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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 (...)


Latest publications

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?


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 Evaluation 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 (...)


Are tax cuts always necessarily good?

Tax cuts are pretty rare in the real world. When they do happen, they tend to be very partial, offering unjust advantages to a specific group. But even broader tax cuts can paradoxically do much harm. Using Italy as an example, this piece argues that when tax cuts lead to greater debt, they may ultimately curtail rather than enhance liberty – and long run economic growth?


Swede dreams

What happens when high tax rates drop
How do you pay for increased government spending on education, health care and social services? By lowering the tax rate, of course… Wait, what?! Oh indeed. A new report on Swedish fiscal developments over the last dozen or so years shows what’s possible to achieve when a country tries to shake off the reputation for Europe’s highest taxes.


November’14 Financial & Fiscal Features Newsletter

2014 Bank Stress Tests
The Asset Quality Review (Stress Test) results confirm system wide solvency. Yet, regulators announce the rewriting of bank risk models and the ECB plans large scale asset purchases.


“Water Tax”, the Ire of Ireland

It is becoming a pattern. Another weekend, another 100,000+ protest against a new tax. Only not Hungary and tax on the internet, but Ireland and “tax on water”. At least that’s how many media are reporting it. ABC runs with the headline "Marchers Protest Ireland’s New Tax on Water Supply", RT leads with “Ireland Stands Up Against Water Tax”. Protestors’ banners also cite water tax. IREF shows that what Ireland is actually doing is not introducing a water tax but increasing overall taxation. (...)


Taxing the internet – is Hungary leading the way?

8 myths busted
Large demonstrations took place over the weekend in Hungary. Somewhat unusually, people were not protesting against spending cuts, but against a new tax. A targeted tax on internet traffic. The issue of taxing this new paradigm of our lives will not go away anytime soon. As a companion to your on/offline debates, IREF busts 8 fiscal myths about the Internet.


Regulatory Role of One Jean Tirole

The new Nobel Memorial Laureate is one of prime architects of modern regulation of markets. To many that will make him a social engineer. However, as modern EU governments’ budgets are increasingly suffering from similar problems of failed previous regulation and self-regulation, his voice should increasingly be heard also in the European fiscal realm.


October ’14 Financial & Fiscal Features Newsletter

Special Issue on Scotland and Catalonia
Although Scotland voted in September to remain in the United Kingdom, both sides hailed the high voter turnout as recognition of democratic engagement and growing European dissatisfaction with over-centralised, bureaucratic, seemingly unaccountable government. The effect has been to raise morale in Catalonia and a handful of other potential breakaway regions. This is bad news for Europe’s (...)


Deutschland Wages Über Alles

Minimum wage is a tax on those who create jobs
Germany’s minimum wage has been created at a pretty high level, higher than its equivalents in the UK or the US. Increasing the price and reducing the quantity of an economic activity it acts as a tax. A pretty unsocial one as it destroys jobs for the poor and punishes those who create them. That the poorer Eastern Germany should be hit the hardest is saddest of all.


All aboard the fiscal board. Are you bored?

Should fiscal policy be taken away from governments?
When governments are unable to take care of their finances, is it time to appoint them a guardian who will take care of that business and (co-)determine fiscal policy? When is such guardian irreplaceable and how could they help?


New EU members banned from zero

Dawn of Zeroastrianism?
In 2006, the EU outlawed the zero, banning it from VAT rates of member states. Within two years the zero struck back. It now rules supreme in at least three economic areas, but in the tax domain it continues to be banned. Any newcomers to the EU will be hit especially hard. Why would anyone institute a minimum tax anyway? Surely we need protection from a maximum, not a minimum!


Fiscal assets and liabilities during a state divorce

With the Scottish referendum around the corner and other ones looming on the horizon, IREF investigates the accounts of states thinking about a divorce. What are assets and liabilities to be split? Is the currency such asset, for example?


September’14 Financial & Fiscal Features Newsletter

Low interest rates contribute to weak labour markets A new measure of Unemployment and Labour Market Conditions gains support at the Annual Jackson Hole Conference. Doubts continue about European QE as near-zero interest rates may actually be preventing employment from picking up. Concerns about Repo Market Disruptions The Repo market is becoming less attractive due to new Leverage Ratio rules. Doubts remain as to whether this can prevent reoccurrence of credit seizing up should (...)


Nobelist plays poker. For a pound.

Scotland’s coming referendum is offering the country “independence”. Politicians cannot agree about what exactly it would mean, especially what currency the new state would have. Now an economics Nobelist has added his voice to the debate. At face value the question of adopting another country’s currency is very simple, but closer scrutiny reveals deep fiscal connotations which complicate things. IREF disentangles the (...)


5 ways of responding to financial crisis

Most companies were hit hard by the freezing up of financial markets after 2008. Governments responded selectively – by selective tax cuts and subsidies, but they could have more meaningfully “help” everyone, not just big companies, by lowering corporate tax rates. Did they? IREF investigates, and shows EU countries’ responses fall into 5 categories.


Textbook guru: “Scrap corporate taxation!”

Why is anyone against it?
A famous economist, author of even more famous economics textbooks, is calling for an end to corporate taxation. Not because he has been bought by the corporate world and multinational companies, but because it makes economic sense. Perhaps most surprisingly – it should make sense even to left-leaning thinkers.


EU in bolshevik footsteps: the new GOELRO

A century later....
EU governments are increasingly subsidising electric plug-in cars. Many countries have “five year action plans” to electrify their roads, using tax money. Environmental benefits will actually decrease with e-car proliferation, and the governments are forcing us to pay for something we may soon not want.


Cumbersome German pension schemes: Pool them!

New IREF Policy Paper
A new IREF Policy Paper by Senior Fellow Alexander Fink analyses the colourful patchwork of various private pension schemes the government has created, and compares their inflexibility and other disadvantages to the US system. A “single pot” which would enjoy some of the currently individualized incentives would be a much better idea for everyone in Germany. And it may even contribute towards social (...)


For whom the toll bells

So who would build roads without taxes?
A century after privately built and operated roads were either nationalized or closed down, a new private toll road has sprung up in England. It is popular with drivers, if not with the local government. Is it always wrong to charge for use of infrastructure built from tax money? Is it OK that many EU countries start charging for highway mileage?



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