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May’15 Financial & Fiscal Features Newsletter

Secondary US Bonds Market | Unique Bulgarian Banking Crisis

Most media optimism, both in the US and Europe, continues to focus on the dizzy levels of stock and bond markets, but in our view these index levels have been driven up by professionals front-running QE in the US and Europe.
In the past month, a Bulgarian court appointed two experts to liquidate the assets of CCB (known also by its Bulgarian initials KTB). This marked the end of a rather remarkable story that began in June 2014, when the rest of the Eurozone banking system was enjoying a (...)


Latest publications

Greece cannot save itself by taxing exports

Summer in Greece? Silly taxes ahead.
In all epochs, exports were almost always considered good for an economy. That’s why modern governments have generally stayed away from trying to tax exports. Not so the current Greek government, however. By increasing the tax rate on a vital component of Greek exports it is hoping to raise some “free revenue”. It won’t work.


Low labour taxes – less unemployment

An age-old phenomenon: Some unemployment exists and politicians want to fight it by creating conditions for new jobs. The usual recipe involves expanding government spending and investment programs. Figures for OECD countries show that places with low taxation of labour tend to exhibit low unemployment low and high levels of individual annual work hours. For politicians this serves as a much more promising recipe for politicians: the best way of “creating conditions for new jobs” and lowering (...)


What’s Wrong With | increasing budget for EU Parliamentary assistants

European Parliament has just voted to increase the budget each MEP can spend on their assistants. This can hardly be justified. Worse, it can increase the deluge of new regulations.


EU should not encourage Nigeria to increase income taxes. (Or anyone else.)

International institutions like IMF or World Bank do often give economic policy advice to poorer countries, but generally only after thorough analysis. EU does not specialise in such anaislys, and its diplomats should avoid dispensing such unfounded advice altogether.


It is not Brexit that endangers sovereign debt

There are plenty of reasons to panic about the level of UK government deficits and debt. But Brexit, even if it actually came, is not one of them. We review the relationship between a UK-sans-EU and public finance.


6 reasons to worry about inconclusive UK election

Political instability tends to worsen national debt
UK might not get a single party government after next month’s election. Again. Moody’s are not worried about the consequences for government finances. They probably should be.


What’s Wrong With | Greek death tax uncharitable to foreigners

Greek death tax uncharitable to foreigners
Say you want to pass your wealth to others after you die, since you cannot take it with you. If you pass it to friends and family, many (18) EU governments will take a hefty portion of it in inheritance tax. If you pass it to a charity, most (...)


April’15 Financial & Fiscal Features Newsletter

Easing and Volatility | More woes in Carinthia
Bank for International Settlements has labelled the impact of recent European quantitative easing as “unprecedented”. Worrying effects are not only the negative interest rates, but also very high price volatilities of asset. This development may soon hit not only economic, but also legal and even political boundaries. The Austrian federal state of Carinthia continues to suffer from its long engagement with the Alpe Adria bank, which actually predates the recent crisis. Instead of making a (...)


Have you paid your tax? Belgian taxman won’t believe you.

In the Middle Ages in the Middle East, merchants and travellers would sometimes have a proof of having paid their tax tattooed on their necks, to prove that they don’t have to pay again. Modern EU has devised a less painful alternative – a “Portable Document A1”. It is automatically recognised everywhere - except in Belgium. That’s worse than mediaeval...


Actual business tax? Almost half of profits in almost half of EU

Businesses pay a lot more than just corporate income tax.
The impression from media is that companies pay “only” somewhere around 20-30% tax rate in the EU, if they pay at all. That’s only the headline figure for one tax they pay. Total tax rates are well over 40%, French businesses pay 2/3 of their profits in tax. What’s worse, the big economies of Germany and France, already heavy taxers, have increased the tax rate over the past 10 years. This does not bode well for the (...)


EU’s complicated tax forms, measured

Businesses both pay taxes and collect them from others for the government. How administratively burdensome is this activity across the EU, North American and EFTA? We assess the evidence and identify, whether it is the frequency of filing or complicated tax returns that matter.


March’15 Financial & Fiscal Features Newsletter

Greece has Plan B | US Stress Tests
The ECB’s deal with Greece still leaves it exposed. Despite the rhetoric that countries must get their own finances in order, the ECB’s sister agency has started work on a new programme of $319 bn of mutualised debt. US banks all pass their stress tests. However, that is not necessarily reassuring. When central banks took over testing from ratings agencies, can they be trusted that they would reveal problems potentially leading to a premature panic? UK banking may have some problems to (...)


Text in e-books is irrelevant, says highest EU court

The European Court of Justice (ECJ) ruled last Thursday that e-books are not allowed to enjoy the lower VAT that “normal” books enjoy in some EU states, and that they have to be taxed at the standard (much higher) rate of other goods. The ECJ’s justification sounds strange and very counter-intuitive. Worse still, it discourages technological progress and greener methods of production.


