#Brexit – EU Heading to Surplus Recycling Mechanism – Rich Countries Paying for Bad Governments

When you hear Draghi calling for closer fiscal integration, what he is really saying is that there needs to be a surplus recycling mechanism.

To give a brief background to the Eurozone and the debt crisis.

When the governments adopted the Euro, they lost the ability to print their own currency.

Whenever their debt became high, the could print their currency and inflate it away which made it more manageable.

With the Euro they have to a large extent lost this ability. And this is why we see countries like Greece, Spain and Portugal running into problems.

So how does this tie into #brexit?

Because the governments in the Eurozone are inside the EU, their hands are tied with regards to what measures they can take to turn their economies around. For example employment regulations and tax rates are set by the EU and not by the member countries.

This makes it extremely difficult if not impossible for these countries to turn their economies around.

And this is where the surplus recycling mechanism comes in.

If the governments in debt problems cant grow then they will need money from outside ie from other members of the EU.

This means that the richer nations like Germany and the UK will see a greater portion of their taxes going to prop up bad governments.

This is a downward spiral. Success is punished and bad governance is rewarded.

The goal for the ECB is to implement this surplus recycling mechanism and when it does I fear the EU will have checked into the roach motel of fiscal policy.

The UK has an opportunity to isolate itself from this self destructive policy and this is another reason why I think brexit is the correct choice not just for the UK but for the countries in the EU.


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