A Non-Impossible Fix for Europe’s Economic Problems

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Is there an easy solution to the problems of Europe’s south? Well, one of the eurozone’s fundamental problems is that (a) workers in the GIPSI countries are uncompetitive and (b) the GIPSI countries are running persistent trade deficits. They need to import less while Europe’s core (especially Germany) needs to export less.

So how do you make workers more competitive? One way is to simply cut their pay, but that’s hard. Another way is to substantially reduce payroll taxes, which reduces labor costs without cutting take-home pay.

And how do you discourage imports? One way is to devalue your currency, but countries in the eurozone can’t do that. Another way is to raise your VAT, which makes goods more expensive.

Put those together, mix in some more sensible monetary policy, and you get “fiscal devaluation” plus higher inflation. That’s the recommendation of Georgetown’s Jay Shambaugh, glossed here by Matt Yglesias:

  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.

Shambaugh also recommends increased ECB purchases of sovereign debt; capital injections into stressed banks; and bigger budget deficits in “non-stressed” countries. This all sounds surprisingly….reasonable. And even doable. It still wouldn’t be easy, since there would very definitely be some losers from this kind of policy, but it’s not flatly impossible. That’s a start.

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WHO DOESN’T LOVE A POSITIVE STORY—OR TWO?

“Great journalism really does make a difference in this world: it can even save kids.”

That’s what a civil rights lawyer wrote to Julia Lurie, the day after her major investigation into a psychiatric hospital chain that uses foster children as “cash cows” published, letting her know he was using her findings that same day in a hearing to keep a child out of one of the facilities we investigated.

That’s awesome. As is the fact that Julia, who spent a full year reporting this challenging story, promptly heard from a Senate committee that will use her work in their own investigation of Universal Health Services. There’s no doubt her revelations will continue to have a big impact in the months and years to come.

Like another story about Mother Jones’ real-world impact.

This one, a multiyear investigation, published in 2021, exposed conditions in sugar work camps in the Dominican Republic owned by Central Romana—the conglomerate behind brands like C&H and Domino, whose product ends up in our Hershey bars and other sweets. A year ago, the Biden administration banned sugar imports from Central Romana. And just recently, we learned of a previously undisclosed investigation from the Department of Homeland Security, looking into working conditions at Central Romana. How big of a deal is this?

“This could be the first time a corporation would be held criminally liable for forced labor in their own supply chains,” according to a retired special agent we talked to.

Wow.

And it is only because Mother Jones is funded primarily by donations from readers that we can mount ambitious, yearlong—or more—investigations like these two stories that are making waves.

About that: It’s unfathomably hard in the news business right now, and we came up about $28,000 short during our recent fall fundraising campaign. We simply have to make that up soon to avoid falling further behind than can be made up for, or needing to somehow trim $1 million from our budget, like happened last year.

If you can, please support the reporting you get from Mother Jones—that exists to make a difference, not a profit—with a donation of any amount today. We need more donations than normal to come in from this specific blurb to help close our funding gap before it gets any bigger.

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