Transfer Union

mcbert

Hey all, I've seen this term used a few times now in the context of the EU and current crisis. I'm just wondering what is really meant by this term? Can anyone describe, or point me to a definition? Thanks.

Scofflaw

mcbert wrote: »

Hey all, I've seen this term used a few times now in the context of the EU and current crisis. I'm just wondering what is really meant by this term? Can anyone describe, or point me to a definition? Thanks.

Basically, where the richer countries - or those more prudent with their money - bail out those who aren't, on an ongoing basis.

The great fear of the Germans when they agreed to give up the DMark for the euro was that they would wind up liable for the debts racked up by eurozone countries unable to manage their finances...or prepared, let's say, to offer blanket guarantees worth hundreds of billions of euros to their insolvent national banks.

The usual quid pro quo for such an arrangement is things like spending limits, budgetary oversight, and all the other things you do with a teenager before you give them an allowance. Whether Germany and the other more prudent nations can be persuaded to agree to a transfer union is very much an open question - the success of the True Finns party in Finland, and some of Merkels' own political difficulties, can be traced directly to the feeling in those countries that, having managed their own finances prudently, they are nevertheless winding up paying for other countries' mismanagement at a time when everyone, no matter how prudent, is having to tighten their belts. Our bailout is even less popular with those funding it than it is here.

cordially,
Scofflaw

mcbert

Great thanks makes sense. Is it purely a derogatory term? Or does it also describe potentially legitimate mechanisms for spreading the wealth around a region (although I do understand, not for the Germans, in the current crisis).

sarumite

mcbert wrote: »

Great thanks makes sense. Is it purely a derogatory term? Or does it also describe potentially legitimate mechanisms for spreading the wealth around a region (although I do understand, not for the Germans, in the current crisis).

Just curious, but what is is that makes you think it is a derogatory term?

mcbert

sarumite wrote: »

Just curious, but what is is that makes you think it is a derogatory term?

I dont. Thats what I was wondering about.

Scofflaw

mcbert wrote: »

Great thanks makes sense. Is it purely a derogatory term? Or does it also describe potentially legitimate mechanisms for spreading the wealth around a region (although I do understand, not for the Germans, in the current crisis).

No, it's not derogatory at all - purely technical. It would cover entirely legitimate mechanisms - indeed, for something to legitimately be a transfer union, it would need the mechanisms for transfers to be legitimate.

But, yes, to the nations likely to wind up on the paying end, it's something of a dirty word...but that's because the concept is deeply unwelcome. As such, every attempt is being made to keep the euro together with duct tape rather than accept such a step. From our point of view, too, such a step isn't welcome either, because it means a major loss of economic sovereignty - and there's no reason why we should be incapable of managing our finances, if we can remember that bank regulation needs to actually happen, and that when someone says "the boom is getting boomier" we should immediately have the government arrested. It would be like giving up adulthood in order to go back to living on a parental allowance.

I'm tempted to add, though, that the tone of our national debate on the issue doesn't particularly add to the impression of responsible fiscal adulthood.

cordially,
Scofflaw

RichardAnd

Scofflaw wrote: »

No, it's not derogatory at all - purely technical. It would cover entirely legitimate mechanisms - indeed, for something to legitimately be a transfer union, it would need the mechanisms for transfers to be legitimate.

But, yes, to the nations likely to wind up on the paying end, it's something of a dirty word...but that's because the concept is deeply unwelcome. As such, every attempt is being made to keep the euro together with duct tape rather than accept such a step. From our point of view, too, such a step isn't welcome either, because it means a major loss of economic sovereignty - and there's no reason why we should be incapable of managing our finances, if we can remember that bank regulation needs to actually happen, and that when someone says "the boom is getting boomier" we should immediately have the government arrested. It would be like giving up adulthood in order to go back to living on a parental allowance.

I'm tempted to add, though, that the tone of our national debate on the issue doesn't particularly add to the impression of responsible fiscal adulthood.

cordially,
Scofflaw

A fairly concise explation so a thank you from me. I would just add, and I think you know this yourself, that "no one" during the boom wanted any easing of the situiation. Any politician that engaged in adjustment aimed at cooling the boom before it got out of hand would not have been elected.

I can't say I'm convinced the opposite will happen if ever we find outselves on tract to another bursting bubble.

Justin Collery

If we had a transfer union we would not be in the doo doo as we are now. Typically in a transfer union you would expect social security and civil/public services (or some part of) to be paid centrally. In a transfer union an Irish budget deficit doesn't matter, only a European one. This is important, as it means taxes do not have to rise as a result of a crisis, national debt does not rise as a result of a crisis, and the state can return to growth quickly without the shackles of taxes and debt.

The problem with this is, in order to have centrally controlled spending, we need to elect people to control the spending, and they need to be more powerful than locally elected representatives. It's a country called the European Union and it's politically unacceptable.

It is incongruous to have monetary union without central monetary authority and central political authority.

We should be pushing for a transfer union or planning for a future outside the EU.

JC

sarumite

Justin Collery wrote: »

It is incongruous to have monetary union without central monetary authority and central political authority.

What happens to those countries (UK, Sweden, Denmark etc) who are not in the monetary union with regards a central polticial authority?

paddy0090

Ireland has a transfer union. Where wealth generated is redistributed(poorly via social welfare to places like Ballymun and Moyross.

It is IMO a derogatory term. They fear paying for the Southill of Europe.

Justin Collery

sarumite wrote: »

What happens to those countries (UK, Sweden, Denmark etc) who are not in the monetary union with regards a central polticial authority?

They are not involved. Its the old 'no taxation without reprensentation' line. However if you are not part of the monetary union you have no taxation and so no need for the representation.

JC

sarumite

Justin Collery wrote: »

They are not involved. Its the old 'no taxation without reprensentation' line. However if you are not part of the monetary union you have no taxation and so no need for the representation.

JC

I think perhaps I am not fully understanding what you mean by "central political authority" and how this would differentiate from a "central monetary authority"?

wiseguy

The FT has illustrated simply what it means



In a eurozone with fatal flaws and unable (unwilling?) to deal with this crisis you get the above ^

later12

Justin Collery wrote: »

It is incongruous to have monetary union without central monetary authority and central political authority.

Agreed

We should be pushing for a transfer union or planning for a future outside the EU.

Absolutely not. We should be pushing for sovereign European bonds, whereby each member state agrees an integrated fiscal policy. Ireland would still owe its own debts and have to pay its own way within the Euro area, but would raise its funds under a collective treasury working on its behalf (as with the other member states) based on the continent, guaranteed by the entire zone.

I certainly would not favour either a transfer union nor a disintegration.