William D. Smith
The European Union is a union of 27 member countries, that predominately operates in Europe. It had predecessors, however under the current name, it was founded in 1993 after the Maastricht Treaty. Since its founding, the EU has adopted many policies and regulations to theoretically make its members better off, however the current crisis does not reflect much positivity to this.
So, how could the Europeans possibly overcome this current debt crisis? Well there are many theories, and for every theory there seems to be an opposing theory against it. First off, I believe that the EU started going down the wrong path with the adoption of the Euro. There were countries in the Eurozone with different credit rates getting abnormally low interest rates. Also, let us not forget that the Euro was a stronger form of currency than some of the countries had formerly possessed. Common sense then tell us, that credit terms are better, there is an economic outburst, and that outburst leads to investor willing to make high-risk gambles and spend a lot of money. Then, when everything calms down, the debts still remain. So theoretically, if needed, one could go to the bank to get a loan to pay off a serious debt. However what happens when money spenders try to withdraw from their now broken banks?
So, that leads to the question of possibly fixing the broken banks. After all, if a bank is borrowing money to pay off its debts and give loans, it’s digging itself into a hole that is not easily climbed out of. So how do we fix this? Some argue a bailout. This is a poor decision, look at how the bailout scheme worked for us here in America, it didn’t. A bailout is bad for the economy because it does not fix an economic crisis it just prolongs it. A bailout will interrupt the process of reallocation of resources, which will hurt in the long run. This reallocation problem also incarnates another problem, being that political corruption will be increased. Via lobbyist, the desire for personal wealth, and supporters having money, economic resources can be reallocated in a place none to beneficial for the nation as a whole.
Well what if the banking system is changed? Upon doing research I found an interesting topic about something called limited purpose banking (LPB). Some people are arguing that if this is implemented, then the deficit crises can improve. This LPB theory makes all the banks become mutual funding companies that issue mutual funds. It sounds kind of crazy, but has its benefits. The mutual funds end up acting like small banks, however there is one critical difference in that they don’t borrow. All of the small various properties of LPB are quite interesting, however I do not know how to talk with all the economist’s jargon and word-vomit, so it boils down to this. One of the things that the European Union wants to do is protect the financial system, and this would compromise it! There is no leverage involved and this theoretically would also reduce credit.
So lets think for a minute, how about raising the taxes? This is a definite wrong answer. This will cause political and social unrest, which I don’t think I need to say the EU does not need any more of. It is also not a sound theory. It is no doubt that consumer spending is a huge economic boost. However someone cannot spend what they do not have. The consumers will start to spend less, which will the cripple the economy. Also taking more substantial taxes out of the working class’ paycheck is not a good idea, especially in today’s world. This leads to citizens’ desire to work going down the drain. If the pay is not enough to cover the desire to work, then individuals will quit working and get on government support. Who wants to work for low wages when they could get even more money from government handouts because they don’t work? It seems most people in the world today don’t have much...