The budgetary curtailment of the public sector expenditures of a Eurozone member country will must be done with specific policies which, depending on the economy in question, will have to be a combination of fiscal measures. These fiscal\/budgetary measures must be “moved within specific contexts and never exceed the maximum pre-defined fiscal\/budgetary limits. <\/a><\/font><\/p>\n\n\n\n Otherwise, significant damage will be caused to the aggregate demand and consumption level of the economy under consideration.<\/p>\n\n\n\n by Thanos S. Chonthrogiannis<\/em><\/strong><\/p>\n\n\n\n Prohibited by the law of intellectual property or in any way unauthorized use\/ownership of this article, with serious civil and criminal penalties for the infringer.<\/em><\/p>\n\n\n\n The crucial factors that should primarily be considered are:<\/p>\n\n\n\n 1.<\/strong> The size of the public sector and, above all, the size of human resources employed in the public sector, as well as its total cost as a percentage of GDP.<\/p>\n\n\n\n 2.<\/strong> The technological infrastructure in information systems that exist in the public sector. The larger percentage of the public sector is working with greater technological excellence, the fewer jobs offered in the public sector. <\/p>\n\n\n\n The drastic increase in technology and especially the information systems allows the human factor to perform multiple tasks within a very short period. That is why job vacancies are also being reduced. First, the public sector must be equipped with the most technological material.<\/p>\n\n\n\n 3.<\/strong> The size of the existing bureaucracy in the public sector. Since the public sector is characterized by small, public sector manpower and at the same time the public sector is fully equipped technologically, it automatically means less bureaucracy. <\/p>\n\n\n\n The larger the size of the public sector, the greater the size of bureaucracy and state corruption. The state corruption is increasing with the increasing size of state bureaucracy-this means a large public sector size and is declining with the reduced size of bureaucracy-this means small public sector size.<\/p>\n\n\n\n 4.<\/strong> The potential for privatization of public institutions and companies and public sector services. The reduction of a Eurozone member state expenditure by the central government will must initially be done through the mass transfer of their competences (and wherever it is possible) to the local governments-authorities.<\/p>\n\n\n\n After the transfer of responsibilities of the central\ngovernment (and wherever it is possible) to the local authorities, the local government-authorities\nwill have to privatize these services as well as a large set of their current\nservices. <\/p>\n\n\n\n The Commission in order to ensure that the local authorities then proceed to mass privatization of their services could also put a maximum annual public sector spending limit on the local governments budgets as a percentage to their annual revenues and similar to the one we presented for central governments\u2019 budgets of the Eurozone member states. <\/p>\n\n\n\n These public sector expenditures ceilings could be of different or the same size than the corresponding size that would be capped at government expenditures in central government budgets. This ceiling on public sector expenditures will be common to all the local governments budgets of the Eurozone member countries and will also be mentioned in a revised e.g. Stability and Growth Pact. <\/p>\n\n\n\n 5.<\/strong> All preferred for implementation public sector expenditure budget restraint fiscal policies will must have at their core the right application of \u201cthe theory of optimum currency areas\u201d-Mundell R.(1961)(\u201cA Theory of Optimal Currency Areas\u201d, American Economic Review, 51), McKinnon R. (1963) (\u201cOptimum Currency Areas\u201d, American Economic Review, 53\u05c3717-725), Kenen P. (1969) (\u201cThe Theory of Optimum Currency Areas\u05c3An Eclectic View\u201d, in R. Mundell and Swobodaa, Monetary Problems of the International Economy, Chicago\u05c3University of Chicago Press).<\/p>\n\n\n\n The aim\nof these policies will have to be to keep the aggregate demand and total consumption\nin the economy untouched and always in such a way that the untouched private\nsector can absorb next any redundant civil servants. <\/p>\n\n\n\n As all\nthe above critical factors will have been checked and their implementation will\nbe exhausted, the preferred fiscal adjustment of the reduction of primary\npublic sector expenditures in the central and general government budgets\nequally will must be take part from:<\/p>\n\n\n\n a)<\/strong> massive and immediate redundancies of thousands of permanent civil\nservants across the public sector (core and broader public sector). This size will\nhave to include the sizes of the respective operating expenses of the services\nand organizations in which these public servants work.