Denmark's Overrated "Flexicurity"

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Fascinated by business and economics? Check out an online PhDRecently, Denmark have become hailed as a role model for Europe, especially after the meltdown for the proposed modest liberalization of French labor markets. In Sweden, for example by both libertarian Johnny Munkhammar and social democrat Lena Askling. That both "right-wingers" and left-wingers" tries to hail a country is seemingly a sure sign it is successfull-and that it has a mixed bag of policies. Yet as we shall see, while it is true that its policies are mixed , Denmark's success is exaggerated.

Denmark pursues a policy known as "flexicurity"-combining the flexible "hire and fire" system of freer economies and the government-provided security that is traditionally associated with continental European and Scandinavian countries. While it is far easier to fire employees than in France and Sweden, unemployment benefits is in fact even more "generous" than in Sweden (Unemployed gets 90% of their previous pay in Denmark, versus 80% in Sweden).

But while "flexicurity" is certainly preferable to the pure "security" of France, there is no evidence that it is superior to the less "secure" economic systems in most "Anglo-Saxon" countries and East Asia.

While recent numbers show a relatively high GDP growth in Denmark and a official unemployment rate of only about 5%, these numbers mostly reflect a unsustainable housing bubble. If you look at Danish economic performance over a longer perspective, the numbers have been far less impressive. Between 1994 and 2004, Denmark had in fact a slightly lower growth rate than the average of the old 15 EU countries.

As for unemployment, the seemingly low numbers in Denmark reflect in fact the same kind of manipulation of statistics that the Swedish government have been using. While official unemployment in Denmark was only 133,500 or 4.8% in March 2006, there were in the fourth quarter (latest available number in Denmark's statistical data bank )some 117,600 people or 4.2% in so-called "arbejdsmarkedspolitiske foranstaltninger(="labor market political activities", what in Sweden is refered to as "AMS-åtgärder")". This means that Denmark have even more hidden unemployment in that respect than even Sweden, where "only" 3.2% (144,000) were put away in "labor market political activities" . And while the total level of hidden unemployment is still lower than in Sweden as Denmark have less people in early retirement and on "sick leave", hidden unemployment is still a lot higher than in most other OECD countries.

And while employment have increased at a healthy rate during the latest year, as Johnny Munkhammar himself showed in a recent briefing paper, performance seen over a longer time perspective have been far less impressive.In fact, employment growth between 1995 and 2003 was even lower than in Sweden, with only Germany and Austria performing worse among the "old" 15 EU countries.

It is true however that youth unemployment is relatively low in Denmark compared to most other European countries, reflecting how the ease with which employers can fire workers have made them less reluctant to hire young people with little or no work experience. Yet while this reflects the virtues of the "flexibility" part of "flexicurity", the fact that overall unemployment (including hidden unemployment is high) is high shows that it does not take away the damage created by the high unemployment benefits.

If between 1995 and 2003 Denmark performed relatively miserably, why have both GDP and employment growth picked up recently? In part, it is a result of the fact that while the burden of government spending is still far too high in Denmark, it have fallen significantly in recent years, as I pointed out in a recent post. In part, however, it is the result of a unsustainable housing boom.

While Denmark is not formally part of the Euro-zone, it have pegged its currency to the euro, meaning that its monetary policy is de fact decided by the ECB, whose monetary policy have been far too loose. Indeed, monetary conditions have been even looser in Denmark than in the Euro-zone as the robust public finances with a large budget surplus have created such confidence in the Danish currency that the Danish central bank have been
forced to expand the money supply even faster than the ECB in order to maintain the peg to the euro in the face of significant capital inflows. As a result, broad money supply growth was 16.9% in March versus 8.6% in the Euro-zone (And 10.9% in Sweden).

That in turn have resulted in house prices increasing 22% in Denmark, a clearly unsustainable rate of increase. Only Estonia had a higher increase in house prices, but in Estonia these house price increases can to a high extent be justified by the low inital prices and the double digit economic growth. When house price inflation halts or perhaps even reverses, Denmark's recent fast growth will end too.

To summarize, Denmark is not the economic role model or star performer that some people seem to think. Until recently, growth was weak and the recent upswing is mostly cyclical . And while the fact that youth unemployment differs less from overall unemployment than in the rest of Europe indicate that the "flexibility" part of "flexicurity" have helped Denmark, the high level of overall unemployment even during the current unsustainable cyclical upswing indicates that the "security" part of "flexicurity" have nevertheless created distortions.

