This single policy could fix all of Europe's problems
Time for a fiscal budget
What if there was a single cure for all of Europe's woes?
As you probably haven't forgotten, Europe is beset by all sorts of problems. Greece's debt crisis and catastrophic unemployment rates grind on. Painful levels of joblessness have bedeviled France, Spain, Italy, and other European nations since at least since 2008. German Chancellor Angela Merkel is under attack for welcoming a massive flood of immigrants and asylum seekers from the Middle East. There's been a rash of high-profile assaults and terrorist attacks across the continent. White nationalist parties are on the rise. And of course there was Brexit.
But a wild-card entrant into France's upcoming presidential election has the beginnings of an answer to Europe's problems. Thirty-eight-year-old Emmanuel Macron came up under Socialist President Francois Hollande as economy minister, but broke away to mount an independent run. Now he's giving the other candidates a run for their money.
Right now, that central government controls monetary policy for the euro currency. But the individual national governments still handle tax and spending decisions. So how could changing this answer all of Europe's disparate problems?
Let's start with Macron's France. It has faced a national unemployment rate of 10 percent for years, and young immigrant populations have it much worse. French laws governing employment contracts and job benefits lock many immigrants out of jobs. Discrimination, poor education investment, and insufficient public transit concentrate immigrants in poor neighborhoods that are hard to escape from. So France's new arrivals from the Middle East, at least, are way more likely to fall into joblessness.
This situation repeats across many of the other eurozone countries. It would be poisonous under the best of circumstances: Consigning some newly arrived ethnic and cultural minority to economic exile is a perfect recipe for promoting racism and mistrust among the majority, radicalism in the minority, and tribal retrenchment on both sides. When those immigrants come from places wracked by war and upheaval and religious fundamentalism that has terrified Europe's ethnic majorities — and when some tiny fraction of a percent of those immigrants really are potential terrorists — the situation becomes catastrophic.
France needs to reform its labor law. But it could solve a lot of this economic exile by deficit spending to raise aggregate demand, and to expand public and private employment. Except to do that, a country needs to backstop its borrowing with control of its own currency. That doesn't apply to France or any other eurozone country. So when rising unemployment shrinks their tax revenue, they're forced to cut spending, driving their economies further into the ditch. (Britain is not on the euro, but decided to self-destructively embrace austerity anyway.) Greece is by far the worst case of this.
Germany is a bit different; its unemployment is pretty low. But integrating a new flood of potential workers from different countries who often don't speak German well, if at all, is a big project. Armies of people need to be hired to teach crash courses in language, facilitate integration, and help with job searches. Quality housing and local infrastructure needs to be built, and more. Germany has successfully absorbed floods of new arrivals before. But this time, the immigrants are chronically unable to find work, and many are exploited by the underground economy.
Unfortunately, German politics is also beset by a neurotic need for balanced budgets. This is not a mindset that lends itself to ambitious public investment. The government is inching in the right direction, but needs to go much, much further.
This brings us to the big twist: The whole reason Germany is able to regularly balance its budget is that it runs a trade surplus with other European countries — including Britain and France. Money is literally being sucked out of other European countries to fuel Germany's job growth. And the eurozone's financial authorities basically use their control of the currency to impose Germany's obsession with fiscal austerity on the whole continent.
So Germany's good fortune is made possible by crushingly high unemployment in France and elsewhere. Meanwhile the austerity ideology that's preventing Germany from integrating its immigrants is wrecking everyone else twice over.
In short, Europe's maelstrom wasn't inevitable. Yes, dealing with mass immigration is tough. But ethnicity, culture, and religion are not unbridgeable divides. They just look that way when the economy pitches people into a competitive scramble for scarce resources.
To begin rolling this all back, the flow of money between the eurozone countries must be rebalanced. Citizens in France and Greece and elsewhere need their incomes to rise, and investment needs to flood back into the projects and infrastructure that will bring immigrants into Europe's social fabric and give them jobs.
There are a few ways to do this: First, the eurozone's monetary overlords could come down off their high horse and agree to backstop deficit-financed stimulus by the individual national governments of France, Greece, and so forth.
The second is what Macron is proposing: Give the central eurozone government its own fiscal budget and powers to go with its control of the currency. In America, for example, individual states don't control their own currency either, but none of them fall into the wildly different economic straits of Greece and Germany. That's because the U.S. federal government has a fiscal budget of its own to go along with its control of the U.S. dollar. Federal tax and spending policy constantly reshuffles money between the states, effectively counteracting the "trade flows" between them. The central eurozone government needs its own taxing and spending powers to do the same.
Macron isn't perfect. He's positioning himself as a center-left answer to Hollande's Socialist Party, and can be overly eager about neoliberal reformism. But he seems to realize that the whole eurozone disaster was set off by elites' ideological decision to structure and run the continent's economy in a very stupid way.