Chaos in Europe, the G20 in Cannes and the need for constitutional changes – Interview with Thomas Colignatus

2011-11-03

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By Protesilaos Stavrou

Thomas Colignatus Personal website: http://www.dataweb.nl/~cool/ Plan for Europe: http://mpra.ub.uni-muenchen.de/33476/

Thomas Colignatus is a Dutch econometrician (1954) who presents an economic plan for Europe. See an earlier interview, Part 1 and Part 2, or his text in Ekathimerini or the full plan in MPRA. He now has a memo Yes we can, in Cannes directed at President Obama and the G20 in Cannes November 3-4.

-Protesilaos Stavrou: Thomas, there is a quick consensus amongst economists that the euro rescue package only gives a temporary breath of air. I can refer to professor Richard Baldwin at Vox EU and my own analysis that the new Euro package will die at birth. The chief editor of the German Handelsblatt sees Greece falling apart. Now Papandreou calls for a referendum that may cause Greece to leave the eurozone. You advise the parliaments of the Eurozone to reject the rescue package. Europe cannot help itself. How can Obama help, who has such problems in his own country?

Thomas Colignatus: Let us first diagnose Europe. Kanzler Merkel’s strategy is apparently to keep a continual crisis. The current euro treaty has no effective way to force Greece and Italy to adapt their economies. The only way to force them to change their economies in the current setup is by high rates of interest in the market place if they don’t start behaving. Europeans are getting tired of all this and will at one time relinquish more of their national sovereignty to create a federal European fiscal union. At least, that is what Merkel hopes. The Economist reports that Merkel is willing to adapt the German constitution for this. Thus the current European way is muddling through with sticks and carrots. But the price is extremely high and quite risky.

-PS: What do you mean by ‘extremely high and quite risky’ ?

TC: The price is resentment. Voters don’t like leaders who continually present rescue packages that do not work. Voters hate being forced into something that doesn’t seem to work. The risk is a complete loss of confidence. The EFSF stability facility becomes a leveraged fund while the current crisis was created by such leverage. It can implode, and then the European Central Bank has to step in again, but with damaged reputation since it will seem illegal. Kanzler Merkel flirts with the Weimar republic. Greece is falling apart, Spain has 5 million unemployed, and Italy is out of control since Berlusconi does not care much about economics. Merkel hopes that people will opt for a fiscal union but they might as well blow up the EU. Imagine the 1929 Crash.

-PS: And that completes the diagnosis on Europe ?

TC: Not entirely. The plan that I propose contains four pillars and one of these is jobs. The meeting of the eurozone 17 concentrated on money but the earlier meeting of the EU 27 members also included a statement on jobs. This plan miserably fails. It neglects the aggressive export policies of Germany and Holland. It neglects the causes of the Great Stagflation that we are in. It neglects the need for national investment banks. The labour market in Greece and Spain is a disaster and I would reduce working hours by 20% and slash VAT to 1% to allow people to start working again with a decent income in short notice. Naturally the income tax on higher earners would have to compensate for the loss of tax income but the fun thing is that this need not be as much as it seems since you save on unemployment benefits and VAT proceeds are lower anyway because of the economy. Professors of finance and taxation tend to forget about the real economy. The reduction of VAT to 1% is not only a temporary measure but a structural measure to solve one of the causes of the Great Stagflation that we are suffering from since 1970.

-PS: That was Europe. Now the G20. You want President Obama to step in ?

TC: Well, he does not have to step in since Europe could solve it too. But another of the four pillars is the issue of governance. Our democracies in Europe and the US need an amendment to our constitutions. Both continents adopt Montesquieu’s separation of powers of the Executive, Legislative and Judiciary branches of government. Economic theory shows that we need a fourth branch, an Economic Supreme Court. President Obama has been a teacher in constitutional law. Never waste a good coincidence. We do not need a European fiscal union. Each nation can have its Economic Supreme Court filled with its own national scientists. The Italian Premier can be kept under control by Italy’s own economic scientists and not by a German Kanzler or a commissioner from Brussels. The United States of America also need their own Court. The mess in the USA has been caused since President Bush could tell economic untruths to the American public and get away with them. The Obama administration suffers from the same problem.

-PS: The clash last Summer between Obama and the Republicans on the debt ceiling almost brought the US government to a stand-still. Is this one of the things that can be solved by an Economic Supreme Court ?

TC: We have to be very precise here. The US have put the debt ceiling into law and the chaos that this causes shows how unwise it is of the EU to also require that, as in the current plans. Also, when the US would synchronize the elections of President and Congress then such clashes would occur much less. So the link between the idea of an Economic Supreme Court and a debt ceiling does not run over those lines. There is a different connection. The eurozone rescue package calls for independent forecasts of economy and budget. Good forecasts have a scientific base and science in itself is independent. To warrant proper functioning, you put this Court into the constitution. Instead of a debt ceiling you then use a debt target and so on.

TC: There is another aspect of democracy that is important here. The US and France have a Presidential system where voters vote separately for President and Parliament. This system is unwise for more reasons. You can get curious results such as for Bush, Gore and Nader or Chirac, Jospin and LePen, where someone is elected who would not be elected under a better system. The Presidential system in combination with districts also does not give much room for new parties and political innovation and competition. The Parliamentary system with proportional representation where Parliament also elects the Premier is superior because of the single electoral mandate and scope for new parties. Major parties would all supply ministers for government and the real job of Parliament is to control government rather than merely support a coalition. The G20 is a good platform to compare the experience in the EU and the US, in the light of the economic fall-out of the US political system and the disastrous impact of ideologues. If the G20 is willling to consider this, we will get a new world.

-PS: Thomas, thank you for this interview.