Don't Ever Let This Happen Here

France and Germany refuse to rein in budgets

The euro zone Stability and Growth Pact came a step closer to collapse yesterday as both Germany and France announced they were abandoning efforts to balance their budgets by 2006.

Faced with a severe economic downturn and a sharp rise in their currency, the two countries said it no longer made any sense to keep tightening belts.

"Tightening belts" is probably a euphemism for cutting taxes, services, and entitlements. If this is the case, then they are doomed in the long run to poor or even negative economic performance.

Germany's finance minister, Hans Eichel, who has struggled to stick to the rules despite unemployment rising to 4.6m, effectively threw in the towel over the weekend.

"A balanced budget in 2006 can no longer be achieved," he said yesterday, blaming three years of economic stagnation.

Stagnation created by decades of public support for crippling entitlement programs, state handholding, economic regulation, and solid union resistence to change. Europeans are quite capable of driving a lively and powerful economy, but they need a radical and far-reaching change in philosophy before that will ever happen.

Both Mr Eichel and Mr Mer exhorted the European Central Bank to relax monetary policy, arguing that inflation was now well under control.

The ECB shares some of the blame as well, but it's not the real source of the problem.

I see the same similarities between the Texas budget battles and this. In each case, I believe the fundamental reason why there are terrible economic circumstances and budget deficits are because the state has become so large and intrusive that it acts as a ratchet for political groups and the contituencies they serve. Once you get someone else to provide goods, services, and income for you and for "free," it gets really hard to take that away. You get accused of "taking aim at families" or "soaking the rich" or "heartlessly abandoning children" or "targeting poor minorities" and such nonsense. No debate at all is generated over the real question: Why must others be forced to provide for others? Asking that to nearly all politicans is akin to asking why is the sky blue.

If we continue on the track of creeping statism by nips and inches, we'll end up like the EU one day. There are substantial differences between the two areas, granted, but even with the supposedly "smaller government" advocates (Republicans, as they call themselves) in power, I don't see any crucial changes.

Posted by Drizzten at May 16, 2003 10:28 AM