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Selective versions of history, driven by a blinkered ideology, always fail

I read this New York Times article (June 9. 2012) – Europe Needs a German Marshall Plan – by a history professor at Harvard Charles S. Maier with some interest. And then a few days later (June 12, 2012) – the other end of the spectrum appeared – Why Berlin Is Balking on a Bailout – written by the conservative (but difficult to stereotype) German economics professor Hans-Werner Sinn. The two articles demonstrate that selective versions of history always fail, especially when they are overlaid and driven by a blinkered ideology that prevents a full understanding of why things happen. The Harvard historian understands how European reconstruction occurred and has articulated what that means for the current European malaise. The German economics professor, imbued with Ordo-liberalism, cannot see beyond his blinkers.

The NYT article on the Marshall Plan was accompanied by this graphic which I thought was indicative. Note the goal expressed – collective welfare – which really defined the policy framework centred on full employment and income security and the major responsibility that government’s assumed for these aspirations. Consider what we hear today – welfare of all has become “satisfy the markets” or “maintain credit ratings” and such.

The policy-making leaders have somehow seduced us into thinking that a small sectoral interest group (the bond markets) deserves priority over the 50 per cent and rising of Spanish youth (the ones who want to work) who are unemployed with little hope of a job opening in the next 3 years. Somehow 25 per cent of the labour force unemployed indefinitely is fine to these characters.

Why we accept that sort of logic and aspiration is beyond me. Why we don’t demand that the central banks and treasuries that issue the currency do their job and stop the massive daily income losses arising from the output gaps – manifesting in personal terms as unemployment, hidden unemployment, underemployment – and worse in the rising suicide rates and premature deaths. It is beyond comprehension – the grip that this pernicious neo-liberal ideology has on all of us.

The other irony (and tragedy) is that even though the policy leaders (especially in Europe) sprout these aspirations, the strategy are following a strategy (is that too generous an assessment?) which is actually not what the “bond markets” want (as evidenced by the spiralling spreads in recent days between Spanish and Italian debt relative to the German benchmark.

In that context, the Harvard historian writes:

EUROPEAN leaders … have repeatedly committed to providing emergency aid … [but] … they haven’t yet accepted that saving the euro is more vital than clinging to the constraining rules that govern the European Central Bank. They are debating their future with a diminished sense of history and of the alternatives available to them. They should recall Secretary of State George C. Marshall’s grave warning, upon returning from Germany in early 1947: “The patient is sinking while the doctors deliberate.”

He also notes that the “former patient is now the principal doctor”.

The perversity of the current ideological trap that the Germans are imposing on the rest of Europe is that it is informed by a very selective and misunderstood period of history – the Wiemar years. They are obsessed with that historical epoch and have largely ingrained into the cultural fabric an ill-constructed version of what actually happened during those hyperinflation years.

The manifestation is “fear of the trillion mark coin”. But that fear is not well-founded and certainly no current events should invoke the elevation of that fear.

Please read my blog – Zimbabwe for hyperventilators 101 – for more discussion on this point.

The modern Germans, so self-assured, have forgotten that in the 1930s, the gross acts of the Nazis aside, they used strong fiscal interventions to increase growth.

They also have forgotten the period after the war – when as the Harvard historian notes they were the “patients” and were put back on their feet via a massive fiscal injection.

The article notes the contradictions in current German pronouncements. They want “more Europe” – and have said they want “more coordination of policies and more common decision-making” but they will never give up their own autonomy. They will never accept that Greece is part of a “new country” where Germany and Greece are sub-national states with equal entitlements to the common wealth.

Australia is a true Commonwealth and we have very unequal federal transfers between the member states and very unequal contributions to allow those transfers to take place.

The Germans say that they have demonstrated – in the unification – that they can merge with poorer nations (East Germany). But that was a merger of a common language, culture, etc which had been split by politics. It was like the Greeks getting Rhodes back from the Italians after the Second World War (only on a different scale and with different challenges – given the industrial bases etc).

There is no way – given my understanding of the European history and psyche that the Germans will be prepared to cede their autonomy and join a true Commonwealth of Europe with the Greeks and the Italians etc. For the Eurozone to work that is what is required.