Sweden's Krugman Wrong About Debt

Lars E.O. Svensson, former member of the board of Sweden's central bank, the Riksbank, and also former colleague of Paul Krugman at Princeton University, is the most prominent advocate of a more inflationist monetary policy in Sweden. One might say that he is "Sweden's Krugman".

While being in the Riksbank board, he publicly criticized  his colleagues for not being more inflationist, arguing that higher interest rates was an inappropriate way of reducing household debt while lower interest rates was an appropriate way of reducing unemployment. After he left the board he has continued to argue for more inflation, now with the new argument that a tighter monetary policy will actually increase the household debt burden in the short term and even in the long term will only leave it unchanged. That is because according to his model, it will reduce nominal GDP, and nominal household income, more than it will reduce nominal household debt

I have already discussed it on my Swedish language blog, but now that a summary of it has been posted on VoxEU, and Mark Thoma's influential Economist's view blog has linked to it , I should perhaps discuss it here too.

If you go through his actual paper, which isn't easy for everyone since it contains a lot of greek letters and related advanced mathematical expressions, you can see that the results in his theoretical model rests on two assumptions:

1) Interest rates has no effect on amortization or the use of value increases on their houses to increase their mortgage.
2) Interest rates only lowers or increases the issuance of new mortgages by the same relative proportion that it lowers or increases nominal income.

Of course, if these assumptions had been true then it would have indeed followed that a tighter monetary policy would raise the debt to income ratio and that a more inflationary would reduce it.

However, both assumptions are in fact wrong. If house prices are lowered then this will clearly greatly reduce or eliminate the possibility of getting a higher mortgage using the value of the house as collateral and higher interest rates will make home owners (and other debtors) more eager to amortize. Higher interest rates will also reduce the issuane of new mortgages (and other forms of debt) more than it reduces nominal income because of the substitution effect from higher interest rates.

And because both key assumptions are wrong, his conclusion is also wrong

Different Countries' Position in the Business Cycle

One of the most important distinctions when it comes to discussing growth differentials between different countries is differences in structural growth and cyclical growth. Structural growth is the long-term sustainable growth rate while cyclical growth is growth or contraction related to business cycle fluctuations. The distinctions are not always as razor sharp as one can imagine, as some growth spurts can be temporary but not really cyclical in the traditional sense, such as the higher growth usually enjoyed by initially poor countries, a "catch-up" effect occurs which will ebate as the income gap closes. But nevertheless, the distinction is very real and very meaningful for understanding economic trends.

When comparing growth rates between countries to evaluate differences in the effect of various microeconomic policies (taxes, regulation etc. ) it is for this reason important to take into account the different positions different countries have in the business cycle.

We can now for example see how Sweden have higher growth than not only most of Western Europe, but also compared to the U.S. and (probably) Japan. Swedish socialists can and do claim this is vindication of the superiority of the Swedish model, yet there is good reason to believe, based on the higher money supply growth and the discretionary rate cut measures in 2004-05 and the fact that growth in the preceding years was below that of most other advanced countries that this is wholly a cyclical upswing, not a structural one.

As this distinction have unfortunately gone lost in the Swedish economic debate, and for that matter the economic debate in many other countries as well, this bodes ill for free market advocates in the short-term.

Just how long the current strong cyclical upswing in Sweden will last is as always in economics uncertain, but I only expect a moderate slowdown (which is to say, a repeat of the 5.5% number or anything close to or above it is highly unlikely, but 4% or at least close to 4% looks likely). Meanwhile, a cyclical downturn looks imminent in America, as the imbalances created by Alan Greenspan starts to unfold.

So, with the cyclical upswing likely to continue for a while in Sweden while a cyclical downturn in America is on the way, and with America being perceived in Sweden by both most socialists and most free market advocates as a symbol of capitalism and with most free market advocates clueless on business cycle theory, this means that socialists will likely get the upper hand in the economic debate for the coming year.

In a few years, the roles will likely be reversed as the imbalances created by the Riksbank starts to unfold and as America, provided the Fed and the Washington politicians don't mess things up too much during the coming recession starts to recover. But as I've argued in two previous posts ( here and here ), unless free market advocates starts learning Austrian business cycle theory, they're gonna be toast in the public debate for the coming year or so.

What about other countries then? In what stage of the business cycle are they? Most of continental Europe are roughly in the same stage of the business cycle as Sweden, only their cyclical component aren't fully as big as the ECB, while having pursued a too inflationary monetary policy haven't been fully as bad as the Swedish Riksbank.

