The British Guardian reports that there are special factors at work in the United States which make
cities more vulnerable to swings in their economic fortunes than those
in Europe, and special factors in Michigan
and Detroit that left the once-mighty automobile center peculiarly open
to decline.
The United States lets its cities sink or swim in a way
inconceivable to Europeans. American cities fund their budgets from
their own tax base, with only limited subventions from state or federal
government. If that tax base shrinks, as it began to shrink in Detroit
decades ago, they must borrow to maintain services and can dig
themselves ultimately into a very deep debt pit.
British cities, by
contrast, are constrained in what they can borrow and they receive
support from central government on a basis which redistributes funding
from richer to poorer communities. Some European countries, like Spain
and Germany, are more like America.
Another difference is that the
American middle class, and some businesses, have frequently been able
to escape the tax demands of big cities by moving out to legally
separate, lightly taxed satellite communities while continuing to earn
their living in the urban core. In Europe such escapees often find
themselves recaptured by boundary adjustments.
So European cities
are better insulated against trouble than American ones. A city's
misfortunes will usually be softened by funds from better-off regions,
while in the United States such help is both less and comes later.
Local councils in Britain,
for example, are warning more and more insistently that cuts in funding
are moving beyond just impairing services to the point where they could
completely undermine them.
In Detroit, gentrification nibbles at the
edges of desolation. There are economic new starts,
and optimists are looking for a tipping point into revival. Yet there
is another tipping point, the one that opens up again that terrible
landscape of burnt-out cars, shuttered shops and deserted roads. Detroit
is not a precedent, but it is a warning.
The euro zone had done good work,says the IMF for instance in starting a banking
union. And yes, the commitment by the European Central Bank (ECB) to
intervene in bond markets had restored some order.
Investors are getting the message: Fund flows into European equities
have risen for three consecutive weeks, the longest streak of inflows
since January, Bank of America Merrill Lynch reported on Friday.
EU-Digest
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