The Harvard historian notes that such unity:

… will not be created simply through the European Union’s recent “fiscal compact” extracted by Berlin, which provides for automatic but unenforceable fines designed to encourage budget orthodoxy.

The fiscal compact is a move in the opposite direction to what is required. It will ensure that the nations who sign up for it are incapable of sustaining full employment and provide economic conditions within which prosperity can flourish.

The fiscal compact will guarantee that the future for Europe is austere and grim.

Instead, the article proposes a Marshall Plan redux:

It is time for Germany, once the recipient of aid, to design its current policies with the same sense of urgency and vision that America did after World War II with the Marshall Plan, a farsighted program of assistance for the reconstruction of Europe. The Continent is vastly wealthier today than it was then, but the key issue remains how to overcome economic stagnation without imposing painful austerity that strengthens extremist parties and endangers democratic politics.

I will write another day on what the dimensions of this might be in the current era and compare them to how the Marshall Plan was designed and implemented following the Second World War.

But we should be clear – it was a growth strategy not a budget containment strategy. It was conceived and implemented in an era where other major policy statements (the post WW2 White Papers) were articulating the role for fiscal and monetary policy – to ensure aggregate demand was stabilised around full employment. To promote strong public service capacities and public infrastructure.

Austerity was what the Marshall Plan was seeking to escape.

Some claim that the austerity conditions – internal devaluation (that is, wage cutting) and retrenchment of public services and pensions etc – was part of the Marshall Plan too.

The Harvard professor debunks that ahistorical view:

In fact, the Marshall Plan worked because it indefinitely suspended conditionality while nudging recipients toward eventual reforms. Postwar American leaders repeatedly postponed austerity requirements when confronted with French and Italian tax evasion and budget deficits. They let Marshall Plan funds cover budgetary deficits, wagering correctly that growth would ultimately wipe out the deficits.

In terms of my theme in yesterday’s blog – Technocrats move over, we need to read some books – history is important because patterns of behaviour repeat. Contexts may change, but patterns repeat.

One of the hallmarks of the neo-liberal attempt to salvage repute given the ideology was exposed by the crisis is that the leading proponents have an army working to continually revise history. They are continually “photoshopping” the bits they want us to forget out of the picture they present.

We should all be reading books about the Great Depression and the post WW2 recovery period because the lessons are clear. The history professor clearly knows that:

… rather than conditioning assistance on policies of immediate austerity that will only worsen depression — the outcome that the architects of the Marshall Plan sought to avoid — creditor countries like Germany would be wise to tie debt reduction and loan repayment to the resumption of economic growth.

The article also makes an interesting point. Even if the Greeks and Spaniards leave the Eurozone, they don’t leave Europe:

Their European neighbors will have to provide assistance whether they are in the euro zone or outside; after all, unemployed Greeks and Spaniards can and will migrate to northern Europe in search of jobs.

Juxtapose that with the views expressed by Hans-Werner Sinn in his NYT article yesterday – Why Berlin Is Balking on a Bailout.

I have considered his views before – please read – Rescue packages and iron boots and Defaulting on public debt as a way to progress.

His latest article contains some extraordinary statements.

His aim is to lecture Americans on what is best for Europe. He claims that “President Obama is urging Germany to share in the debt of the euro zone’s southern nations” but is wrong to do so.

Why?

First:

… such a bailout is illegal under the Maastricht Treaty, which governs the euro zone. Because the treaty is law in each member state, a bailout would be rejected by Germany’s Constitutional Court.

That hasn’t stopped the ECB conducting its Securities Markets Program (SMP) which has allowed it to accumulate billions of euros worth of government debt via secondary bond market purchases, which has had the effect of taking Greece “out of the markets” and preventing a collapse of the whole monetary system.

Further, more recently, the ECB has been supporting the system via its Long-Term Refinancing Operation (LTRO) – aka cheap loans to banks via the ECB to allow them to purchase government bonds. The troubled Spanish banks have been buying massive quantites of Spanish government debt with the cheap loans.

None of these initiatives have been “rejected by Germany’s Constitutional Court”.