The new Greek (Secret) Tax Police

If you are playing for time, you have to swamp your creditors with proposals how you are going to improve. “This time it’ll work, honest, guv.” So the Greek government is now proposing a secret tax police, where ordinary citizens would be wired with cameras and microphones to catch tax evaders. It’s a terrible idea, especially when there are easier alternatives.


February’15 Assessment of Commision’s Legal Action

We are continuing our assessments of monthly packages of legal actions initiated by the European Commission against member states. Unfortunately, no information was made available by the EC since our November assessment until the current February package. At the beginning of December, the next had been scheduled for December 16th, but there is no trace of either the December ’14 or the January ’15 (...)


Planned Obsolescence: a tax with strange effect on economy

The French government is hoping to help consumers – and increase growth – by making it illegal to manufacture products with artificially shortened lifetime. We argue that proving such case will be nearly impossible in modern technology and the ban will act as a tax, with consequences even worse than the status quo. If governments want to artificially boost production, they should in fact subsidise products with shortened lifetime, instead of banning (...)


Fiscal health means more than current government debt

Some “fiscally healthy” Eurozone governments are in fact in dire straits
The Greek bankruptcy of 2010 was the latest impetus for reviving the debate on robustness of governments’ budgets in the Eurozone. It became clear that in order to assess the long-term fiscal health, it is not enough to look at the much used public debt-to-GDP ratio. Additional indicators need to be considered which take a broader picture.


A guide to the world of negative interest rates

Negative interest rates here, there, everywhere. What used to be taught as "impossible" in textbook is now a reality throughout the EU. And for the first time it even affects corporate bonds, not just "safe" sovereign ones. Why would anyone lend more than they receive, when they can just hang on to cash? We explain.


Croatian government has just grown bigger. And more sinister.

The poorest poor in Croatia are having their debts wiped out by the government. The motivation may be noble, but the apportioning of the costs is despicable. Once again, government’s power and reach grows, yet it keeps this fact under the carpet. Who’s next?


February’15 Financial & Fiscal Features Newsletter

ECB vs. Syriza | Banking regulations
Is the standoff between the ECB and Greece in any sense subtle, or simply a car crash waiting to happen? We explain why being the first to defect may in fact benefit Greece. With low sympathy for formal (fiscal) debt forgiveness, we expect pressure to increase further on the ECB. — - Deutsche Bank’s CEO hails the new banking regulations. His counterpart at JP Morgan denigrates them. This, and further misconduct news just confirm that banking is still in worse shape than nearly all (...)


After banks and governments, now individuals want money for “unforeseen circumstances”

Earlier this week, Russian borrowers with Euro or Dollar mortgages called upon Putin to relieve them of their now increased interest payments. Banks should bear the costs, whilst the borrowers bore the benefits until now. We show that this bailout is just a repeated story of bank and government bailouts of recent years.


Greek debt servicing is not at all crippling

Greece is said to be suffering under crippling burden of debt servicing. However, the official debt servicing is already lower than in other EU countries with much smaller debts. Furthermore, the actual interest payments payable by Greece are close to those that Germany is having to make on its incomparably healthier debt. When the general public learn about these relations, political support for any renegotiation of Greek debt is likely to fall even (...)


TTIP: ending some protections while creating others?

Transatlantic Trade and Investment negotiations are resuming. Popular support varies across Europe, we identify four distinct groups. Removing trade protectionism will generally benefit ordinary people. However, some protectionism may increase, especially in investment chapters. If governments rather give in to corporations than risk being sued by them frivolously, corporatism will strengthen, not (...)


New rules encourage EU governments’ profligacy

New rules about deficits run by Member State governments have been announced by the European Commission. They are phrased as “guidance” so no Parliamentary approval is needed. They are said to “encourage structural reforms and investment”, but IREF shows that they discourage structural reforms and encourage only “investment”.


What is Europe’s Future? Prof. Colombatto to reveal in Dublin

26 February 2015, 6pm, Royal Irish Academy, Dublin. Open to all. Prof. Enrico Colombatto, the Head of Research at IREF, will deliver a lecture on his analysis of the true shortcomings of contemporary Europe, far more important than the eurocrises. Prospects for the future will be discussed.


Economic freedom down in Eurozone, up in non-Euro countries

9 EU countries have not adopted the Euro, 19 have. Both groups include similar proportions of countries with high, medium and low levels of economic freedom. However, IREF’s investigation of what has been happening to economic freedom in the two groups reveals significant differences. While non-Euro countres moved towards more fiscally related freedom, in Eurozone it stagnated or (...)


Greeks have the safest jobs in the euro area

Greek labour market is hard to crack for an outsider
The Greeks have voted and the left-wing Syriza emerged as the clear winner. There will now follow intensive discussions about Greek reforms and the relationship between Greece and the rest of the world. The labour market is one of the core battlegrounds in Greece. It is very difficult for the country’s unemployed to re-enter the labor market. This is borne out not only by the high unemployment rates but also by data on duration of holding current job. In no Eurozone country has the average (...)


