European Economic Disunion

I do love it when a plan comes together. But sometimes it can be more fun to watch one that has failed. The current state of a few of the EU member nations is providing some interesting watching these days.

In Germany, industrial output is falling. And In France, the national budget woes could put a strain on the EU.

So what's the bureaucratic answer to these problems, the one that is sent down by the EU itself?

Both nations have to make progress towards getting their budget deficits in line or they run the risk of EU intervention.

And how can they "make progress?"

By raising taxes and/or cutting spending, of course.

This points out the basic flaw of the EU's one-size-fits-all approach to fiscal management. Neither France nor Germany can afford to raise taxes or cut spending. Their economies are already heading into the tank as it is.

Economies today are driven almost as much by expectations as they are by real economic conditions. Short term, raising taxes or cutting spending has no real effect, but the change in the long term expectations for the economy (when the higher taxes and lower spending are figured in) would be enough to tip most of the EU nations into a severe recession, if not a depression.

The EU failed to recognize that it is impossible to prescribe one treatment for all patients. What works in Luxembourg and Belgium with their small responsive economies likely will not work in the larger, harder to turn, economies of France and Germany.

The state of the EU economy today is an economics case study in the making. It is looking increasingly like we are going to find out what happens when reverse Keynesian economic policies are instituted in a modern economy. Historically this type of policy has led to a boom in the black markets and a collapse of the official economy.

Should be an interesting experiment.