When the West becomes the East, Menkel's analytical insight could inspire.
At least this interview shows a way out of the current deep crisis in the old EU15 if the countries' governments understand the real message and accept the logic of someone who has seen and experienced what happnes when governments take over total control all in the name of doing good. In the "West" there's an additional complication although in the end it makes less of a difference. In theory our western system should be more efficient because we have democracy. Democracy means control by the people and most importantly feedback loops that can bring the system back to a more optimal point. However, vested interest groups have taken over, shortcutting the democratic process often in the name of democracy. Unfortunately, these special interest groups have done more than just shortcutting the democratic process, they have also shortcutted the economic process by using the excuse of "protection". As a result, resources and wealth of some - often the tax payers but often alike from hardworking consumers - are funelled to provide income to another group. Often, this means the groups who have been able to protect their special interests though a legal framework. What's the result? Grossly speaking about 50 % of our economic production passes through the hand of the government whereas an ECB study indicates that this is about double than what would be needed. There's more. The resulting complex and administrative system has also given rise to a large network of private consultants and services that would not be needed if the system was simple from the start. There are studies showing that this is a kind of corruption that goes hand in hand with less democracy more poverty and higher inequality between the very few rich and the rest of us. One thing is sure. The effect on employment of raising the VAT with 2% to compemsate a 2 % lower unemployment contribution on the salary cost, will barely have an effect because it is a measure of too little, too late.
To quote Merkel further:
"If I do nothing current developments will lead Germany into a spiral of decline." Comment: The spiral has already started not just for Germany, but for the whole of the EU15.
"What do I do in an economiy where 1000 full-time jobs disappear every day and where, at the same time, my entire social system - pension, unemployment, helath and nursing insurance - are financed by this shrinking pool of full time jobs?"
"What bothers me is that we have a redistributive system taht is divorsed from the actual revenues - which is why we are building up debt. We must get out of this vicious circle."
Comment: Is it "social" to pass on the burden of current spending to the next generation? Is it even ethical?
"I cannot afford to do only on thing, but my actions must be multi-dimensional."
Comment: Society is essentially an economic system that is dynamic by nature. Many factors determine the outcome. We should not be content with a few linear measures as proposed now by the political elites after heving consulted their special interest groups. The result is that 20 million people in Europe have no job. Real figures indicate twice as much. Is this the Social Europe we want?
"Polarisation does not help us anymore in Europe. Within the tradition of the social market economy in Germany - we should try to learn from the success of others. There is no single continental social model. There are only strenghts and weaknesses."
"The question of whether working time should converge from a 40 hours a week to the west's 38 hours doesn't pose itself anymore, since east germany is already at about 42 hours a week. There is no convergence process today that sets either the east as the west as benchmark but has only one goal: to make this country competitive again."
Comment: While clearly a point of view that is specific to Germany, it applies again to most EU15 countries. Competiveness means efficiency in the use of economic resources. Especially the value of labour has to be remembered as the prime source of all wealth and well-being creation. Unfortunately, Menkel doesn't discuss Ireland as this country has show that while 20 years it was probably not better off than the DDR, it managed to become one of the richest EEC member states in barely 20 years of time. But there's is hope:
"East Germans have embraced change in a way that has never been seen before in Germany, and at times with genuine enthousiasm. In the West too, people have shown adaptibility and readiness to learn. Change has become a reality. The questions are: does politics provide the right framework, and do we change fast enough?"
More details are to be found at www.ft.com/merkel (for FT subscribers).