The peerless Henry Ergas offers a clever catechism of the European Monetary Union that first accommodated, then rewarded, economic mismanagement in southern Europe and finally smeared its contagion across world markets. He traces the fault to the arrogance of crusading Euro enthusiasts
“Much like Europe’s emissions trading scheme, the euro was a “solution” imposed by Europe’s political elites. For the French, it would challenge the despised US dollar; for the Germans, it would buy French acceptance of reunification and a more assertive Germany; and for southern Europe’s socialists, it promised to painlessly transform Sicily into Switzerland. All this proved no more than magical thinking. But because bad policies are easier to introduce than to remove, its costs will be there for years to come.“Extract from The Australian
His target, however, is the quality of Australian, not European, public policy:
“What can prevent such poorly conceived ideas from getting up? Robust, even divisive, public debate. No wonder elites hate it. No wonder it played no role in the decision to adopt the euro. And no wonder Ross Garnaut says arguing about a carbon tax makes us look foolish compared with how they do things in Europe.”
This is a well-deserved, skewering of the arrogance of Gillard and Garnaut who dismiss opponents as eccentrics or morons and who have even less taste for the plebescite that consumer-facing businesses now support.
But Henry is only half right about the European Monetary Union. The problem is not that there was insufficient debate or that the devotees of Delors’ view of European union merely over-rode the dissenters. The official evaluation of monetary union kicked-off thirty years before its adoption. There was a vigorous and detailed analysis of the proposal for a year before the 1992 Maastricht treaty (focussed mainly on the expected transaction cost savings) and robust argument about the terms of “convergence” before the 1998 entry into force of the treaty and the creation of the Euro. Dissent remains vigorous today: witness the continuing absence of the UK from the Union and the recent near-defection of Germany when faced with financing Greek debt through the ECB.
The problems with the EMU are due less to lack of dissent than to another fundamental failing that afflicts the Labor/Green carbon tax proposal…
“All policy is effectively experimentation”, says Gary Banks (Chairman of the Productivity Commission). Decision makers need a well-defined objective (mitigating identified dangers in global warming), they should evaluate options in light of the benefits and costs (Oops! Warming is modest and uncertain, CO2 isn’t a ‘smoking gun’, the tax won’t make any dent in global emissions , it will cost too much) and accept that, once they have choosen an option, it is likely to be the wrong choice—at least at some point in the future. A decision-maker must measure and revise.
That is the failing of the EMU. Once the treaty was adopted and the convergence terms accepted, the supporters became accolytes. They re-interpreted convergence terms, notably excusing Italy and Germany and France for default on the public deficit terms and crafted political arrangements to fit the South and the East of Europe into boundaries they impractically desired. Their enthusiasm was irresponsible and even stupid, but not especially elitist. Unlike the carbon tax, the EUM was a popular, even populist, policy that was allowed to escape from determined review.
The corollary of the Banks dictum is that it’s OK to make the wrong choices. Happens all the time. In difficult domains of public policy, the wrong choice is impossible to avoid. What matters is revision.
For example, our national debate on emissions-mitigation began with Peter Shergold’s 2007 report to the Howard government that recommended an emissions trading scheme. I made a submission to the Shergold group supporting emissions control but casting doubt on the prospect of international consensus (for reasons mentioned here). But as I plaid closer attention to the evidence on the dangers of warming I subsequently changed my mind. I revised my views in the light of more rigorous analysis than the shabby IPCC produces.
The kernel of fault in the Gillard/Garnaut (and IPCC) policy is not that they have suppressed debate (thank god, in Australia they cannot) it’s that they pretend debate can ever be over or that that the “science is in” or that their policies are “locked-in” and no longer need review.