Is it too late for the Euro?

I’m in the bear camp on that one, unfortunately the decentralized nature of the EU means that because there are so many decision makers that have conflicting objectives it is difficult to address serious problems (remember Kosovo?).  The likelihood of the Euro surviving beyond 2012 is probably less then 50% -- because the EU needs to take real decisions instead of kicking the can down the road.

• The first thing which has to happen, call it a “12 step program” for Europe is to admit the problem.  European countries have been making promises they cannot keep. All of Europe’s governments have been playing extend and pretend, and while the German are better than almost anyone in Europe they are not exactly paragons of virtue. 
• Second, European leaders have to admit that it is a solvency issue and that some default will occur (some debt will be forgiven – and it will be a large number (BTW liquidity is simply a symptom). 
• Third, Europe’s government cradle to grave program is unsustainable – this is not a Conservative Vs. Liberal view of the world, and while universal health care is great, and retiring at 55 is also brilliant it is unsustainable.  The reality is that when the programs were created European (and Americans) lived through to 67/8 and not 75/6 (you don’t believe me check actuarial death tables).
• Forth, Germany is not guiltless in this affair; Germany tilted the field early on when it devalued its currency prior to entry into the Euro (Germans were complaining the government denied everything – while poorer countries did the opposite – making their exports uncompetitive compared to Germany).
• Fifth, several countries’ tax collecting system has to be reformed, Greece is obvious, but it’s also true for France – where rich people “negotiate” their tax bills (it goes back centuries- see “le dinner de con”).

After that comes the hard part, Europe needs to re-define the role of government in society.  It is easy to fall in the Right Vs. Left view of the role of government, but fundamentally government has a very important role, from security to providing infrastructure, it produces better results than the private sector in these roles.  Too often governments have been captured by special interest groups in providing support or services that really would operate better in the private sector.  Let’s be honest the role of government is to protect its citizens:  protect them from foes, social unrest, unforeseeable disability and plain injustice.  I’m also a proponent for citizens to know and understand the cost of the services they receive.  Obviously many of these “costs” can be subjective, but surprisingly enough in many instance citizen can find out how expensive government services are to deliver.

Education has to be universal, that students pay $500 per term of $2,000 per term is irrelevant since the true cost is probably $5,000 per term.  But people need to know what the true cost of things are, and this has been hidden (there is no reason for this).  Here in Quebec we have $7/day day care, now this may be a good decision from a society’s stand point, but why the lie, why not tell people that the true cost is really $60 or $90 a day.  However, a society is made of people, and unless you are Saudi Arabia sitting on billions of gallon of oil, people are a country’s single biggest wealth creator.

Basic health care has to be free to the users, and preventative care has to be encouraged (maybe via taxation incentive).  Basic health care has to be free because it an essential good and preventative healthcare has to be encouraged because it is by far the best way to reduce the cost of healthcare...

The last item is Defence, the obvious ones are border protection, civil protection.  It is also to protect citizens from fraud (Securities regulation), health risk (environmental protection and food and goods protection).  How do you ensure that there is no “regulatory capture” by industry (or special interests) of the regulator?  The rest, the government has no business in actively participating, one caveat is that, and with all the research accomplished so far it should be easy to prove.  Any service that is more efficiently provided by government should be provided by government (no-fault government provided car insurance in Quebec is dramatically cheaper – and unsubsidised).  It is noteworthy that all these goals are very difficult to achieve, as an example what is good education?  How do you measure good education, how do you reward good teachers?  The “capitalist” view is you give them more money, but that cannot be the solution.    

Back to Europe, the reality that is Europe is complex (it is no simpler to modify the behaviour of the Chinese who absolutely must curb investment as a proportion of GDP), the forces are powerful.  Public workers in the UK are on strike because they may face cuts in their pension – they see no reason for them “alone” to pay the bill.  The situation is similar in Europe, and yet the cash is just not there (and it’s getting worse with the ultra low interest rate now in place around the world).

1. Europe needs a real central bank that can intervene
2. Europe needs to cut government expenditure
3. Taxes will have to be collected on an equal principal for all citizens
4. Tax avoidance (legal or otherwise) has to be removed
5. European government have to remove corporate tax incentives

What is true for Europe is true for North America too. Too many companies (agriculture, energy) are subsidies by the state for dubious reasons – mostly government capture.  One of the brightest aspects of the 21^st century is the advent of social media, because they stand a good chance to remove corporate money from the political equation.  The only way politicians will act for the people is if they understand that they survival (in politics) is dependent on the people, and not the corporation that support them in elections (in Canada this problem has been resolves years ago, when political donation by corporation became nearly impossible)