And when you compare the current real damage that the austerity is causing – unemployment, poverty etc – one has to ask is what the German Constitutional Court thinks something that should be prioritised in the debate. That tells me that there is something wrong with the German Constitution that the political leaders should be addressing with some haste.

There was a shocking article in today’s Fairfax papers (Australia) – Greek patients left without medicine as money runs out – which brings the policy madness down to human levels that we should all be able to understand – down from the lofty nonsense about “placating markets”.

Sinn’s second objection to bailouts is that:

… a bailout doesn’t make economic sense, and would likely make the situation worse. Such schemes violate the liability principle, one of the constituting principles of a market economy, which holds that it is the creditors’ responsibility to choose their debtors. If debtors cannot repay, creditors should bear the losses.

If we give up the liability principle, the European market economy will lose its most important allocative virtue: the careful selection of investment opportunities by creditors. We would then waste part of the capital generated by the arduous savings of earlier generations. I am surprised that the president of the world’s most successful capitalist nation would overlook this.

That is an extraodinary statement given that the crisis is all about the massive failure of the “liability principle” to allocate investment resources appropriately.

Recall that the massive pre-crisis German surpluses were not being used to reward their own workforce in the form of real wages growth. Quite the opposite. Given the stifled domestic demand, the German funds flowed – yes, south! The profligate Greeks got their money from the Germans (and French) and so did the Spaniards.

How much “capital” has been wasted through the folly of the financial markets as a result of this crisis.

Further, bailouts should rather be constructed as “fiscal support” for growth. Then, as in the Marshall Plan era the strategy would work.

The bailout strategy currently in place will never work because it is accompanied by austerity which kills growth and therefore kills the wherewithall to pay back the debt. It just eats itself up.

Sinn then shows he is somewhat of a neo-liberal maverick by arguing that to really accomplish “systematic risk-sharing between the states of Europe”:

… the countries should first form a common nation, with a constitution, a common legal superstructure, a monopoly on power to ensure obedience to the law and a common army for external defense.

I agree. And the political reforms would have to be supplemented by a policy slant that uses the commonwealth to ensure there is full employment across the newly-created federation.

Sinn doesn’t see this happening “in the foreseeable future, because the euro zone countries, above all France, are unwilling to give up sufficient sovereignty”. The gratuitous dig at France made me laugh. I think Berlin would join France in resisting that.

He also claimed that the bailouts have failed:

We are, however, already in the fifth year of generous liquidity help to Europe’s uncompetitive members …

But the “generous liquidity help” has been accompanied by a self-defeating austerity approach. I agree with him that the strategy is not working. But I include the whole strategy including the austerity.

Sinn touches on the Marshall Plan argument:

Some critics have argued that Germany, having benefited from the Marshall Plan, now owes it to Europe to undertake a similar rescue. Those critics should look at the numbers.

Greece has received or been promised $575 billion through assistance efforts, including Target credit, E.C.B. bond purchases and a haircut after a debt moratorium. Compare this with the Marshall Plan, for which Germany is very grateful. It received 0.5 percent of its G.D.P. for four years, or 2 percent in total. Applied to the Greek G.D.P., this would be about $5 billion today.

In other words, Greece has received a staggering 115 Marshall plans, 29 from Germany alone, and yet the situation has not improved. Why, Mr. Obama, is that not enough?

Again Dr Sinn should reflect on history.

Germany was able to grow very quickly on the relatively small assistance it received under the Marshall Plan because the rest of the world was pursuing strong fiscal-led growth as well.

Throwing money at Greece now while at the same time demanding that its government actively undermines all sources of growth and demanding other governments do the same thing (choking off the export-led recovery route) will never have the Marshall Plan outcomes.

Please read my blog – Fiscal austerity – the newest fallacy of composition – for more discussion on this point.

Conclusion

Selective versions of history always fail, especially when they are overlaid and driven by a blinkered ideology that prevents a full understanding of why things happen.

These two articles demonstrate that point clearly. The historian understands how European reconstruction occurred and has articulated what that means for the current European malaise. The German economics professor, imbued with Ordo-liberalism, cannot see beyond his blinkers.

Please read my blog – Why history matters – for more discussion on this.

That is enough for today!