Britain on its hand appeared to be at the same stage as America (i.e. on the verge of a recession), but have now seen its economy re-accelerate as it benefits from the cyclical upswing in the rest of Europe. This is fairly similar to Australia who a year ago seemed ready to fall into a recession, but who saw its economy re-accelerate as it benefited from higher commodity prices.

China is at a later stage of the cyclical boom than Europe, and will arguably see its economy slow down significantly soon as a result of the downtrun in its most important export market America and various tightening measures in America. But as China's structural growth rate is so extremely high, growth will even during the cyclical downturn be very high by Western standards.

Japan is in some sense in the most admirable cyclical stage. It have gone through a more than decade long stagnation during which households and companies have slowly but steadily liquidated the malinvestments and payed off most of their debts. Japan can therefore enjoy a long period of cyclical upswing before they risk developing significant imbalances. But Japan will of course suffer if its two biggest export markets, China and America, enters a cyclical downturn. And Japan's structural growth rate is steadily falling because of the accelarating decline in its working age population.

Swedish Centre-Right Ignore Sound Monetary Theory at Their Own Peril

On the same day that my mises.org article about Sweden was published, the Swedish statistical bureau released an advance estimate of second quarter GDP (as usual, more details can be found in the Swedish language version of this release) which at 5.5% came in far above all analyst's expectations . Most analysts (including me ) had expected something roughly similar to the first quarter i.e. 4-4.5%.

Many reacted with disbelief and as can be seen by this comment thread at Swedish business news paper Dagens Industri, they believe the number was manipulated in order to help the Social Democrats win the elections next month . But while I admit that the numbers are strangely high given what one could have expected from various indirect indicators such as employment and wage growth, it is nevertheless not impossible to have GDP growth of this magnitude combined with weak employment and wage growth, nor is it impossible that the labor statistics is misleading and underestimate growth. And even if these numbers overestimate growth, we need a lot more conclusive evidence before I am willing to accuse the statistics bureau of intentional manipulation. So, for now, we should accept these numbers for what they are.

Social Democratic commentators reacted unsurprisingly by claiming this is a vindication for "the Swedish model", whereas most centre-right commentators either didn't comment it all or explained it with unsatisfactory explanations. The editorial page at Expressen for example explained it with the modest free market reforms implemented in Sweden in the late 1980s and early 1990s. But while these reforms have indeed raised structural growth since they were implemented, they can hardly explain the recent growth spurt. Blogger Dick Erixon came with an even worse explanation, that it was a temporary consumption boom driven by higher transfer payments from the government, which is misleading since for one thing consumption increased slower than investments (Erixon cites a quarterly decline in investments in some industries, yet this is more than offset by increases in others) and for another these hand-outs can only explain a small part of the consumption increase.

Instead, the real explanation for this temporary growth spurt is the one I have repeatedly explained on this blog and also in my mises.org article: namely that it is a classic Austrian business cycle theory case of a cyclical boom driven by inflationary monetary policy. Unfortunately, since so few commentators in Sweden are familiar with that theory, the Social Democrats can in effect get away with claiming that the current growth spurt is a vindication of their policies, as free market commentators can offer no or only obviously unsatisfactory/false explanations. The Swedish centre-right could pay a heavy price for ignoring sound business cycle theory.

Munkhammar's European Dawn: A Powerful Indictment of Euro-Socialism

I just finished reading Johnny Munkhammar's book on the European welfare state, European Dawn-After the Social Model . While , as we shall see, there were parts of the book which could have been improved further, it is nevertheless the most powerful indictment of the Euro-socialist welfare state that I have read so far.

Although there are several books which better argue for sound economic principles, European Dawn does a better job than any other book I've read in applying these principles to modern Europe and using them to analyze the abundance of interesting statistics the book presents.

The book discusses the economic crisis that most of Western Europe faces . Western Europe have for years lost ground to most other parts of the world, including America, East Asia and Eastern Europe. Meanwhile, mass unemployment have become a seemingly permanent reality.

Munkhammar shows that this is clearly the result of first, the weakening incentives for productive activities created by high taxes and government hand-outs using both theoretical arguments and empirical studies. Also contributing to Europe's weak growth are over-regulated labor and product markets.

Here a distinction can be made. Labor market regulations and high taxes and government hand-outs weaken growth mainly (but not exclusively) by reducing employment levels and increasing unemployment (including various forms of hidden unemployment, like government financed early retirement)whereas product market regulations mainly lower growth by reducing productivity growth.

