Two top advisers to German Chancellor Angela Merkel have called for a tax on private wealth and property in eurozone debtor states to force the rich to fund rescue costs, marking a radical new departure for EMU crisis strategy.
Prof Bofinger told Spiegel Magazine
that it was a mistake to target deposit holders in banks, the formula
used in the EU-IMF Troika bail-out for Cyprus where those with savings
above €100,000 at Laiki and Bank of Cyprus face huge losses Photo: AFP PHOTO/YIANNIS KOURTOGLOUYiannis Kourtoglou/AFP/Getty Images
Professors Lars Feld and Peter Bofinger said states in trouble must pay more
for their own salvation, arguing that there is enough wealth in homes and
private assets across the Mediterranean to cover bail-out costs. “The rich
must give up part of their wealth over the next ten years,” said Prof
Bofinger.
The two economist are members of Germany’s Council of Economic Experts or
“Five Wise Men”, a body that advises the Chancellor on major issues. There
is no formal plan to launch a wealth tax but the council is often used to
fly kites for new policies.
Prof Bofinger told Spiegel Magazine that it was a mistake to target deposit
holders in banks, the formula used in the EU-IMF Troika bail-out for Cyprus
where those with savings above €100,000 at Laiki and Bank of Cyprus face
huge losses. “The canny rich in southern Europe just shift their money to
banks in Northern Europe to escape seizure,” he said.
Prof Feld said a new survey by the European Central Bank had revealed that
people in the crisis countries are richer than the Germans themselves. “This
shows that Germany has been right to take a tough line of euro rescue
loans,” he said.
The ECB study found that the “median” wealth of is €267,000 in Cyprus,
compared to just €51,000 in Germany where home ownership rate is just 44pc
and large numbers of people have almost no assets.
The median or midpoint level -- which strips out the distorting effect of the
super-rich -- was €183,000 for Spain, €172,000 for Italy, and €102,000, and
even €75,000 for Portugal.
Average wealth in Cyprus is €671,000, far higher than in the four AAA creditor states: Austria (265,000), Germany (195,000), Holland (170,000), Finland (161,000).
The ECB survey has hardened attitudes in Berlin, dooming efforts by Cyprus extract more money from the Eurogroup as rescue costs surge from €17.5bn to €23bn.
The study shows how EMU states have twisted themselves into a Gordian Knot under monetary union, and why Germans feel a strong sense of grievance over escalating bail-out demands. Yet it is also highly controversial since it relies on data before the housing crash in Spain, and may understate implicit wealth in Dutch pensions or German life insurance.
Any attempt to enforce a wealth tax in future rescue talks will be seen by Club Med as further evidence that the Northern powers will try to impose all the burden of crisis adjustment on those in trouble rather than accepting their own shared responsibility for the failings of the EMU. This comes a day after Germany said over the weekend that there could be no banking union after all without a fresh EU treaty, effectively kicking the issue into touch for years.
Critics have long argued that North Europe is equally to “blame” for the crisis since it flooded the South with cheap credit, and they accuse Germany of destabilizing the intra-EMU trade system by screwing down German wages and running a current account surplus of 7pc of GDP.
Any serious move to a wealth tax could the erode the pro-euro ardour of South Europe’s uber-rich. The ECB bond buying policy has largely rescued the wealthiest strata while the full brunt of EMU austerity has fallen on ordinary people and the unemployed.
The political debate on euro membership may change dramatically if rich Cypriots, Italians, Spaniards, and Portuguese start to see EMU as a threat to their property, rather than a defence.
Average wealth in Cyprus is €671,000, far higher than in the four AAA creditor states: Austria (265,000), Germany (195,000), Holland (170,000), Finland (161,000).
The ECB survey has hardened attitudes in Berlin, dooming efforts by Cyprus extract more money from the Eurogroup as rescue costs surge from €17.5bn to €23bn.
The study shows how EMU states have twisted themselves into a Gordian Knot under monetary union, and why Germans feel a strong sense of grievance over escalating bail-out demands. Yet it is also highly controversial since it relies on data before the housing crash in Spain, and may understate implicit wealth in Dutch pensions or German life insurance.
Any attempt to enforce a wealth tax in future rescue talks will be seen by Club Med as further evidence that the Northern powers will try to impose all the burden of crisis adjustment on those in trouble rather than accepting their own shared responsibility for the failings of the EMU. This comes a day after Germany said over the weekend that there could be no banking union after all without a fresh EU treaty, effectively kicking the issue into touch for years.
Critics have long argued that North Europe is equally to “blame” for the crisis since it flooded the South with cheap credit, and they accuse Germany of destabilizing the intra-EMU trade system by screwing down German wages and running a current account surplus of 7pc of GDP.
Any serious move to a wealth tax could the erode the pro-euro ardour of South Europe’s uber-rich. The ECB bond buying policy has largely rescued the wealthiest strata while the full brunt of EMU austerity has fallen on ordinary people and the unemployed.
The political debate on euro membership may change dramatically if rich Cypriots, Italians, Spaniards, and Portuguese start to see EMU as a threat to their property, rather than a defence.
No comments:
Post a Comment