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    This Post Has 19 Comments
    1. “Germany was able to grow very quickly on the relatively small assistance it received under the Marshall Plan because the rest of the world was pursuing strong fiscal-led growth as well.”

      Maybe not in the UK?

      “Most notably by R.C.O.Matthews in his article ‘Why Has Britain Had Full Employment Since the War ?’ (Economic Journal, September 1968). For Matthews, the question was provoked when he found it difficult to identify direct evidence of a Keynesian stance of fiscal policy in the U.K. He noted that, rather than a budget deficit designed to support a high level of aggregate demand, the government had persistently had a budget surplus, although he recognized that a surplus observed ex-post is not necessarily inconsistent with a deficit intended ex-ante.” P47.
      “Matthews did not dispute this, but pointed out that :…throughout the post-war period the
      government, so far from injecting demand into the system, has persistently had a
      large current account surplus.
      From this he inferred :Fiscal policy as such therefore appears on the face of it to have been deflationary in the post-war period, quite strongly deflationary in fact, rather than the reverse.” P197
      http://www.press3.co.uk/publications/to_full_employment/chapters/

    2. I find it peculiar how Bill keeps forgetting – in talking about Marshall plans and new fiscal redistribution within the EU and the Eurozone – that there already is such a system that has been functioning for decades, which transfered hundreds upon hundreds of billions of Euros between net donor countries (among which of course Germany, as well as France, Italy, Netherlands, etc.) and net receiver countries (like Greece, Spain or Portugal, or outside of the Eurozone new members states like Poland, Romania, Bulgaria, etc.).

      This system is composed from the european structural and cohesion funds, as well as the famous/infamous common agricultural policy funds. Their main point is exactly to provide investment into things like infrastructure for the regions that are below the EU average, to promote job creation, education and research&development and of course to protect to a certain extent branches of those member states that might be vulnerable for a while after joing a competitive common market.

      Countries like Greece have been receiving a yearly Marshall plan (in fact, much better, since these are to a large extent non-refundable transfers, not credits), and by a yearly Marshall plan, I mean that quite literally – i.e. in terms of proportion between the net EU funding they received and their GDP.

      And it certainly worked, since one can definately argue that a significant portion of the growth (including standards of living improvemenets) states like Spain, Greece or Portugal experienced in the past 20 years (and more) has been due to these fiscal transfers and EU investments. But one can also argue that this growth has had a pretty shoddy basis, meaning that the structural reforms needed to create competitive economies have only been partially implemented, if at all (in the case of Greece). This, to be noted, all in periods where there was little to no austerity, and where everybody else was growing or trying to be growing too.

      So, the question still remains: OK, we want even more redistribution, even more money flowing from the richer regions to the less rich regions. What will make it this time work better?

    3. Andrei, were those funds not meant to generally improve the lot of countries it was sent to rather than “Competitiveness”)? In particular regional aid (we received that in the UK) and as a way of stabalizing those countries (Greece, Portugal, Spain) that had suffered military Junta’s, repression etc. The funds were a way of “raising the game” of these countries with respect to democracy, law and infra-structure. The fact that the Euro (at least it’s design) rather exacerbated infows of cheap cash from private banks into loads for land in these countries does not invalidate the use of the orginal funds (yes, I agree Mashall-like in their use)

    4. The bailout strategy currently in place will never work because it is accompanied by austerity which kills growth and therefore kills the wherewithal to pay back the debt. It just eats itself up.

      It won’t work if your goal is improving the Greeks’ lives. If however your goal is to impose successively harsh labor market “liberalizations” (aka structural ajustments), then it is working exactly as planned. If your goal is to crush the European social welfare state, then it is working just fine. If your goal is to reduce European labor to third world status, then it is working just fine.

      It’s about time to stop viewing this as the errant policies of the economically illiterate. Someone is PAYING these jerks to be this way, and they must all be doing their jobs just fine, because NONE of them are getting fired.

    5. Just a note on “ordoliberalism” for those not familiar. Ordoliberalism is a form of “free market” neoliberalism that ALLOWS government interventionin the free market, but ONLY if that intervention hurries the journey of that “free market” to its natural equilibrium. That equilibrium, of course, is in the eye of the beholder. If one views labor not as a participant in the free market, but rather as a brake on it, ordoliberalism says it is just fine to use government intervention to crush labor organization.