The ZIRP Trap - why low interest rates are a tax on recovery

WP 2015-02 The ZIRP Trap - why low interest rates are a tax on recovery by • Philipp Bagus


The Effect of Tax progressivity on the quality of entrepreneurship

WP 2015-01 The Effect of Tax progressivity on the quality of entrepreneurship by • Mina Baliamoune-Lutz • Pierre Garello


Freedom helps: especially in times of crisis

Greeks suffer consequences of lack of economic freedom
For several weeks Greece has been, once again, at the centre of European economic policy. Grexit, Greece’s withdrawal from the Eurozone, is being debated again, in light of the forthcoming Greek election of 25 January. Proponents point to the opportunity after such withdrawal for a massive devaluation of Greek currency which would lower the price of Greek goods and services and make them competitive again. However, a quick look at different measures of economic freedom in the Eurozone (...)


January’15 Financial & Fiscal Features Newsletter

ECB QE? Will banks avoid Russia?
Only two countries remain opposed to QE, although even they realise that measures about to be implemented are QE in all aspects but the name. Meanwhile, ground is being prepared for ECB to shift blame if “unconventional stimulus” ends up not working. — - Russian sanctions work. Or so we are led to believe. However, it would be a mistake to underestimate the preparedness of EU banks (and bankers) to sidestep official sanctions and participate on the market. After all, Russia’s collateral may (...)


3 French Hens

Twelve Days of Fiscal Christmas
This article is from our mini-series looking at modern fiscal issues surrounding items listed in the famous 18th century English carol “Twelve Days of Christmas”. We believe that if the list can be used as an index measure of monetary inflation, (...)


2 Turtle Doves

Twelve Days of Fiscal Christmas
To replace the original sacrifice of two turtle doves, the biggest European authority in the Middle Ages, the Catholic Church, dictated what people should eat. EU governments continue doing the same, by fiscal means. However, this fiscal policy is full of paradoxes. Governments tax consumption of “bad” food, while also subsidising its production at the same time.


1 Partridge in a Pear Tree

Twelve Days of Fiscal Christmas
A partridge in a pear tree, the famous gift of the first day of Christmas, is at the centre of an EU fiscal paradox: European taxpayers are paying for extensive programmes to protect the habitat of the dwindling species. At the same time, they are fiscally forced to help to destroy partridge’s habitat through subsidised conversions into farmland and suburban development.


ECJ ruling strengthens European Welfare States

New ECJ ruling confirms that member states can currently deprive non-residents of welfare payments. Yet, it has been popularly portrayed as a new tool to protect the spiralling costs of EU welfare states. We show that on the contrary, costs may rise, both in the short and long run, and the ruling makes welfare states even more entrenched. Meanwhile, the dominant part of “international welfare tourism” continues since the largest claimants are those with jobs, and the ruling only reinforces (...)


December’14 Financial & Fiscal Features Newsletter

Rancour at ECB Board
Despite the attention offered by the media to Russian banking and foreign exchange markets, tensions are growing in the ECB. Some ECB Board members are unconvinced of the stance the ECB President is taking, doubting that the introduced policy would be effective, let alone constitutional. We explain the economics behind these tensions and review in this light the road how we got here in the financial crisis. — - Our November Newsletter’s analysis has been echoed by other commentators. Banks (...)


Financial Transaction Tax cannot deliver

Free movement of people, capital, goods and services across national borders. Those are, allegedly, the pillars of European integration. One of them, the free movement of capital, crossed swords twice this week with EU policy makers convened at (...)


Increasing Tax Withholding? Bad Idea

"In order to prevent tax fraud, income tax withholding should be increased so that governments over-withhold and most taxpayers receive a refund." This is the policy prescription in a new research about to be published. We argue that this conclusion is wrong. The authors have not proven the link between tax withholding and tax fraud, and even if, increased tax withholding creates more serious problems that would wipe out any anti-fraud benefits. Tax policy should not rely on fooling (...)


November’14 Assessment of Commision’s Legal Action

Every month, the EU Commision starts dozens of legal actions against Member States for non-compliance with EU law. We evaluate the November crop of fiscally-related cases. While 2 such actions are generally a good idea, 4 are a bad idea, reducing EU citizens’ opportunities for an efficient and transparent government.


Pretence of Knowledge: The Case of Jean-Claude Juncker

The EU as an investment bank we can do without
According to several reports, EU Commission President Jean-Claude Juncker is planning to introduce a 300 billion-euro investment package this Wednesday (November 26th). The idea is to establish a European fund that will assume liability risks on behalf of private investors. Only profitable projects would be eligible for the guarantee; the profitability of individual projects is to be pre-determined by EU bureaucrats. This presupposes too much of President Juncker and his team. They purport (...)



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2015 IREF Workshop in Spain


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Why Do Low Interest Rates Not Fuel Credit Growth in the New Member States of the EU?