When taxes go down, revenues go down; but budgets don't.
In an article called " Understanding Modern Monetary Systems ," Cullen Roche explains that the Euro system is the modern equivalent of the gold standard. Both are "revenue constrained." Countries on these restrictive systems cannot expand their revenues because there is nowhere to get the money. They cannot get more Euros except by borrowing from each other, and all the member countries are in debt. In June 2010, 26 of 27 EU countries -" all but Luxembourg -- were on the "debt watch list" for exceeding the 3% cap. Euros can get shuffled around to keep the game going; but in the end, as Shakespeare said, the eurozone countries are "as two spent swimmers that do cling together," pulling each other down.
Douthwaite writes:
[I]ndividual eurozone countries [cannot] create money out of nothing by quantitative
easing. Only the European Central Bank has that power but it has not yet used it to inject money into the system without withdrawing an equal amount. Consequently, every cent in use in eurozone economies has to have been borrowed by someone somewhere, at home or overseas. As a result, while countries with their own currencies can handle a debt-to-GDP ratio of over 100% because they have the tools to do so (Japan's is approaching 200%), countries using a shared currency must keep well below that figure unless they can agree that their shared central bank should use its interest rate, exchange rate and money creation tools in the way that a single country would.
Roche comments:
The Euro system, which is also a single currency system (like the gold standard) adds significant confusion to the current environment and is often confused as a flaw in fiat money. In reality, the Euro proves why single currency systems are inherently flawed.
By a "single currency system," Roche means multiple nations sharing a single currency (whether Euros or gold). Governments need the ability to expand their own money supplies as required to meet the needs of their own economies. Without that flexibility, they are reduced to trying to balance their budgets through brutal austerity measures. In a November 19th article in the UK Guardian called "There Is Another Way for Bullied Ireland," Mark Weisbrot observed:
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