      Greece’s “journey” is being hurried along.

    6. Why not a combination of a return to sovereign currencies (Marks, Francs,Drachmas, etc.) which would be legal tender only for taxes in their respective countries and the Euro which would only be acceptable for private debts? This would:

      1) Strongly encourage governments to be responsible wrt spending and tax collection since the “stealth inflation tax” would not be an option.
      2) Strongly encourage banks lending Euros to lend responsibly since what else would back the value of the Euro if not the value of their assets?

      Of course other purely private currencies should be allowed too.

      Also, all debts denominated in Euros could remain so since sovereign currencies are fully backed by the requirement to pay taxes with them?

    7. Also, all debts denominated in Euros could remain so since sovereign currencies are fully backed by the requirement to pay taxes with them? FB

      Make that “all private debts”.

    8. @Andreai
      Most of the infrastructural flows to the periphery post 1987~ was road based.
      The idea was simply to find a market for bank consumer credit based cars – the cores biggest industry.
      I remember our prime Minister waving a money in our time cheque post Maastricht….which went on – you guessed it more roads.

      I would recommend you observe oil consumption in the core relative to Spain , Ireland Greece etc….. its a dramatic difference related to wage supression / deflation in the core since the mid 80s.
      We were a fois Gras dish for the core banks , nothing more – a conduit for bank funds.

      The EIB is operating almost in a Quasi fiscal role , trying to reverse the malinvestment in Spain but its too late now.

    9. ordoliberalism says it is just fine to use government intervention to crush labor organization.

      Then it’s wrong to accuse Germany of ordoliberalism. I don’t know other places where they have better unions than in Germany. Or maybe it is just because they don’t go around shouting and screaming the old rhetorical class struggle bullshit.

    10. Apropos of nothing and being a very new reader of your site, could you please explain to me why, if a sovereign country can borrow overseas in its own currency, it does not just print the bloody stuff. Somebody said that the reason is because the borrowed money has to be paid back. But surely that can be done when you print money. For example if Auckland needs a railway couldn’t the Government just print the money, lend it at a very very low interest rate to Auckand and load every ticket sold with x amount to repay the loan? Somebody else said the reason was because the bond markets would not like us. So………

    11. Dear Bill,
      Watching ‘Utopia Girls’ on the ABC last night was enough to set me off, decrying the (general) stupidity of our beloved human male. Women really are more intelligent. And human ….
      I wish women understood the monetary system as something that was meant to nourish, hijacked by the male prerogative to wield power: a base instinct – (sexual discrimination in the true sense of the word – the ’bull of the earth’ wielding power over the herd and terrain). The Justice system, the monetary system and sex (personal power) are ever closely linked. IMF ‘bullies’ etc….
      Money I believe, is meant to serve people; to nourish people as only humans can find means and ways to nourish each other.
      I always think how idiotic most of the male commentary is, when I see people suffering.
      If I may post a refresher, just a little over a hundred years ago women in Australia were ‘chattel’. Once married everything was signed over to the male (including children). Unmarried mothers were denied employment and social inclusion, and could only earn a pittance through prostituting themselves (to the base instincts of males). In a nationwide reported trial, an unmarried mother, despite all of her motherly instincts and in implacable grief, and faced with the stark reality of seeing her baby starve to death, took her baby’s life by drowning in the Yarra; and was subsequently sentenced to hang.
      Women fought their way to recognition and the right to vote. In South Australia, the proposed legislation made it through the Lower House and met stiff opposition from the remaining bastion of male privileged power in the Upper House. In order to quash the Bill these pillions of society duplicitously inserted a Clause giving women not only the right to vote, but also the right to be elected to Parliament (believing that the majority would never ever pass this male privilege on to mere women). Statements made by members of the Parliament about women being given the vote were highly discriminatory, patronising, offensive and derisive. But the Bill was passed – I told you males are stupid!! It took just a handful of a few good women, helped by a few good men – to bring down a whole social aberration.
      Australian women inspired their British and American counterparts – yet, we all know there are large undercurrents of male discrimination left over. I believe women could easily grasp the true potential of the monetary system (leave it to the guys and it will be millennia). I wish it were European women hitting the streets and the headlines …..
      Characteristically ‘male’ power rationalises War for which there is no sane explanation (would you use a baby to chock a car from rolling downhill)? Poverty and suffering are rationalised. Women who nurture life know better.
      Needless suffering is inflicted on whole populations (the herd and the young) while the bulls’ fight it out and conspire to dominate. Their ideology is as flawed as ever. I don’t think it is hard to understand! These energies are base, and belong only in the animal world. Intellect that is enslaved to these energies is dumb!!
      In our human world animal passion should be overridden by the beauty of human compassion; and people be given their sovereign right to celebrate being human and alive.
      Am tired of listening to XPerts!!!!!
      Cheers Bill …
      jrbarch