<\/p>\n\n\n\n Since the overall size of the fiscal\/budgetary constriction of governmental expenditures to be decided is not covered by the total policy (a) above, then the overall size of the central government budget restraint will must be allocated to: <\/p>\n\n\n\n i)<\/strong> by 70%, by massive and immediate redundancies of thousands of permanent civil servants. On this size should be included and the sizes of the corresponding operating costs of the services and organizations in which they work; <\/p>\n\n\n\n ii)<\/strong> by 15%, by a horizontal decrease in nominal wage and pension rates in the total economy, <\/p>\n\n\n\n iii)<\/strong> by a 15% increase in tax on the economy. <\/p>\n\n\n\n The above\nrates of fiscal adjustment presented in the i) 70%, ii) 15%, iii) 15%,\nrespectively will must be the maximum rates of reduction of public sector\nexpenditures by category of i, ii, iii, which will be able to implement a\ncentral government and change depending on the identified problem in the\neconomy in question.<\/p>\n\n\n\n Reference to this combination of fiscal adjustment is made in the analysis titled \u00abThe Proper way to achieve the Single Operating Budget of the Eurozone-Part \u0399\u00bb, published in https:\/\/www.liberalglobe.com, 27\/12\/2018, category: fiscal).<\/p>\n\n\n\n Privatization of public agencies and services<\/strong><\/strong><\/p>\n\n\n\n Through all these massive privatizations in the public\nsector, are reduced the chances of an increased number of redundancies of civil\nservants if unnecessary public institutions and services (lower political\ncosts) are abolished immediately. <\/p>\n\n\n\n In cases where there should necessarily be mass\nredundancies of civil servants, they should then be re-trained and placed in\nthe private sector or subsidized for the creation of a business of their own. <\/p>\n\n\n\n When these privatizations include public services that\nare regarded as basic social goods or basic social services (e.g. water,\nelectricity, natural gas, etc.), the central governments of the member states\nin cooperation with the private companies that will take over these services\nthrough privatization procedure will must agree to the imposition of a maximum\n(cap) and lower (floor) limit on the prices of their services provided (price corridor).\nThis policy will must be implemented if and only if the market for these basic\nsocial goods operates based on a monopoly or oligopoly. <\/p>\n\n\n\n Since the market operates on a free market basis prices\nof these social goods will must be reduced to a point due to competition. This\ndoes not, of course, preclude the central governments of the Eurozone member\nstates from placing a price ceiling on these goods in this type of market.<\/p>\n\n\n\n In this way, the private companies that will take over\nthese services will always have an enough profit margin without being able to\nspeculate at the expense of society with expensive pricing that sooner or later\ncan lead to popular rage and high political cost for the governments. <\/p>\n\n\n\n These invoicing of the specific basic social services and\ngoods may be reviewed within a reasonable period and in collaboration with the\ncentral governments of the member states and if there is a plan of each private\ncompany for investment and upgrading of these services. <\/p>\n\n\n\n In addition, the high criteria governing these services\nand social goods by private companies, the pricing of their services should\nconsider the magnitude of the relative value of the social service\nprovided\/goods with the nominal day-wage of the unskilled worker which will\napply every time in the economy of the member state. <\/p>\n\n\n\n Any change caused to the nominal day-wage of the\nunskilled worker (e.g. due to inflation) will must be considered in the\ninvoicing of these basic social services\/goods. <\/p>\n\n\n\n Maintaining a constant size of the relative value of\nthese two sizes (day-wage of unskilled worker and prices of social goods) and\nif these basic social services\/goods to be provided by private companies\noperate within the framework of the free market and competition respectively,\nthe cost to citizens will be much lower than the current cost of these services\nand goods currently offered by the public sector. <\/p>\n\n\n\n At the same time, the existing administrative services of\ncentral and local governments of the member states will must be upgraded and\nalways be technologically advanced to outweigh the reductions will made to\nhuman resources. <\/p>\n\n\n\n The results of the proposed\nfiscal framework<\/strong><\/strong><\/p>\n\n\n\n With this strategy of fiscal adjustment, in a very short period of time are succeeded the objective of the criteria of the Maastricht Treaty (December 1991) (Treaty on European Union, Feb. 1992, Source\u05c3 EU https:\/\/europa.eu\/eu-law\/decision-making\/treaties\/pdf\/treaty_on_european union\/treaty_on_european_union_el.pdf<\/a>, 29\/7\/2015, Brussels_Luxemburg 1992) and of the Stability and Growth Pact (November, 2011) (Source\u05c3 EU, http:\/\/ec.europa.eu\/ economy-finance\/economic_governance\/sgp\/index.el.htm<\/a>, 3\/8\/2015). <\/p>\n\n\n\n 1.