NCPA - National Center for Policy Analysis

Don't Blame The Poor Euro

September 29, 2000

Yesterday, in a national referendum, the Danes declined to join the European currency union. When a currency plunges in value by nearly 25 percent in 21 months, as the Euro has done, the blame doesn't lie in faulty ink or paper. It's to be found in wrong-headed government policies which many European nations have specialized in for years, critics charge.

Such policies have convinced European investors to send their money to the U.S. Last year, what was a trickle early in the decade became a torrent. Nearly a quarter of a trillion dollars in European money sought a safe haven in American investments.

The reasons are fairly obvious:

  • The European Union confiscates about 42 percent of the region's total output in taxes to pay for its welfare state -- and reduces the value of labor through 4-day work weeks, month-long vacations and generous jobless benefits.
  • So many Europeans try to escape taxes, underground economies in countries such as Italy, Spain, Portugal, Belgium and Greece equal 22 percent to 30 percent of their total economies.
  • In all of Europe, some 20 million people work off the books.
  • Europe's mammoth tax bite on energy is hitting businesses and citizens hard -- and the response has been growing numbers of protests and demonstrations.

By contrast, taxes in the U.S. are nowhere near European levels, at about 30 percent of gross domestic product. There is still less regulation here and growth is much stronger.

Small wonder, then, that European investors are fleeing the Euro in favor of dollars.

Source: Editorial, "The Euro Is Not the Problem," Investor's Business Daily, September 29, 2000.

 

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