    12. ” I don’t know other places where they have better unions than in Germany. ”

      Or a more ‘flexible’ contract and temporary worker sector…

      Unions aren’t in charge everywhere. They have been sidelined – as they have in the UK.

    13. ” For example if Auckland needs a railway couldn’t the Government just print the money, lend it at a very very low interest rate to Auckand and load every ticket sold with x amount to repay the loan?”

      It doesn’t need to do that if there is spare capacity in the economy. The Treasury could ‘borrow’ from the central bank, and the railway created. The money spent on that railway infrastructure creates transactions, which generates extra taxation and savings at the central bank – both of which offset the original loan.

      Using up spare capacity ‘pays’ for itself.

    14. But Neil I understand how it would create transactions but the Government is saying there is no money for anything. They are cutting jobs in the Public Service, reducing funds for roads even wanting to increase class sizes to reduce the number of teachers, although there was such a hue and a cry over that they backed off etc etc. However they are still borrowing from overseas although heaven only knows for what. My question is why borrow from overseas and pay interest to foreigners when the Government could print it, get some interest and build all the infrastructure we do need. Eg the Auckland railway, state houses in Christchurch or even fixing the state houses that need earthquake repairs. People are needing homes. It is so cold and there are people having to live in caravans.

    15. @Neil
      That depends on the type of railway you want to build.
      For example the French high speed programme is on a very large scale and its construction costs are higher then even a highway programme … why ? LGV needs a vast amount of Diesel and other inputs such as high quality steel.
      http://www.youtube.com/watch?v=P-zxNPwYf4c

      In a country without this as a internal resourse it must buy this fluid from abroad stimulating demand elsewhere , perhaps exporting its wealth to this country to earn a income etc etc , that country (maybe Saudi Arabia) burns more precious fuel as it gets richer ..leaving less for export………and so on.

      The French are clearly racing to build these things while they still can……. drawing on the peripheral accounts – when they go back to the Franc domestic labour will be cheaper from a international perspective and therefore they can redirect their energies to more labour intensive constructs such as bringing back on line old 19th century lines.

      fr.wikipedia.org/wiki/Ligne_du_Havre-Graville_à_Tourville-les-Ifs ……. (tens of thousands of Kms of these things in France alone)

      Europe is not Australia or the US ….we just don’t have much internal raw materials so we must game each other…..some are better then others.

    16. With regard to Europe, Greece in particular, there has been a lot of verbiage written and heard but I have not seen enough serious analysis. We have the famous familiar formula (in fluid dynamics this would be called a continuity equation or conservation equation)

      S – I = G – T + X – M

      which applies to nations which issue their own currency. This ought to apply to the eurozone where the quantities are aggregated over the countries therein. Something like it should also apply to individual countries, for example Greece, although there are constraints on how the government can spend and it might have to take into account other transactions, particularly bond sales and redemptions, between Greece and the rest of the eurozone. I would be very interested to see what happens to the equation in that case.

      It is important to do this calculation because it seems to me that, with or without austerity, there are simply not enough euros within Greece for the country to be able to pay its debts to bond holders. Since the Greek government is not able to inject more euros, without favourable net exports the total number of euros cannot increase, except perhaps in the unlikely event that people will start transferring their bank deposits into Greek banks. The only possibility then is for the ECB to inject money. Since we are told convincingly that quantitative easing is not effective, the best way would be for the ECB to spend directly within Greece, or give money to the Greek government to do it.

