NCPA - National Center for Policy Analysis

Will The Euro Curb Anti-market Policies?

January 6, 1999

Some economists predict the European Union's new common currency, the euro, will encourage the 11 member nations to compete with one another in establishing market-oriented policies. They say the cloud of national currencies has obscured the negative effects of government policies within individual economies, and make it more difficult for countries to reap the rewards of policy improvements.

Now, with a single currency, policy errors will be unmasked and those countries which reform will be rewarded with better performing economies.

  • Countries and cities which provide more attractive tax regimes and regulatory policies will be rewarded with job growth and wealth creation.
  • With Ireland now running the same monetary policy as France, it may become clearer that different education systems may be playing a strong role in Ireland's faster job growth.
  • Germany may finally conclude its leaden tax rates and restrictive labor laws are holding it back as freer economies pull ahead.
  • In the competition, the benefits of reducing taxes and government spending may eventually necessitate abandoning welfare state policies.

These changes won't be immediate, economists warn. Europe's economy is now rapidly decelerating -- with negative implications for corporate profits in 1999. Two major banks have growth forecasts for Euroland of only 1.6 percent in 1999.

Source: David Malpass (Bear Stearns), "New Money Will Bring Smaller Government," Wall Street Journal, January 6, 1999.


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