Germany is tired of the inefficient (and inflationary) management of countries in financial turmoil. Thus, solving the euro crisis becomes very political.
Restructuring at short term: cut (inflationary) deficits
At short term, European countries must reassure the financial markets and Germany, which are afraid to loan more money (by buying bonds) to countries on the brink of defaulting.
To do so, European countries must cut their deficits, especially their inflationary deficits. Europe must learn to invest in productive tools, more than to spend in unproductive budgets. It is the key to restart the economy for good, i.e. without inflation that would catch up the economy down after a short inflationary euphoria.
Benefits received from the government will be trimmed. Retirement age will also be increased due to a demography with too few young people to support numerous retirees. Civil servants may see their wages cut down.
This austerity is indirectly trimming the incomes of corporations selling goods domestically. They will be depressed, too. Only corporations focused on exporting can avoid wage cuts. It’s sad, but check more on Is austerity forcing Greece into recession?
Greeks or Spaniards will resist today and tomorrow, step by step, month after month, as in the news. But, austerity is the only option. Germany knows it, even if the NYTimes or The Atlantic didn’t understand.
Restructuring at short term: training and job flexibility
Corporations are reluctant to hire people, especially if they are unqualified. Also, corporations are slow to hire people when the economy is still weak, and when downsizing would require to pay months of notice to recently hired workers. Maybe, they can hire temporary workers, but such temp contracts are not very popular (1 or 2% of the workforce: europa.eu). Temp contracts are for unqualified workers, because corporations don’t want to invest time to train temp workers. They are too afraid to see these people leave once they are trained.
People have to train themselves, which can be costly. Sadly, people can’t get small jobs to acquire experience because small jobs are discouraged by legal status (e.g. US-like 1099 contracts are not allowed in Europe). If young people work, they lose their unemployment benefits. Laws are inflexible. The mentality adapted… and small jobs stay within the underground economy.
Restructuring at long term: incentivize work and start-ups
Europe must incentivize work:
-diminish taxation on work: the state benefits for the older generations are excluding the younger generation from the job market. It is unpopular to break the vicious circle (NYTimes).
-diminish unemployment compensation: young people are suspected to quit work easily, and they can be rejected by corporations.
-diminish bureaucracy for start-ups to hire people.
-ease the bureaucracy preventing small jobs: it only helps the thriving underground economy as in Greece, Italy, Belgium.
People must have more support to create a start-up.
Europeans seldom try to create a start-up, because it’s not popular to take risks.
Start-ups must not be overtaxed if they succeed.
Also, start-ups need better funding… with money from the rich untaxed if they accept to bet on start-ups.
If this work mentality doesn’t change, no plan will succeed. If Europe fails to electrify its youth to create start-ups, as well as it carries on overprotecting its costly benefits or its useless civil servant jobs for older Europeans, Europe would follow the same path as Japan towards an endless stagnation. Europe has an inflationary mentality, which can be compared to alcoholism. Europe is blinded by inflation, which is only a monetary illusion.
Political restructuring
Under German guidance, Europe will try to unify its legal systems, fiscal rules, financial regulation, deficit size, fight internal corruption, fight black market, and fight fiscal evasion.
It may be the birth of a new European constitution. After the first failed attempt of 2005, this second attempt would be imposed by Germany to each European partner in need of financial help. However, this new constitution may take years to be drafted as the euro crisis drags on.
Such a restructuring may take years. This restructuring would limit inflation and favor growth, as for the US (it doesn’t do much better but better enough to enjoy a GDP growth of 2% versus 1%, and the bond market likes it). In the meantime, Germany will have to help Greece (or else) financially.
