Obviously if there were a really easy solution to Europe's economic problems they would be solved already, but I don't think we should go too far down the path of "no easy solutions" here.
The best short-term solution, as outlined by Jay Shambaugh in a great Brookings Papers on Economic Activity essay (PDF) involves three new steps:
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.
One advantage of this mix of policies is that unlike random acts of austerity, it would actually help solve the problem! Another virtue is that while it's far from a pure win-win it at least gets us out of zero-sum international transfers. German export-oriented firms and their workers won't like this idea, but it's a huge win for German retirees and some classes of service sector workers. It gives Ireland, Spain, Italy, and Portugal a fighting chance to get out of debt not through "bailouts" but through a continent-wide policy mix designed to create jobs and raise incomes. There would still be plenty of long-term issues in play, but it would buy breathing space during which long-term reforms could be debating constructively as possible ways to raise living standards in Southern Europe rather than appearing as a plot imposed by shadowy actors in Berlin and Frankfurt.
TODAY IN SLATE
Justice Ginsburg’s Crucial Dissent in the Texas Voter ID Case
The Jarring Experience of Watching White Americans Speak Frankly About Race
How Facebook’s New Feature Could Come in Handy During a Disaster
The Most Ingenious Teaching Device Ever Invented
Sprawl, Decadence, and Environmental Ruin in Nevada
You Should Be Able to Sell Your Kidney
Or at least trade it for something.
- Texas Lab Worker on Cruise Tests Negative for Ebola as Dallas Hospital Apologizes
- Police Use Tear Gas to Break Up College Pumpkin Festival Turned Violent
- Racist Rancher Cliven Bundy Challenges Eric Holder in Bizarre Campaign Ad
- Supreme Court Allows Texas Law That Accepts Handgun Permits but not College IDs to Vote
An All-Female Mission to Mars
As a NASA guinea pig, I verified that women would be cheaper to launch than men.