In reply to by kellys_eye

Diatom Thu, 01/04/2018 - 04:54 Permalink

"an unemployment rate that is more than double that of countries with flexible work legislations and dynamic business environments, such as the United States or the United Kingdom"

95 million americans 16 to 65 out of the workforce...

Fuck you Lacalle...

BritBob Thu, 01/04/2018 - 04:54 Permalink

The Crazy EU- Gibraltar

MEPs and legal experts have claimed the veto over the territory’s future after Brexit would give Spain special status among EU nation, when they should be on an equal level.

The EU’s Brexit negotiating guidelines stated that the Brexit deal will not apply to Gibraltar without an “agreement between the kingdom of Spain and the UK”.

Experts have told the Telegraph that the veto could be illegal under EU law.

Spain's Gibraltar claim has NO legitimacy and YES would be illegal.

They've effectively signed the territory away 3x times!

Gibraltar – Spanish Myths and Agreements (single page):

https://www.academia.edu/34608739/Gibraltar_Spanish_Myths_and_Agreements

Fireman Thu, 01/04/2018 - 07:15 Permalink

The EUSSR will collapse as soon as the €urodollah breaks. If Merkill does not jump, the tiresome hag will be pushed and it is looking more likely that the CDU and SPD cannot cobble a rag tag gubermint together thus guaranteeing new elections...March April.

 

Merkill got Clintoned!

Greenspazm Thu, 01/04/2018 - 07:34 Permalink

Right on Daniel, so send copies of this piece to Druncker Juncker, Anjoolar Murkill and Emmanuel de Rothschild Macron and ask them to take it under advisement.

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PS edit button works! but the preview button delivers this message:

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gcjohns1971 Thu, 01/04/2018 - 08:26 Permalink

Freedom, as an organizing principle of society, was explicitly rejected by the thinkers behind the EU.

The concept that a peasant, though arguably less able in total, might be more capable to manage his own affairs than an Aristocrat can, is foreign to the European Elite's conceptual viewpoint.

Solio Thu, 01/04/2018 - 10:20 Permalink

How local must the EU citizens think? Down to the level of each family. Protect your children! And, save freedom of thought and living for their future.

ukipboy Thu, 01/04/2018 - 11:27 Permalink

"Therefore, the European Union must think local to address global challenges."

The writer just does not get it. The European Union is an empire ruled from the Imperial Capital of Brussels. It is not interested in "local" issues or even "local" people. It is an out-of-control juggernaut which wants to crush all opposition and centralize power in the hands of bureaucrats. The most recent example of that is the call from Macron for censorship of any news that does not go along with the elitist agenda. The most sinister example is the creation of a European army (in defiance of all promises made before the Brexit referendum). The main purpose of such an army would be to suppress dissent in the far-flung provinces of the empire.