Assume, for a minute (but not more) that the Euro-zone countries agree on convergent fiscal, debt, and social policies (health and pensions) to save the Euro. Will the sun of economic recovery soon rise over a reinvigorated Europe?
Take Italy: taxes each category of revenue at the source. Salaries and income from capital are not cumulated. Income from shares is taxed at a flat 13% (now 20%) rate, and this payment is liberatory. The reason is corruption and incompetence of the fiscal administration (corruption and incompetence usually go together). After trying for decades to obtain transparency, fiscal authorities just gave up on cumulating sources of income toward progressive taxation. Since Berlusconi came to power, furthermore, accounting frauds are no longer a crime. Industrial innovation has yielded to creative cooking of the books. The “black economy” is now estimated at 25% of GDP.
Not only are social policies over-generous in Italy, they are administered in slovenly ways. A study of the geography of invalidity pensions shows regional concentrations that strain belief. Health care is riddled with abuse: in the Campania region 65% of all babies are delivered by “Caesarean section” (WHO expects 15% of all births to require such procedures).
These anecdotes are not censoriously retold, but to point out a major difficulty arising after an international agreement has been signed with great fanfare: implementation. Administrative cultures in partner countries may be so different as to reduce the value of an agreement to little more than symbolic gesture (and a unilateral commitment).
After Germany reunited, hosts of public servants were sent from Bonn into the Eastern regions to take the administrative structures in hand. One spoke then of “Beamten-bombers” landing in Berlin. 20 years after the fall of the Berlin Wall the fusion of administrative structures seems to have made some progress. This involved 18 million people – which is nothing compared to the task ahead of improving administrative structures and instilling a coherent public service ethic across the Euro-zone. Whatever political decisions are cobbled together in Brussels, the challenge ahead for fiscal and social policy integration of the Euro-zone countries will be implementation.
Past experience with convergence of administrative cultures is not encouraging. How subtle cultural differences might be can be gauged by the “piece of string” in the upper left hand corner, which holds the pages of the administrative file together. If work is organized around this piece of string, the file moves from desk A to B sequentially (and there are many opportunities for misplacing the file). The British Commonwealth relied on the “piece of string”. Photocopying (and scanning nowadays) may allow for parallel administrative processing – but only within the specific administrative unit. In the Swiss Canton of Berne a building permit requires 36 administrative steps – one at a time.