The favourable reaction to the $1 trillion package of loans and guarantees for Euroland states in difficulty did not last long. Yesterday markets fell sharply again on renewed worries that Euroland will not grow quickly enough or in places at all. A failure to grow will keep tax revenues depressed and social spending high, leaving deficits too large. Markets fear a European vicious circle.
So what should the EU do? It should change policy. Instead of seeing higher taxes and more regulations as the answer to everything it should see them as part of the problem. Instead of seeing government action as the outward manifestation of social solidarity, it should see the need for more private action to employ and serve the neighbours as proof of true social solidarity.
The EU should meet to achieve two big changes of direction. Its first task, as stern budget superviser urging member states to rein in deficits, should be to make dramatic reductions in the EU budget. From each member states point of view the money spent on EU matters and projects is of more marginal importance than say the money spent on domestic education and health care. The EU should take the lead to in cutting spending to relieve the budgetary pressures. Spending cuts should start abroad. The EU’s sensible requirement for controlled budget deficits should make them lead by example.
Its second task should be to draw up a big Repeal Directive, removing from the law codes many of those fiddling and costly interventions in business life which have led to the export of so many jobs from the EU to less regulated places like China and India.
Euroland needs more private sector jobs. It needs to export more and import less. EU rules and taxes get in the way of that.
The UK coalition government also needs to follow policies which promote a faster private sector recovery.