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But then... How will the problem of interest rates be solved? Now that the ECB has set higher interest rates due to the strength of the EURO (due in part to Germany's growth).. These interest rates are good for Germany. But what about less developed countries in the euro zone?

-- Fighting my own apathy..
by Naneva (mnaneva at gmail dot com) on Wed Jan 31st, 2007 at 01:13:02 PM EST
The same problem poses itself to the central bank in any country. The answer is that a national employment, industrial and redistribution policy is needed to stimulate investment in those areas of the country which would require a lower interest rate. So, the necessary counterpart to the European Central Bank is an employment, industrial and redistributive policy for the whole Eurozone. Lacking that, you quickly get things like Italian politicians fantasizing about leaving the Euro, or the French presidential candidates trying to one-up each other at bashing the ECB to please their domestic audience.

"It's the statue, man, The Statue."
by Carrie (migeru at eurotrib dot com) on Wed Jan 31st, 2007 at 02:50:38 PM EST
[ Parent ]
The EU structural funds can be considered such a policy.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Jan 31st, 2007 at 04:13:43 PM EST
[ Parent ]
Considering they are a fraction of the EU budget, which is 1% of GDP...

"It's the statue, man, The Statue."
by Carrie (migeru at eurotrib dot com) on Wed Jan 31st, 2007 at 04:17:45 PM EST
[ Parent ]
What fraction are they, and what fraction are similar budget appropiations say in Spain?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Jan 31st, 2007 at 05:01:47 PM EST
[ Parent ]
It's actually hard to find out just how much money is in the structural funds...
How much money is involved?
The ESF is one of the EU's four Structural Funds. Together, the four Funds are granting almost 195 billion EUR over the seven-year period 2000-2006 to projects across the EU. Through the ESF, the Commission is providing some 70 billion EUR over the 7 years. This is working alongside public and private funding within Member States to tackle the specific problems of each area of the EU.
and
The EU Budget in detail
The annual budget for 2006 amounts to 112 billions (1.01% of the Gross National Income (GNI) of the enlarged EU). The budget enables the EU to fund its activities, the programmes and projects within the various policies through a yearly budgetary procedure. Most of the EU revenue come from a GNI-based resource.
So, the structural funds are 25% of the EU budget.

I don't think Spain has anything as neatly packaged and named as "structural funds", so I don't know where to start looking for the answer to your question. The CIA world factbook has some figures:

GDP (Official exchange rate) $1.081 trillion (2006 est.)
Budget:
  • revenues: $488.2 billion
  • expenditures: $475.3 billion; including capital expenditures of $12.8 billion (2006 est.)
So Spain's government budget was about 45% of Spain's GDP.

"It's the statue, man, The Statue."
by Carrie (migeru at eurotrib dot com) on Wed Jan 31st, 2007 at 05:20:21 PM EST
[ Parent ]
Spain does have a couple of bombastically-names concepts: "interterritorial solidarity" (enshrined in the constitution) and "fiscal corresponsibility" (informal). As Autonomous Communities do not have the power to raise their own taxes (with the possible exceptions of Navarra and the Basque Country) this is tied to the "funding of Autonomous Communities". The same debates about which member states are net donors or recipients of EU funds occur between Spanish Autonomous Communities.

This link, for instance, claims that in 1997 133 billion pesetas (€800M at the 1999 exchange rate) were disbursed by the "Interterritorial Compensation Fund". This is not even 1% of Spain's government budget today.

"It's the statue, man, The Statue."

by Carrie (migeru at eurotrib dot com) on Thu Feb 1st, 2007 at 04:35:51 AM EST
[ Parent ]
Under the 'interinstitutional agreement' (pdf) on the financial framework for 2007-2013, the structural funds will make up 308 billion euros out of a total budget of 864 billion euros, which is 35-36% of the budget.

Although the structural funds are the only funds that have redistribution as their main objective, some other EU funds also have a redistributive effect through their spending. Still, because the EU's budget is so small the measure of redistribution it achieves is around 4 times less than that of the US' federal budget. (I'll have the details on that later). Given that the US federal budget is 17-18 times as big, this is no mean feat, but I don't know if it's enough to keep a monetary union together.

by nanne (zwaerdenmaecker@gmail.com) on Fri Feb 2nd, 2007 at 05:39:15 AM EST
[ Parent ]
In fact, the euro is a massive "subsidy" by Germany (and, to a lesser extent, France) to the periphery countries which used to have much higher interest rates, and now have pretty much the same ones.

It does not cost Germany anything, as this is a windfall given by the markets, but said markets do expect that Germany will discipline Italy and others into putting their house in order. Thus that implicit German "promise" is worh tens of billions each year to Italy, Spain and others.

It's not a transfer, but it's real wealth for these countries.

(And it puts in perspective the budget deficit disputes whereby Germany and France have been said to weaken the Maastricht criteria: these criteria were meant to make Italy et al. as solid as Germany. It will take more than a couple of years of subpar budgetary performance by Germany  to make Germany less solid than Germany, even the idealised one of the traders. France is now put in the same boat as Germany, because it established its own credentials in the 80s and 90s under the Socialist governments. Beregovoy (the PM in 1992-92, and all)-powerful Economics & Finance Minister before that, who took his life in 1993 after ugly slanders) has done more for the credibility of the euro than any other of our leaders, by sticking to unpopular strict policies then.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Jan 31st, 2007 at 04:26:45 PM EST
[ Parent ]

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