Currencies After the Crash by Sara Eisen

Author:Sara Eisen
Language: eng
Format: mobi, epub
ISBN: 9780071784887
Publisher: McGraw-Hill
Published: 2012-10-02T04:00:00+00:00

With old age dependency ratios climbing from roughly 27 percent currently to about 43 percent over the same time span, the tax burden on the remaining workers will increase dramatically if the present retirement age and current level of benefits are to continue. Because of the longstanding social compact that makes any negative adjustment to the current privileges enjoyed by the citizens an anathema, either tax levels must rise or growth and labor productivity must increase dramatically. Although growth is the strategy that is being championed within the eurozone, the process of reducing administrative hurdles and restrictive labor practices is proving to be a challenge similar to that of reducing benefits. The widely praised efforts of Mario Monti, the recently installed technocrat prime minister of Italy, have attacked only the most trivial corners of red tape, but have generated a dramatic amount of pushback from taxi drivers, notaries, and pharmacists, among others.

Far more significant than these protected backwaters are the large government corporations that produce more than 50 percent of many basic economic goods within the eurozone. This statist industrial policy, harking back to Lenin’s socialist New Economic Policy, when the government dominated the “commanding heights” of the Soviet economy, was adopted in varying degrees by the leading European states during the Depression and after World War II. Although there have been some privatizations and divestitures, railroads, airlines, electricity, oil production, steel, and many other heavy industries are still dominated or totally controlled by government companies.

The workers in these corporations are coddled and often hold the governments in their power, as Monti’s trials in Italy illustrate. As a result, many of these state-owned organizations operate at a loss and are notoriously unproductive, but for Europe to survive intact, it is crucial that they become more efficient and profitable. A lurch higher in productivity or profitability would lessen the tax burden on the average citizen and greatly ameliorate the financial plight of the European governments. As Table 4-1 makes clear, the government payroll and purchases sometimes total more than 50 percent of the GDP. Among the EU countries, only Luxembourg has government expenditures under 40 percent. Among the OECD countries (Organisation for Economic Co-operation and Development), the Western Europeans have the highest level of government participation in the economy, a heavy burden to carry, as statistics have shown a negative correlation between the size of government participation and GDP growth. The private sector is far more vibrant.

Table 4-1 Tax Burden and Government Expenditures as a Percentage of GDP

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