Does anybody really care about the euro?

As a newcomer to the European experience, the public, political, pundit and policy communities reactions to the various sovereign debt crises of the past year have been quite fascinating to observe.

First, let me say that the advantages of the European Experiment were always ones that attracted me. The notion of liquid borders and labour mobility and the degree to which European integration reduced the chances for armed conflcit in the European sphere were clear advantages. Opportunities for collaboration and cooperation seemed more abundant and easier to achieve. 

So, the past year living in Europe has been a bit of a wake up call for me.

Europe's sovereign debt crisis and the plight of the Euro fill the news channels. On Mondays, Tuesdays and Thursdays, we hear that the absence of a coordinated fiscal policy is the problem and the other days of the week sees the emphasis placed on the banking crisis and looming state liquidity problems.

No one seems to be speaking up forcefully and clearly in favour of the union. One of the issues seems to be an over-reliance and over-emphasis on the fiscal aspects of the value of the European Community. The policy community has done a rather poor job identifying and publicizing the other benefits that accrue from union.

Cultural reinvigoration, greater mobility of individuals and ideas, the creation of research and economic partnerhsips and linkages provide significant benefits. That these benefits may not be easy to quantify economically does not mean that they should not be understood as part of the accounting exercise that determines the perceived success or failure of the EC  - and the Euro as its symbol.

These other advantages should be counted as positive additions on the balance sheet and that would reduce the debt to GDP ratios probably a great deal. But perhaps not the hysteria.

As a non-economist, I worry and wonder at the obsession about sovereign GDP to debt ratios.

For starters, in an economic union, the issue should be total states' debt to GDP ratio based on a full assessment of benefits and perhaps some adjustments for population and entitlement program differences between states. It seems to me that what needs to happen is a commitment to create a policy process that harmonizes and adjusts entitlement programs over time rather than prescriptions from banks for lurching changes in government programs that drastically and all too often sorrowfully impacts people's lives.

There is no reason why a new political, economic and social entity such as a Reformed European Community ( the REC) needs to be constrained by old practices and habits that were used to manage nation-states under the old EC rules. Policies that create greater misery, cause riots and don't actually solve problems hardly seem worth pursuing.

Leadership requires a new discourse of governmentality with different assumptions and values that are more suited to the reality that is being created in Europe.

Granted this requires courage and that can be an item lacking with risk-averse politicians.

It is easy to figure out where the fear and paralysis starts. Allegedly, if Greece Spain, Ireland and Italy default, the world will end as we know it. Banks and states will disappear and the pressures on fiscally responsible countries such as Germany will be overwhelming.

This is clear nonsense.

If all we have left to work with is debt, then we have to treat debt as a resource and decide how best to exploit it in new ways rather than as a bogey-man hiding in the Acropolis or in a pub off St. Stephen's Green.

Let us begin by changing assumptions about national debt. It is not a moral failing but rather the price we pay for not properly accounting for the externalities in our economy. In fact, the calculation is incorrect and a poor basis for public policy.

Can we collectively decide that economies get into debt and fail not just becasue of poor economic planning or a lack of discipline by citizens (specifically a lack of discipline in trying to access social benefits rather than buying a luxury yacht then defaulting on delivery) but for many other reasons which represent choices we make to organize our societies in certain ways: uderutilization and ghettoization of the talents of women that have been historically and woefully underused: the dark side of processes of production and consumption that create a host of problems from obesity to mental illness that rob the economy of creative and purposeful work; and, unequal and unfair advantages for a small minority of citizens that are perpetuated and propagated in various ways from low death succession duties to woefully low taxes. 

Is there a solution? I am not an economist but I have some ideas about what I would like to see happen to get things unjammed and moving. So, for what it is worth, here is what I would like to think about doing?

a) A European wide meeting of EU-members is required. The purpose is three-fold: reaffirm commitment for the European Union; provide  and agree for a total social accounting valuation of the benefits of the union (EC GDP); and, agree to a harmonization process for national benefits and entitlements that wil be complete within five years.

b) All government debt, from both troubled and untroubled countries, will be cancelled after seven years. Each country will begin coordinated negotiations now with pension plans, banks and other lenders to plan for this transition.

c)The cancelled debt will be divided into two amounts; an active 50% which will persist uinder new rules; and, an inactive 50% which will be repaid through a EU-wide consumption tax. The amount of the debt to be maintained in free circulation will be 50% of the total as of March 2012. The remaining 50% of the debt that is cancelled for repayment will be transferred to a European Stabilization Fund that will be used to manage transitions after Year Seven. From Year Seven on, no state from that point on can borrow in excess of 33% of its new EC GDP.

The goal here is to get into a different discussion about the purpose of sovereign debt and a different arangement between lenders and borrowers about how that debt will be repaed.

The issue here though is to create a process in which everyone owns the problem and no one entity's problem is another entity's profit. Profit is not entirley odious nor is capitalism. There is lots of room in the future for capitalists and capitalism. As my deceased father-in-law once told me, "There is absolutely nothing wrong with being a capitalist, just don't be a capitalist pig!". That is probably the best description of a mixed economy that I have come across.

d) A common employment and labour training and policy plan will have to be developed. This plan will encourage movement of capital and skills globally and locally. it will accelerate the Bologna process and generally reflect values of generosity and prudence rather fear and greed.

e) A European Stabilization Fund wll be created from the 50% of the current debt which will be held by the EC. The interest payments on this debt will be backed by a new common revenue tax framework which will see consumption on most products and services taxed in each member state at the rate of 5%. A separate luxury good consumtion tax will be developed for obvious, high end luxury gos at 17%. As the principle amount of the old debt is reduced, the fund can be rebuilt and used to fund investments in education, training and reserach designed to build the innovation economy and the green economy of the futre required by all states. 

Fully integrated fiscal policy may be impossible but some agreement on harmonization and at least a common tax on consumption might be a place to start.

Is it possible to agree that Europe's bankers may not continue to earn huge bonuses and that still life will go on?

Fortunately for any bankers who accidentally come across this blog, they have little to fear. Critics will point out that these recommendations do not reflect economic theory or pevailing economic wisdom  in any reasonable fashion. My notions will be largely dismissed as the idle musings of a crank.

Easy dismissal, however, creates a problem.

Perceived economic wisdom and economic theory seem unable to solve our problems, particularly over the past five years.

In many ways, they have made things worse.

Consequently, it has become increasingly difficult to discern who is a crank and who is not.