For an even better example, see India where the poorer states get very large subsidies and investments and quite a few have had substantial quality of life improvements over the years. People argue that Europe can't have a union because of its diversity but India is far more diverse in terms of languages, culture, religion and politics and has still managed to forge a nation atate.
In Europe, the rich countries essentially keep their own taxes and don't transfer and invest taxes in the poorer ones, so being tied to a strong currency trips up the poorer states badly - all the disadvantages of being a weaker area tied to a strong currency without any mitigation factors beyond the right to move away.
EU structuran development funds are ~34 billion a year for all of EU. Unemployment and other benefits in UK alone are 200 billion.
the amount of fiscal transfer that happens withing any nation is huge: all the unemployment benefits, infrastructure spending, salaries of government employees working in poor areas, etc.
Conversely, I have seen successful implementation of multi-billion euro projects.
Why can Germany invest money so much better than half of Europe? Same for Nordic countries.
I've been thinking about it a lot. It has to be culture. Germans in the government actually care about their own country and countrymen. They still line up their own pockets, mind you, but not as bad as Eastern Europe, for example.
And mental healthcare in Germany is absolute garbage, by the way. Which is pretty weird considering how much they invest into it.
But again, culture. You're suicidal - you're weak. You don't have ADHD, you're just lazy. Homeopathy is real. Vaccines are dangerous. Etc.
It’s interesting because people don’t talk about this more. For example a lot of bitterness about the SALT deduction in the US essentially boiled down to living in a rich or poor state.
Likewise if you look at inflation, it’s hitting poorer states hardest (probably because they’re more dependent on energy due to auto-oriented urban planning decisions, seasonal climate changes and energy policy). So what do we do? Set fiscal policy so Alabama has less inflation or so New York reaches full employment?
Regarding monetary and economic policy, believe it or not it gets worse. Much power lies in the "Eurogroup", an informal body of finance ministers of member countries which meet behind closed doors, as does the council by the way. Why do we not require our servants (that's what politicians are, supposedly) to have their meetings livestreamed for the public again?
The surpluses generally are divided and Alabama etc. are subsidized directly, or with things like military bases.
Most US states are too small to have their own currency.
US Monetary Policy also not in the pocket of Cali or NY i.e. the important players, like Euro is in the pocket of Germans.
This is essentially because in order for a currency union to work with different countries, you need a 'hard currency' - not a lot of funny money being printed. Germans are 'extremely scared' of France/Italy/Spain pumping the printing press and filling their economies full of dollars. So the Euro is a fairly hard currency, and when they do more speculative things, Germany has to be ok with it. It just so happens that Germany's economy is more naturally suited to this, while the others are not. So they win big.
The US Fed has been printing a lot of stimulus, which ideally should help the places that need it more, a little more, but in practice that might not be true.
I would argue in the age of digitization, it might be possible for European countries to go back to sovereign currencies and facilitate efficient transfer through exchanges with 0 fees, that kind of stuff.
Sweden and Denmark (Finland/UK/Switzerland) have their own currencies and they do just fine. You could still have the Euro for business transactions.
Nations that have gone bankrupt generally do so because they have to issue debt in a currency they don't control. Portugal does not really control the Euro, which means if there's a crisis, they have to beg France/Germany to help or change Euro policies. Not good.
In the past 20 years the main job of the ECB has been to monetise Italian, Spanish, Portuguese and French debt.
It does, but it's compensated in large part by Alabama receiving massive transfer payments from the federal government. Without a net flow of funds into it, its economy would be in the pits.
Yes there are; heck there are even tax havens within states for localities to compete that way.
One could argue that this would create a significant incentive for Alabama to improve its structural deficits and be more attractive to investors rather than being one of the largest federal government recipients among the American states.
In fact I think if one looks at Europe overall this is largely what has happened. Being in one monetary union has driven a lot of countries, in particular in Eastern Europe and the Baltics, to clean up their structural deficits. A lot of EE countries have gone from being much poorer to be on par or already richer than SE. I have trouble with this Euro-critical narrative, when a country like Estonia, coming out of the Soviet Union impoverished, is now more prosperous than Portugal.
Some of the more well governed and prosperous Latin American countries have pegged their currency to the US dollar voluntarily in the past.
states actually do emit bonds, as do counties and even cities
> California and Alabama are in a monetary and customs union AND in a fiscal a political union!
Kind of. They are both subordinate states to the Federal government which taxes and spends far more than any state, so that third actor -- the Federal government - is the gorilla in the room, and needs to be included.
