Sound business is key, not centralist ambitions

A 17-century French engraving showing symbolic virtues of responsible governance
Allegory on Good Government in France, 1685 (source: dpa)

Recently, French President Emmanuel Macron spoke of the importance of mutual solidarity during the COVID-19 crisis in Europe. According to him, the European Union will not survive without solidarity among member states.

This was his response to German and Dutch reluctance to support France’s joint debt issuance idea, which would see well-off countries backing loans to Italy or Spain, and thus create a fully-fledged “transfer union.” This would be a necessary step toward the misguided dream of a centralized Europe.

Mr. Macron gave Spain and Italy as examples, but in fact, his scheme would largely help France maintain its excessive levels of public spending and centralized state at the expense of more competitive and frugal neighbors

 What solidarity means

Since the beginning of the pandemic, governments have been using the crisis to justify expanding their powers. The frightened public fails to notice that decentralized countries and societies that put more emphasis on personal responsibility, such as Switzerland, have responded to the crisis far more effectively than the “nanny states.” 

Solidarity, contrary to what Mr. Macron seems to suggest, is a two-way street. Help should be offered during an emergency, but on the condition that the receiving party uses it to achieve a sustainable solution to its problem. Since 2008, France and Italy have had ample opportunity to consolidate their finances thanks to cheap credit and the quantitative easing policies of the European Central Bank (ECB). However, instead of reducing their public debts, these states went in the opposite direction. Fellow eurozone member countries financed their extravagances, either directly, or by accumulating ECB receivables that will never be honored.

Throughout Europe, including in Germany, small and medium-sized enterprises are in a state of crisis
Today’s appeals for solidarity are not backed by commitments to reduce the future spending of sprawling governments. This amounts to a defense of the status quo and further centralization. The only cure for the latter’s woes would be to help the business sector by easing the burden of stringent and arbitrary taxation and restrictive regulations imposed on the economy. But this, again, would necessitate reductions in state expenditure.

Throughout Europe – including in Germany – businesses, and especially small and medium-sized enterprises (SMEs), are in a state of crisis caused by overtaxation and regulations depriving them of the opportunity to build reserves. SMEs now need and deserve to receive aid during the lockdown freeze of the economy. This would be just as compensation for having been bled dry and should not be treated as a handout, and favor from the state. 

There are two sets of problems here. One is that countries that willfully missed out on the chance to consolidate their finances are now invoking EU solidarity to be bailed out again. The other is that nearly everywhere in Europe, the overblown public administrations are suffocating the economy’s backbone, the SMEs.

While all this is clear, these days, the public debate unfortunately revolves around ideology. Calls for more government intervention are drowning the voices of reason. 

We should, however, look in another direction. Consumer habits may change as a result of the current restrictions. John Maynard Keynes’s obsolete doctrine of stimulating consumption with easy money may finally be retired. Businesses will need to adapt quickly, as a combination of changing and reduced consumption will necessitate higher productivity and intense cost control. New business models may emerge. If we want to foster prosperity under these circumstances, the states’ oversized role in the economy must be reduced. Europe’s public services must shrink and leave more room for the productive sector of the economy.

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