A Non-Impossible Fix for Europe’s Economic Problems

For indispensable reporting on the coronavirus crisis, the election, and more, subscribe to the Mother Jones Daily newsletter.


Is there an easy solution to the problems of Europe’s south? Well, one of the eurozone’s fundamental problems is that (a) workers in the GIPSI countries are uncompetitive and (b) the GIPSI countries are running persistent trade deficits. They need to import less while Europe’s core (especially Germany) needs to export less.

So how do you make workers more competitive? One way is to simply cut their pay, but that’s hard. Another way is to substantially reduce payroll taxes, which reduces labor costs without cutting take-home pay.

And how do you discourage imports? One way is to devalue your currency, but countries in the eurozone can’t do that. Another way is to raise your VAT, which makes goods more expensive.

Put those together, mix in some more sensible monetary policy, and you get “fiscal devaluation” plus higher inflation. That’s the recommendation of Georgetown’s Jay Shambaugh, glossed here by Matt Yglesias:

  1. A pro-exports tax swap in peripheral countries where payroll taxes are slashed and the money is made up with higher VAT.
  2. A pro-consumer tax swap in the core countries, where VATs are slashed and the lost revenue is made up with a combination of bigger deficits and higher payroll taxes.
  3. A higher inflation target from the European Central Bank.

Shambaugh also recommends increased ECB purchases of sovereign debt; capital injections into stressed banks; and bigger budget deficits in “non-stressed” countries. This all sounds surprisingly….reasonable. And even doable. It still wouldn’t be easy, since there would very definitely be some losers from this kind of policy, but it’s not flatly impossible. That’s a start.

DOES IT FEEL LIKE POLITICS IS AT A BREAKING POINT?

Headshot of Editor in Chief of Mother Jones, Clara Jeffery

It sure feels that way to me, and here at Mother Jones, we’ve been thinking a lot about what journalism needs to do differently, and how we can have the biggest impact.

We kept coming back to one word: corruption. Democracy and the rule of law being undermined by those with wealth and power for their own gain. So we're launching an ambitious Mother Jones Corruption Project to do deep, time-intensive reporting on systemic corruption, and asking the MoJo community to help crowdfund it.

We aim to hire, build a team, and give them the time and space needed to understand how we got here and how we might get out. We want to dig into the forces and decisions that have allowed massive conflicts of interest, influence peddling, and win-at-all-costs politics to flourish.

It's unlike anything we've done, and we have seed funding to get started, but we're looking to raise $500,000 from readers by July when we'll be making key budgeting decisions—and the more resources we have by then, the deeper we can dig. If our plan sounds good to you, please help kickstart it with a tax-deductible donation today.

Thanks for reading—whether or not you can pitch in today, or ever, I'm glad you're with us.

Signed by Clara Jeffery

Clara Jeffery, Editor-in-Chief

We Recommend

Latest