European leaders have started a discussion on German-inspired “contracts for competitiveness and growth”. To implement structural reforms in eurozone member states, the European Commission has proposed to negotiate with selected countries contracts underpinned by financial support. The idea, to put it bluntly, is to bribe reluctant governments into economic change.
There is a case for such an approach. Reforms, even the most beneficial ones for society as a whole, are often opposed because they erode rents. Those enjoying rents, for example because the market for their product is kept closed, have all reasons to fight against change. Continue reading »