Munkhammar ties the problem of increasing unemployment among people in the working age population with the demographic trend of increasing number of old people which is expected to be provided for by the state. Further aggravating this problem is that the fewer number of young people are entering the work force later and later, as more and more are studying at university for a longer and longer time. All of this means that the dependency ratio for workers are steadily rising.

This problem is often discussed in the public debate, and Munkhammar shows in this book better than most people how the only way to solve this problem is to improve incentives for work, both among young, middle-aged and old people.

One really great thing about this book is how it in addition to the widely discussed problem of insufficent employment also deals with the all too often ignored problems created by government financing of certain services, like health care and education.

In this context, Munkhammar discusses the implications of what is known as Baumol's cost disease. That is, the fact that while productivity is rapidly rising in certain sectors, particularly manufacturing other sectors are because of the nature of theirb sector unable to improve productivity. For example, while it takes fewer and fewer workers to produce a car, nurses changes bandages no faster now than in the 1960s.

But if the relatively higher productivity in manufacturing where to result in higher wages there, no one would want to work in the sectors where productivity is rising. Because of this, wages must increase at more or less the same rate in both sectors. Nor can the higher productivity result in permanently higher profitability in those sectors for similar reasons, that is since that would attract investment capital that would eventually restore equilibrium and bring down returns on investment to the same level as in sectors with stagnating productivity.

Instead, the result will be that the prices of manufactured products must fall compared to prices in those service sectors where productivity is stagnating. That in turn implies that sectors with stagnating productivity will, ironically, increase its share of the economy.

And since government funded sectors like health care, education and care for the elderly are sectors with stagnating productivity, whereas manufacturing is private, this implies that the burden of the private sector in providing for the government sector will steadily rise, further aggravating the previously discussed problem of the increased burden of providing for those who do not work.

The fact that services like health care and education is publicly funded creates special problem since unlike in other services with stagnating productivity, it implies higher taxes . Because tax increases, particularly from today's elevated Western European levels, there is a limit to how much it can be raised. A limit which for many taxes (particularly corporate income taxes) is steadily lowered as increased tax competition lowers the so-called Laffer point (the point where further tax rate increases weakens the tax base so much that actual tax revenues will in fact fall).

The solution is instead to increase the degree of private financing, whether through direct user fees or private insurances and with regards to the poor some element of private charity. This have the advantage of reducing demand for the public services and thus in itself limit costs and unlike tax increases it do not harm other sectors.

Munkhammar also emphasizes that higher productivity growth, while being good for other reasons, cannot help solve this problem. The reason for this is the previously mentioned fact that higher private sector pay will only help bid up government sector pay. He notes however that higher private sector employment growth can help solve this problem since this will raise tax revenues at any given tax rate without bidding up government sector pay.

To this it could be added a point not mentioned by Munkhammar, that the high tax society have hit particularly hard on the private service sector compared to private goods production. This is for two reasons. First because goods production is more capital intensive and since capital is more lightly taxed the total taxation of services is higher. And secondly, and perhaps even more importantly, it is usually a lot easier to substitute legal private service production with "black market" activities or to do it yourself. You can't produce a car by yourself, but you can cut your own hair with a hair cutting machine and you can clean your own house instead of hiring someone else to do it.

This disproportionate negative effect on private service sector activity is particularly relevant given the fact that they too often also have stagnating productivity and could thus be particularly helpful in lessening the burden of financing for government services.

Munkhammar also makes many other interesting points. He for example points to how "welfare" is a word which have been hijacked and stolen by socialists, just like the word "liberal" have similarly been taken over by socialists. "Welfare" originally meant "well being" but has now been twisted into essentially meaning government spending outside the "night watch man" (police, legal system, military) part of the state. Munkhammar makes numerous examples as to how welfare in its original meaning would be better provided for by the private sector.

Also, in the section on labor market regulations he makes the interesting point that while laws limiting the ability of employers to fire employees may reduce the risk for those who already have a job of losing it, they will make unemployment a lot more dreadful prospect because these laws will make employers a lot more reluctant to hire them again.

The one disagreement I have with Munkhammar is his optimistic view that as society becomes more heterogenous, the support for the welfare state will decrease. This according to Munkhammar is because people are more inclined to feel solidarity with people of their own ethnic group, and in a ethnically heterogenous society, people will thus not support the welfare state. As "empirical evidence" for this is offered how America with a more limited welfare state have been more diverse than for example Sweden or Denmark.