      What do all you experts think about this sort of argument?

    17. Or a more ‘flexible’ contract and temporary worker sector…

      The Dutch have flexible contracts and temp workers and have been doing much better than others who don’t have them.

      Unions aren’t in charge everywhere. They have been sidelined – as they have in the UK.

      Unions are not in charge in Germany. They are good partners of the “capitalists”.

      If that’s ordoliberalism, give me some!

    18. Neil:

      Andrei, were those funds not meant to generally improve the lot of countries it was sent to rather than “Competitiveness”)? In particular regional aid (we received that in the UK) and as a way of stabalizing those countries (Greece, Portugal, Spain) that had suffered military Junta’s, repression etc. The funds were a way of “raising the game” of these countries with respect to democracy, law and infra-structure. The fact that the Euro (at least it’s design) rather exacerbated infows of cheap cash from private banks into loads for land in these countries does not invalidate the use of the orginal funds (yes, I agree Mashall-like in their use)

      Yes, of course the cohesion funds are used primarily to provide better infrastructure and administrative, social & cultural services for the net receiver regions&countries than their own economic power can provide. That’s more or less the point of federal transfers – trying to equalize the standards of living (from the public services perspective) to whatever extent you can afford to do, and provide a more advanced infrastructure in the hope that you can kickstart economic reforms (transitions from agriculture to industry, or from mining to tourism or whatever else you might need in one particular area). And, again, the infrastucture part is one aspect of the development funds, the other are very specific financing for R&D projects, for education projects, for micro-financing for entrepreneurs, for unemployment re-education and so on and so forth.

      Now, it is true that usually federal funds are redistributed without specific targets, whereas the EU funds are almost always bound to specific projects that have to be proposed and to a varying extent also co-financed by the receiving authorities. But this difference is IMO relatively irrelevant in the context of this discussion, because the project proposals still originate at the regional level – it’s not like the EU tells any region in Spain what they need, they just receive a list of proposals created by the local authorities, evaluate them and give them a go or no go.

      So, again, I fail to see why Bill keeps ignoring this already existant mechanism for re-distribution of wealth within the Eurozone and the EU.

      The Dork of Cork:

      Most of the infrastructural flows to the periphery post 1987~ was road based. The idea was simply to find a market for bank consumer credit based cars – the cores biggest industry. I remember our prime Minister waving a money in our time cheque post Maastricht….which went on – you guessed it more roads. I would recommend you observe oil consumption in the core relative to Spain , Ireland Greece etc….. its a dramatic difference related to wage supression / deflation in the core since the mid 80s.

      Even if it were true that most funds were earmarked for “road paving” (it isn’t), the question is: so what? Not only are infrastructure projects a pretty well-understood means of ensuring work, they also do happen to be a catalyst and a requirement for future economic development: without airports, tourists inflows will be lower than with them. Without havens, exports will be lower and more expensive than with them. Without roads, pretty much everything will be worse off than with them – private and commercial logistics, workforce mobility, etc.

      On a more private note, I am pretty sure that having highways, high speed rail, public transport in cities and modern airports ranked and still rank high on the wish-list of the populations of the “periphery” countries. Just like having a good car is an indicator of being well-off for a large majority. It might be sad from an ecological perspective, and it might be annoying that marketing and advertising can actually influence people (who knew?) but in the end, an economy must also provide people with the things they want, not just with those that they need (at least as long as their wants do not end up being destructive: see housing bubble in Spain).

      So, from this perspective, one must keep in mind that whatever infrastructure development was funded with EU funds was a) the choice of and planned by the national & local authorities from every country that requested EU funds and b) was most certainly desired by the majority of the population.

      Now, one can certainly say that some or many of the infrastructure projects in countries like Greece or Portugal were to an extent in the “roads to nowhere” category – they were make-work programms, so in that sense they fulfilled some positive role, but they also were poor investments in terms of ROI and did little to nothing to kickstart development wherever they were implemented. All that is quite true.

      But that brings me back to my second point: even if we agree to more wealth transfer between net donor and net receiver countries within the EU or the Eurozone in particular, what is to say that they will simply not be put to the same kind of use as the billions of structural and development funds before them?

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