Imagine that it was
revealed that 10% of the European Union budget (the money that goes to
the EU centre to fund the common agricultural policy and other EU wide
projects) had been found to be completely wasted as a result of actions
by EU policymakers.
By wasted I do not mean spent on things that maybe
it should not have been spent on (rich farmers, inefficient farmers,
infrastructure projects whose costs exceed benefits etc), but literally
money that went up in smoke. Imagine the scandal. Heads would roll, and
some might find themselves in jail.
10% of the EU budget is about 0.1% of EU
GDP. Yet sums at least ten times that figure are currently being wasted
in the Eurozone, as a result of actions by Eurozone policymakers. Here is the latest OECD assessment of output gaps across eleven Eurozone countries, for both 2013 (blue) and 2014.
A negative output gap means that output
could be the amount of the gap higher without raising inflation above
target. Of course Greece is a nightmare, and things in the other PIIGS
are really bad, but the output gap in the Netherlands is around 3%, in
France over 2% in 2014, and even in Germany the output gap exceeds 1%.
Estimating output gaps is an imprecise science, but gaps of at least
this size are consistent with inflation well below target (currently
0.3%). So output could be at least 1% higher across the Eurozone with no
ill effects. This is the equivalent of the entire EU budget going up in
smoke.
Read more: The Real Eurozone Scandal
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