But this is in fact not based on the issue of homogenity versus diversity, but on America's more anti-statist, individualist traditions compared to Europe. And there are countless counterexamples which could be offered. Japan and South Korea are among the world's most homogenous societies , yet Japan's welfare state are no more extensive than America's and South Korea have in fact a much less extensive welfare state than America. Meanwhile, two examples of quite bloated welfare states include Belgium and Israel, two highly diverse countries. Belgium's Flemish and Walloon inhabitants certainly identify themselves as different ethnic groups. And the example of Israel is perhaps even more telling as Israel have a bloated welfare state despite having a large (20% of the population) Arab population and despite the well known mutually hostile feelings between Jews and Arabs in Israel and despite the fact that Arabs recieve a lot more in transfer payments and government services than what they pay in taxes(Despite the frequent accusations of Israel being "a racist state", Arab citizens of Israel have full access to the Israeli welfare state).

The reason why the empirical evidence contradict this hypothesis is because it is based on the faulty premise that support for the welfare state is somehow based on "solidarity". While this is what socialists often claim in their official propaganda, I have sufficent personal experience with socialist relatives and friends to know that they do not support the welfare state because they want to give away their money to the poor, but because they want to receive money taken from the rich. While there are a few socialist idealists who wishes to share their wealth (Warren Buffet is a good example of that), they are a small minority and they are at any rate usually just as willing to give to foreigners. The welfare state is not based on the desire to give but on the desire to take.

The reason why government payments to families with children is a lot more accepted than government payments to immigrants, despite the fact that the former cost a lot more is simply because the vast majority of people expect that they themselves will be on the receiving end of subsidies to families with children sometime, whereas they will obviously not be on the receiving end of payments to immigrants.

While the emergency of immigrants who are net receivers of money from the state may lessen somewhat support for the welfare state among the native born, this will be compensated by the support for the welfare state from the immigrants themselves.

I am also generally a bit less optimistic than Munkhammar that the European social model is doomed. In part because I do not share his view that increased ethnic diversity will lower support for the welfare state, but also because the strong popular support for the welfare state will make politicians more inclined to resort to ad hoc solutions that do not mean a significant lowering of the burden of government.

Sweden's centre-right opposition is a perfect example of this, as they pledge they will not make any significant spending cuts (and indeed increase spending on some areas, such as government services and foreign aid) and that most of the tax cuts they offer will be financed by other tax increases. These ad hoc solutions , such as the lowering of payroll taxes in a few targeted service sectors are designed to deal with the above mentioned problem of the greater impact of taxation on the service sector.
But these ad hoc solutions, apart from creating other distortions will of course mean that the social model is preserved.

While the economic pressures discussed above is likely to mean that a few modest free market reforms and ad hoc solutions will be put into place, the basic social model is unlikely to disappear until we either suffer a really serious economic downturn (which however could also result in a move to even more collectivist solutions) or advocates of liberty are better at reaching out and changing the general mentality of a significant number of people. While Munkhammar's book is again not perfect, it is still the best book so far published on the issue of Euro-socialism and for that reason one which could contribute to the needed change in mentality.

Germany As Example Of The Gravity Model Of Trade

Here is a chart of Germany's 10 biggest export destinations and import suppliers in 2012:

5 out of 10 in both categories are euro area countries, namely 4 of the 5 euro area countries that borders Germany, namely France, the Netherlands, Austria and Belgium. The fifth euro area country that borders Germany, Luxembourg, isn't included because of its small size, while Italy is with even though it doesn't border Germany because of its large size (and because the distance isn't that great).

4 non-euro area countries, China, the U.K., the U.S. and Switzerland is also in both categories. In the first three cases that reflects the large sixe of these economies (though Britain is also relatively close geographically as well), while in the case of Switzerland it reflects that it borders Germany.

Russia is not among the top 10 export markets, but it is the seventh largest import supplier, no doubt reflecting mainly supplies of natural gas and other energy products. Poland is not among the top 10 import suppliers, but it is the tenth biggest export market.

In short, Germany's trade is mainly with countries that are geographically close or whose economies are relatively large, or both in the case of France and to a lesser extent also Britain and Italy.

This is consistent with what one could call the gravity model of trade. The extent to which the gravity of various celestial bodies affects us depends in part om how large they are and in part on how close they are. Earths gravity affects us the most because we are on it. After that, the Sun and the Moon affects us the most, in the Sun's case because of its enormous size and in the Moon's case because it is the celestial body closest to us, except for Earth.

