Firestorm brewing on Horizon...

[markc]

... and in Monaco they don't pay any tax (income) at all. Even though most of our state zombies also see gambling (the National Lottery rather than the largely state run Casino) as their only "way out", we're not quite comparing apples with apples are we?

Mark

[greenberet]

Yeah, it’s really hard to take away existing benefits.

Here in Austria, the ruling coalition plans on sending each taxpayer an annual summary of what they paid the government and what they got back in return. We already get such a statement from the state “social insurance” companies that run the health care and pension systems (hence it’s public knowledge that 75% of the taxpayers receive more benefits in those areas than they have paid for). The plan is to expand that overview to include as many forms of taxes and state aid as possible. The official goal is to check whether anyone is cashing in the same benefits twice. The unofficial result is being able to see who the benefit-addicted state zombies are.

About half of farmers’ incomes are taxpayer-funded subsidies here and that’s not something they want splashed across the newspaper headlines. Since almost everyone who is a net recipient of government spending doesn’t want to be identified as such, the majority of voters are against the creation of the planned “transparency account”. Any party that wants to stay in office will probably rethink whether they really want to implement it and even if they do, they’ll probably pare it down so far that it becomes useless. Ah, the tyranny of the majority, as the founding fathers of the USA called it.

[havoc]

Things starting to unravel further:-
- French Minister getting desperate and flinging mud as a distraction measure
- The reason for the positive sale of Spanish debt on Tues/Weds being revealed as the 3-year ECB 1% 'subsidisation' of said debt
- Increasing dissent from more of the "26" re: fiscal union and centralised fiscal control
- Merkel suddenly being nice to Cameron!

The only way this will end at-all positively is if:-
- the EU leaders (Merkozy in particular) stop defending increased European integration,and in particular the sacrosanctity of the Euro;
- cut-loose the PIGS (Italy is in the opinion of many commentators still salvageable, and indeed is the key to stopping France from taking a HUGE bath, which will have seismic consequences in Germany and the UK) from the single-currency;
- said leaders enact CURRENT austerity measures, not 2-year distant ones which win votes but most emphatically NOT market confidence. Moody's etc. are far too savvy to be taken in by double-speak.

Personally, I don't hold out much hope for politicians stopping acting like politicians, esp. ones with <12 months to a general election!

Sell €, buy $ guys...

[greenberet]

The only way this will end at-all positively is if:-
...
- cut-loose the PIGS ...

As much as my gut would like to agree with you, my head doesn’t. The undisciplined PIGS would surely get their just comings if they were kicked out of the Euro zone. However, as soon as the Drachma, Peseta, etc. are reintroduced they would massively devalue, making it well on impossible for the Greek, Spanish, etc. governments to service their Euro denominated debts. If they default, all the banks that hold their debt would have to reduce the value of the bonds in their books, which would force them to reduce the value of their equity by the same amount. If they reduce the value of their equity enough, they will no longer legally be allowed to provide loans. To prevent a Lehman Brothers II situation, the governments of the more prudent Euro zone members would have to give the banks the money that the Greeks, Spanish, etc. didn’t. So the taxpayers in Germany, Austria, the Netherlands, etc. are going to foot the bill anyhow, whether the Euro zone breaks up or not. They are either going to give money to the banks or to the PIGS. If they give money to the PIGS, at least they can make them sign agreements to curb their profligate spending in the future. If they give money to the banks, I don’t think any similar agreements will be possible. So throwing money before the PIGS is probably less bad than bailing out the banks yet again.

Personally, I like having a common currency. However, it cannot work if 1) some governments are running 3% budget deficits and others are running 10% budget deficits, and 2) there’s only one central bank allowed to print money. The easy way out is to keep your own currency, allow your government to maintain a 10% budget deficit, and have your central bank print money (sorry, employ “quantitative easing”) to pay for it all. As long as your central bank can print money, you can be relatively sure that the government will service its debts. Your country can then build up a bigger debt burden before it’s time to pay the piper. But when the time comes, it’s probably going to be more painful the larger you let the bubble become before it bursts.

So my head tells me it’s better to give money to the PIGS instead of bailing out the banks again and to impose fiscal discipline now rather than let the central bank keep funding a government debt bubble. But a crystal ball would be very useful to know for sure. My heart tells me that it’s nice to drive my NSX over alpine passes into Italy for a long weekend and pay with Euros when I’m there. I could never get used to all those zeros on the Lira notes.

[havoc]

A different perspective - thanks!

You make one assumption I'm not convinced by - that the governments are going to bail-out the banks. That they've done it before makes it probable, but not definite. It would also be electorally-damaging for whichever government did it, so soon after the last lot (and let's not forget that soon after that happened the banks started paying big bonuses again!). Letting a couple of European banks fail might just make the others eat a little humble pie and see that they're not running the show...and it would only have short-term ripples through the economy, as the government could use the money it saved to leverage loans to industry/consumers (which will have a positive effect on the economy), rather than just bouncing between the banks and having very little effect.

I think your approach is more likely for political reasons (increasing European political integration) rather than economic ones though.



Me? Personally I'd like to see the Lira back...would make things a LOT cheaper than they were this summer! (£40+ for 2x pizza and 2x beer)

[Nick Graves]

Dead men walking, I'm afraid. It's time the banksters got a haircut - at the neck.

Sooner the whole lot goes bust, the sooner the recovery starts.