Why the U.S. Should Join the EU
To those looking for a way to set the U.S. back on a path to fiscal sanity, here's a modest proposal: Join the European Union. Sure, the Freedom Fries-scarfing crowd would hate the idea, but as Greece's economic crisis demonstrates, the EU has the tools to stop runaway PIGS.
Who are the PIGS? The countries whose debt is higher than their GDP and whose fiscal deficits are turning their budgets into swill.
- Portugal (a deficit of 8.6% of GDP)
- Ireland (12.5%)
- Greece (12.7%)
- Spain (9.8%).
Unlike the U.S., the PIGS, by and large, have plans to staunch the flow of red ink through higher taxes, lower spending and even increased retirement ages. They also have the EU-the Brussels-based bogeyman-as political cover when the entitled, the old, and the Mensheviks complain.
Take Greece, for example, a small country whose incomparable fiscal mess is having such large consequences.
Under the EU treaty, Brussels has every right to tell Greece (and the other PIGS) what to do in fiscal terms. And it is doing just that. Beginning in February, EU officials began monitoring the Greek budget, and even helping to figure out a detailed plan to cut the deficit. And it is keeping the pressure up. On March 1, EU Monetary Affairs Commissioner Olli Rehn announced that "I am asking the Greek government to announce new measures [to reduce its deficit] in the coming days."
The next day, Greek Prime Minister George Papandreou signalled that he had got the message. Even in the teeth of protests--taxi drivers were on strike as Papandreou spoke, tax officials are scheduled for one next week and the civil service is threatening for the week after that, he told Parliament. "The government is forced to ask for a contribution from all citizens, and for civil servants to get by with less."
By March 16, Greece needs to come up with detailed schedule of budget cuts and revenue gains to close the gap. If it fails, the EU will do its own suggesting--and Greece can kiss the hope of any bailout goodbye.
Now, Europe's fiscal problems are not exactly behind it, as the wonky financial markets and wobbly currency show; the euro has dropped from 1.50 to the dollar to 1.36 since early December.
But yields on Greece's government debt, which had grown to 400 basis points compared to those of Germany, have narrowed to 330. And the cost of insuring against its default has fallen. These are signs that investors have some confidence that the country is not going to go under. And th
ey have that confidence because the EU is forcing Greece to do the unpalatable, indeed the all-but-unthinkable.
The other PIGS have also had to submit plans and timelines to reduce their deficits to 3% of GDP, which is supposed to be the maximum under EU rules. Yes, lots of things could happen, and these are not done deals. These are democracies, after all, and just as no turkey votes for Christmas, no politician relishes voting for reforms that tick off major constituencies.
And that is the beauty of the EU. It gives politicians in the PIGS someone to blame for having to do all these awful things that they know must be done. The U.S. lacks such a scapegoat, which is why we are looking at several years of trillion-dollar-plus deficits and absolutely no clue what to do about that. We have only ourselves to blame for getting into this mess, and only ourselves to rely on to get out of it. That is not a statement that fills one with confidence.
Greece, in a sense, got the EU to do its dirty work. The U.S. right about now could use that kind of adult supervision. So, to our friends, the cheese-eating surrender monkeys: Bonjour!