<\/strong> If the policies to increase the real incomes of Eurozone citizens are implemented and as I mentioned them above, it is likely that soon the European Central Bank (ECB) will increase the euro basic borrowing interest rates to balance the increase in the actually available citizens ‘ disposable incomes and liquidity in the Eurozone economy. <\/p>\n\n\n\n The ECB from 2012 until now has been and is forced to\nfollow these intervention policies in the capital markets, e.g. almost\nzero-euro basic borrowing interest rate policy, to cover each time the lack of\nliquidity in the economy due to the reduced aggregate demand and deflation. <\/p>\n\n\n\n But if there were, in the Stability and Growth Pact, the imposition of a common maximum annual fiscal ceiling on government expenditure in the budgets of central governments as % of their annual GDP and as described above, the resulting increase in real\nincomes and the aggregate demand of Eurozone citizens, through the\nimplementation of equivalent fiscal value measures in the economies with aim to\ntransfer these enormous resources from the budgets of central governments to\ncitizens would cause a significant increase in inflation throughout the\nEurozone. <\/p>\n\n\n\n Then the ECB would not force to follow and implement the policies of e.g. the almost zero-euro basic borrowing interest rate and the negative deposit interest rates for commercial banks in the Eurozone, but would simply increase the level of its interest rates to moderate inflationary pressures. <\/p>\n\n\n\n 2.<\/strong> In any case, the implementation of this strategic fiscal adjustment has a high short-term political cost for the leaderships of the Eurozone member countries. <\/p>\n\n\n\n But in a short time the economy is developing, the benefits of the social state remain almost unchanged, redundant civil servants will be incorporated in a short period of time by the private sector (depending on the degree of flexibility is displayed the respective labor market of the member state) and any high short-term political costs that will initially appear will disappear afterwards due to the absorption of unemployment. <\/p>\n\n\n\n 3.<\/strong> The permanent long-term goal of the state budgets of the central governments of the Eurozone member countries will must be, the permanent preservation of their public expenditures at a level of 15% of their GDP annually (with 4% of their GDP being the maximum annual limit of primary public expenditure on wages and pensions in the public sector). <\/p>\n\n\n\n In other words, total public sector spending on the state\nbudgets of the central governments of the Eurozone member countries will must\nnever exceed the ceiling of 15% of their GDP annually. <\/p>\n\n\n\n In this case, since in all Eurozone member states the\npublic sector expenditures of central government budgets are kept at 15% of\ntheir GDP annually, then the real incomes of Eurozone citizens will increase\ndrastically and directly through the application of very low-level taxation\nwhich will be required to maintain specific public sector spending at these\nlevels. <\/p>\n\n\n\n While achieving a permanent and sustainable primary surplus in the budgets of all the general governments of Eurozone member-countries. <\/p>\n\n\n\n 4.<\/strong> In addition, all citizens of Eurozone member countries whether working in the public sector or in the private sector will have a common goal and a permanent incentive to increase productivity in the economy of each member state they live in. <\/p>\n\n\n\n Productivity growth means GDP growth and more funds for\nthe central government budget, given that increased GDP with fixed maximum\nbudget rates at the level of government spending will cause the inflow of more\nfunds in the public sector treasury. Only then the central governments will\ngive salary increase in public sector employees.<\/p>\n\n\n\n In this case alone and given that there will always be this fiscal rule throughout the Eurozone\u2019s central governments\u2019 budgets, it will allow the EU Commission to impose the simultaneous implementation of a common tax policy with low relative tax rates across the Eurozone territory (imposing a common tax with the same tax rate on the Eurozone\/like federal tax). <\/p>\n\n\n\n This common and federal-style tax imposed across the Eurozone will be used to finance specific economic sectors that are common to all Eurozone member countries and to the Eurozone single operating budget (the budget of the Eurozone\u2019s central government) (e.g. sectors as the unemployment, the social state, the common EU defense and military expenditures, the single operating budget of the Eurozone\u2019 central government etc.). <\/p>\n\n\n\n 5.