NEW YORK TIMES: …The United States shows that this approach can work: America’s 50 economically diverse states share a currency quite comfortably, in part because of our banking union (Washington State did not have to bail out Washington Mutual on its own when it failed), our fluid labor market (as oil prices rise and fall, workers move in and out of North Dakota) and our fiscal union (states in economic pain benefit from government programs financed by all states). Nevada does not need to devalue its currency to restore its competitiveness relative to California in a severe recession; instead, Nevadans can collect federally funded unemployment insurance and, if necessary, move to California.
But the American fiscal union is very expensive for rich states. According to calculations by The Economist, Connecticut paid out 5 percent of its gross domestic product in net fiscal transfers to other states between 1990 and 2009; that is, its tax payments exceeded its receipt of government services by that amount. This is typical for rich states: They pay a disproportionate share of income and payroll taxes, while government services are disproportionately collected in states where people are poor or old or infirm…
[Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University, ] other two arguments appeal more to self-interest. Without further fiscal integration, geographic adjustment in the eurozone will have to lean on labor mobility. If the Greeks can’t get safety-net payments financed by Europe-wide taxes, many of them will just move to places like the Netherlands, where they might be able to live better even if their Dutch isn’t very good. Additionally, he argues that fiscal integration will promote greater economic equality, and therefore greater macroeconomic stability and fewer crises… (more)
EDITOR: This article merits being read in its entirety.
