French Prime Minister Emmanuel Macron is coming out arguing for the total federalization of Europe proposing that there should be a budget for the Eurozone of hundreds of billions of euros. Macron’s position is that this budget should represent several points of the gross domestic product (GDP) of the Eurozone. It should be possible, Macron said, to collect money together in the markets and “allocate it with sufficient force” for all.
He also has made it clear that the GDP of all euro area countries was €10.7 trillion in 2016 according to Eurostat. He makes it clear that the Eurozone is far too restrictive in its budget policy when compared with the policies of China, Russia or the United States. He has made it clear that this is the cause of the high unemployment in Europe among the youth.
France has very high unemployment as is the case in most Eurozone countries. The debt of the Eurozone countries has escalated and as in France there is a growing gap between expenditure and tax collection. Some fear that the creation of such a common euro budget will lead to even more government debt as countries pump out debt to try to stimulate their economies.
Macron is correct that there is a huge problem that is eating away at the Eurozone. The restrictive policies are because of Germany’s fear of inflation that they went through during the 1920s. They wrongly attribute inflation to the increase in money supply and ignore the fact that it was a collapse in confidence given the 1918 revolution led by Communists in Germany.
Macron wants to push forward with his proposals for a further development of the monetary union after the German Bundestag election. Merkel will certainly not entertain any such proposal before the election. Still, Macron is way off the mark. Increasing the spending and debt with rising taxes will still fail to reverse the economic decline. The Eurozone must be restructured or it cannot survive.