<\/strong> The common low tax rates in all Eurozone member countries combined with the creation of Independent Public Revenue Authorities (IPRA) in each Eurozone member country that will belong administratively and operationally to the Commissioner responsible for the portfolio of Financial Planning and Budget, will lead to real fiscal, tax and economic integration of the Eurozone (see analysis with title, \u00abThe Proper way to achieve the Single Operating Budget of the Eurozone-Part \u0399\u0399\u00bb, published in https:\/\/www.liberalglobe.com<\/a>, 3\/01\/2018, category: fiscal). <\/p>\n\n\n\n For the\nproper implementation of economic development policies in a Eurozone member\ncountry and in Eurozone territory in general, will must also exist in each\nEurozone member country common Independent Development Fund Management Authorities\n(IDFMA) for the management of National Strategic Reference Framework (NSRF)\nfunds (see analysis with title \u00abThe Proper way to organize and manage the\ndevelopment NSRF funds to achieve growth in the Eurozone\u00bb, published in https:\/\/www.liberalglobe.com<\/a>,\n10\/01\/2018, category: fiscal). <\/p>\n\n\n\n Which IDFMAs will manage the funds of the NSRF in each Eurozone member state and all together will be fully, administratively and operationally owned, under the responsibility of the European Commissar responsible for the development portfolio. <\/p>\n\n\n\n 6.<\/strong> In addition, with the implementation of this fiscal framework the deficits in the state budgets of the general governments of Eurozone member-states would disappear immediately and would not be required to disbursed huge sums from public state treasuries of Eurozone member countries to finance development plans of dubious success in the Eurozone as a whole. <\/p>\n\n\n\n The\nreductions in public sector expenditures in the state budgets should mainly\nstem from the reduction of the human resources of the public sector and their\nrespective operating costs and given that have been exhausted first all the\nmargins of privatization of these public services.<\/p>\n\n\n\n In this case and given the existence of a common and unique operating budget for the central government of the Eurozone, is given the opportunity to EU Commission to check satisfactory the unemployment figures and the unemployment benefits and to establish operational rules for the movement of unemployed people in order to find a job in the Eurozone\/EU as a whole. How this will happen, we will present it in the fourth part of this analysis.<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" The downsizing of public sector expenditures in central government budgets will must be done by a specific methodology and depending on the range-size of…<\/p>\n","protected":false},"author":1,"featured_media":596,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1217,5,860],"tags":[442,427,444,446,374,434,129,548,437,440,549,550,443,438,275,439,2191],"class_list":["post-459","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economic-studies","category-economic","category-fiscal-economics","tag-budget-surplus","tag-central-governments-budget","tag-commission-eu","tag-eu-commissar","tag-fiscal-adjustment","tag-fiscal-limits","tag-gdp","tag-how-to-reduce-the-government-spending-in-the-eurozone-state-budgets","tag-local-governments","tag-political-cost","tag-privatization-of-public-agencies-and-services","tag-privatization-of-social-goods","tag-productivity-growth","tag-restraint-fiscal-policies","tag-stability-and-growth-pact","tag-the-theory-of-optimum-currency-areas","tag-trust-economics"],"_links":{"self":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/459","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=459"}],"version-history":[{"count":7,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/459\/revisions"}],"predecessor-version":[{"id":3656,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/459\/revisions\/3656"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/media\/596"}],"wp:attachment":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=459"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=459"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=459"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2019\/03\/image.png\")
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Source: https:\/\/commons.wikimedia.org\/wiki\/File:Eurozone.svg<\/figcaption><\/figure><\/div>\n\n\n\n