Recommended reading: The tragedy of the euro

Even though it is almost a year old, just yesterday I came across a book called "The tragedy of the euro" by professor Philipp Bagus from Universidad Rey Juan Carlos in Madrid. I have not had enough time to read it thoroughly, but what I saw in that short time span is more than enough for me to recommend it to everyone interested in knowing about the future (if any) of the European currency. You can find the full book here (PDF) thanks to the Mises Institute.

It is a story of good and noble ideas being badly applied or intentionally misunderstood. It is a story of how the fathers of what today is called the European Union tried to establish economic liberalism all across Europe, thinking of the possibilities, progress and growth an European-wide open marketplace could bring. But sadly, it is also a story of how some countries, specially France, managed to convert this great idea into a fully-fledged European super-state. A super-state with limiting regulations, the typical bureaucratic slowness and stiffness and inefficiency in general.

The book explains, with piercing clarity, the different motivations behind European countries to adopt a unified currency. Periferic countries like Greece, Ireland, Portugal, Spain and also France saw in the euro a great way to keep printing money and issuing debt (a necessary by-product of their deficit-prone economies). With an unified currency they would be able to hide the inflation caused by this objectionable tactics, as there would no longer be a Deutsche Mark to be compared against.

How did they convince Germany to be part of such an awful plan?

Losing ballast for a faster recovery: Slashing the government

Almost every developed country worldwide is nowadays fully immersed on its own fight for economic recovery. But this fight is made tougher by high unemployment rates, sovereign solvency doubts, inflation and financial speculation. The resultant situation is hard to tackle for governments: they need their economies to grow but they must ensure they are solvent and responsible, thus being a stable soil for said recovery to grow on. 

I am not going to discuss the measures for economic growth here, but the ones used to keep the state under control. These measures to try to lower government spending range from budget cuts, the end of some subsidies, establishment of debt ceilings, social services restrictions... to issuing (more) debt to be able to keep public spending at actual levels. Some of these moves are smart, some of them are insane, specially the debt issuing one... But all of them are late, very late.

2011 data from The Heritage Foundation , The Wall Street Journal via Wikipedia 

 

In the last decades we have grown accustomed to bigger and bigger states, with a never-ending growth in civil servants, entities, organizations, committees... Just have a look at the table above on the column for Government expenditure in percentage of GDP and you will see some unbearably high numbers (I will come back to analyze this table in a future post). This growth in size and cost was associated with the growing complexity of running a state in modern times, the never-ending appearance of new social measures and so on. Everybody let the parasite grow deep inside us, and when the ride was smooth nobody seemed to care about the extra weight that was being placed on the shoulders of the economy. But what now that we are on one of the bumpiest sections of this one-way road that is history? No matter how much horsepower your car has, if you start putting rocks in the trunk its performance will fall to the ground.

Stopping the government growth and its crazy spending is not enough, we must shrink its size and cost to reasonable levels. But how do you shrink a government without stopping its functions?