Similarly, the extent to which we are affected by the "gravity" of other economies depends in part on how large these economies are and in part on how close they are.  The reason why economic size increases an economy's "trade gravity" is of course because a larger purchasing power increases the likelyhood that they have things to sell to other countries and have the ability and will to buy from others. The reason why geographic proximity increase the extent to which others are affected by the "trade gravity" is because it imply lower transportation costs.

 China and the U.S. are because of their large size important trading partners for almost all countries in the world (except for countries like Iran where political factors prevent trade). By contrast, relatively small countries can be important trading partners to neighbors. Denmark's, Finland's and Norway's economies are relatively small but they are still all among the top 10 trading partners of Sweden, with Norway being in fact the second biggest after Germany.

There are some exceptions to this rule, but in the most cases it reflects political factors, with the non-existent trade between the Arab countries and Israel being the best example of this.

The New Socialism

Charles Krauthammer has a good column where he shows how the "climate change" movement or whatever you want to call it is the new socialism (something which Czech President Vaclav Klaus has long argued).

Socialists have long wanted to impose extra taxes, control the economy and redistribute wealth to the third world on the basis of alleged wrongs done to the third worlds by industrialized nations. The "climate change" movement offers them all of this.

This explains why leftists almost universally have signed up to it.

UPDATE: One reader argues that a key difference between classical socialism and the new enviro-socialism is that classical socialism at least claimed to want to improve people's life, while the new enviro-socialism demands that people lower their standard of living. That is true for many or even most enviro-socialists, but quite a few of them is in fact arguing (especially here in Sweden) that the new "carbon free" energy will ultimately deliver higher productivity.

Update II: Another reader gives the following sarcastic review of enviro-socialism:

The enviro-socialists are effecting a Kuhnian paradigm shift in the socialist model. This revolution in socialist science derives from their discovery of an essential aspect of socialism that Marx and his intellectual heir could not have known until recently.

Marx thought that communism would bring about universal material prosperity, but a century of experience demonstrates that socialism results in widespread material poverty. In the mid-20th century, the Frankfurt School explained the failure of the proletariat to embrace Marxism due to a “false consciousness” brought about largely by the material success it enjoys under capitalism. However, this explanation hardly inspired the workers to throw off their chains.

The contribution of the enviro-socialists is that they discovered that widespread poverty isn’t a bug in socialism; it’s a feature.

Not quite like the gold standard

Johnny Munkhammar of the Swedish free market "think tank" Timbro have written a interesting op-ed column [In Swedish] in Sweden's fourth biggest newspaper, Svenska Dagbladet. In it he points out correctly that the root cause of the economic woes of the three biggest Euro-zone economies, Germany, France and Italy (as well as many of the smaller economies in Western Europe, both inside and outside the Euro-zone) are the so-called "social model". Yet the crisis is falsely blamed on free trade, EU enlargement and the euro. Munkhammar also points out that if for example Italy were to reintroduce the lira in order to devalue it and inflate even more, this would not solve Italy's problem and would make Europe poorer. So far so good.

In his article, Munkhammar also argues that the euro is equivalent with the gold standard in that they both take away the ability of national governments to temporarily hide the problems through inflating and devaluing. He does however express disappointment that this have not lead European politicians to institute free market reforms.

What Munkhammar overlooks is that the reason why the euro hasn't functioned as well as a gold standard would have is because of the fundamental difference between a fiat monetary union ( at least one whose policies are like current ECB policies) and a gold standard. Namely that the former means that a transnational central bank can inflate in a way which will enable the national governments to escape structural reform in a similar way to the conditions with national central banks.

And since the ECB have -contrary to the widespread but absurd myth of it being a inflation hawk- in fact been so inflationary ( See here ,here ,here and here),monetary conditions have been very loose in stagnating economis like Germany and Italy which means that these countries have at least as far as interest rates is concerned had a keynesian monetary policy, even though it hasn't been decided there. Meanwhile the imposition of this inflationary monetary policy has also lead to the creation of housing bubbles in fast growing countries like Ireland and Spain-and interestingly enough in slow-growing France and Italy too.

The idea of taking away the power of inflating at will from national governments is a good one for several reasons including that it could help pressure governments to do away with socialist economic policies. But for that to work, what replaces national monetary policy cannot act as if it were the keynesian monetary policies of weaker countries-which the ECB have in fact done but which a gold standard wouldn't have done.