> Federal money flow is net positive into Alabama and net negative out of California
No, both California and Alabama are famously receiving states. California used to be a donor state in the past - Governor Schwarzenegger famously complained about getting back 70 cents for every dollar, but that number was rapidly increasing even in his tenure and about 5 years ago it exceeded 100 and it still continues to rapidly rise. So now both California and Alabama are firmly in the receiver bucket. In fact, all states can be in the receiver bucket with the Federal government running large deficits.
> There's no tax havens inside the US for states to steal tax revenue from one another.
This is exactly what the SALT deduction is about as well as tax-free state and local bonds. One of the reasons why states borrow so much is because you do not pay federal income taxes on the interest (in most cases).
https://investor.vanguard.com/investing/taxes/government-bon...
But to understand that you need to know about state borrowing, which takes us to the next point:
> Can you imagine if each state had to emit it's own bonds, lol!
States and local governments emit quite a lot of bonds. California owes about 70 Billion in bonds outstanding, but that doesn't even count things like "capital appreciation bonds" and other types of instruments it sells. See here:
https://www.treasurer.ca.gov/cdiac/debtdata/debtdata.asp
https://www.treasurer.ca.gov/cdiac/debtdata/totals.asp
Even individual cities and counties sell bonds, as do port authorities, etc.
> Imagine each state being on its own, and Alabama trying to get finance by selling Alabama t-bills on Alabama credit?
Yes, we showed the bonds that California sells and Alabama also sells bonds. Each state has debt, it's various bonds are given a credit rating, etc. FYI Alabama's latest bonds have a credit rating (AA+) that is slightly higher than California's latest issuance (AA), because Alabama's finances are in better shape.
https://www.fitchratings.com/entity/alabama-state-of-al-2356
https://www.fitchratings.com/entity/california-state-of-ca-2...
So I think you should revisit your argument because the situation is a lot more complex. It's better to think of the federal government as providing income insurance to the states, rather than just pretending that states do not independently borrow money, that they do not compete with each other, and that they do not have their own credit ratings. A better analogy is to look at individuals in a nation who each borrow, save, and spend, but they are protected with some federal programs like welfare and disability insurance. That's a much better way to view the situation.
But my points regarding bonds is that the states and municipalities do emit bonds, yes, but not only their bonds. As you state, the majority of cash is raised at a federal level with treasury bonds. In fact, one of the Eurobonds proposals was that states use European bonds up to some threshold (60% debt-to-gdp ratio level was proposed), and have to rely on national bonds to cover the rest. This is at once a mechanism of consolidation, allowing weaker states to piggy-back off the bloc's interest rates, BUT at the same an incentive for fiscal discipline, as after 60% your debt has to be financed through more expensive national bonds.
Yes, these are valid points. My impression though, is that a better thing to focus on is not financing but who pays for what. In the U.S. the Federal government pays for social insurance, federal defense and big infrastructure projects. The states pay for education, police, and local infrastructure.
It is because the U.S. states do not pay for social insurance that allows them to weather unequal income distributions and that is why poorer states consistently get more spending. The whole point of social insurance is that poorer people get more and richer get less, so it's the opposite of per GDP spending.
For example, when states like California start trying to take on social insurance roles, that's when they get into a lot of fiscal trouble.
So now the problem with Europe is that the states do need to pay for social insurance, and that's a killer. There is just no amount of Euro bonds that will be able to help because the poorer states have a lower GDP per capita but the bonds will be capped at a share of GDP, which is the exact opposite of how social insurance works.
Therefore you can clean up Europe's finances if there is a central government that pays for social insurance. Defense spending is relatively minor in comparison to social spending, so you can keep that per state if you want. But once you federalize social insurance, then you can still do some GDP ratio debt limits and be OK, and it doesn't matter too much what happens with per-state financing once this burden is taken off states' books.
Of course this requires real solidarity. And it seems that Western Democracies have been doing everything they can to destroy real solidarity. But that's a whole other discussion.
At least that's my take.
Probably because power is so federated that it doesn't matter that much who's in charge of the various EU presidencies. And that's a good thing, it doesn't fit well into the Ango-American ideal of a single leader (Washington, Churchill, Lincoln etc) taking on the bad guys, making the speech, and leading from the metaphorical front.
I've often wondered about this. The US Dollar binds together poor states Alabama and rich states like California, but I don't think I've heard people arguing that two states being on a common currency contributes to the impoverishment of Alabama.
I'm sure there are important differences between the Euro and the Dollar that account for this difference in perspective, but I don't know what they are.