Special focus: Chinese devaluation
China devalued its currency by 3%. Financial markets responded disproportionately, but we explain that it is quite understandable, given government policies in the rich countries.
We then investigate the devaluation’s effect on the US and EU financial markets as well as on the currencies of emerging markets.
The best way how rich countries can help the poorer ones has always been to teach them how to fish. Not giving them fish. And certainly not taking fish away from them. Yet this is what the EU has been doing since the 1970s, and in September it has renewed three multi-year greatly underpriced leases of fishing grounds off Africa, to the detriment of poor African fishermen and for the benefit of rich European ones. This is wrong and there are better (...)
Germany Income per capita is not only high in Germany, it is also relatively equally distributed in the population. OECD data indicate that only a few small countries have income both higher and more equally distributed than Germany. In other large European countries like France, UK, Italy or Spain, income is lower (on average) and more unequally distributed. This international comparison suggests that higher income does not have to result in higher inequality. A contributing factor to this (...)
"Fair tax(es)" is a beautiful idea everybody wants to subscribe to. Including, of course, modern EU politicians. Their idea of "fair tax", however, differs very much from the way in which people understood the concept in the past. It is no longer about making sure the tax is fair to the taxpayer. It is much more about making sure that the taxpayer pays "her fair share", meaning "enough". This is a dangerous (...)
It is good when foreigners buy agricultural land. Johnny Foreigner will have evidentnly paid more than anyone else, and he can bring access to better capital, technology, know-how or marketing channels. That’s what the single market is for. Yet governments fear him and legalise against him - like the Slovak government recently (and many others). Some see it as a protection for domestic landowners, but in reality it is subsidies that rule European agriculture. They seep through to (...)
A new study from a German economics institute claims that the German state has already made €100bn from the Greek crisis as lenders flee from Greece into the safe haven of German government bonds, reducing their interest rate and saving the (...)
7 Lessons about Governments Bedding Big Business
Each employed Slovak worker will pay about a week’s take-home pay in extra taxes so that their government can bribe Jaguar into creating a few jobs located in Slovakia (for a while). We present lessons this teaches us, one for each day of such week.
Market failure is discussed more frequently than government failure
Economists are often accused (especially by other disciplines) of exaggerating the virtues of the market and of systematically downplaying the chances of a successful government intervention. In this view, economists are "market believers" and “state sceptics”, which is then reflected not only in research, but also in teaching and policy advice. It is true that economists deal with the causes and consequences of state failure more intensively than other social scientists. Economic analysis (...)
The imagination of EU governments to come up with new kinds of tax is apparently inexhaustible. Tax on meat is now being prepared, as an answer to alleged “problems” with meat production and consumption. But taxes are generally bad solutions to “problems”, especially when those problems are created by other government activities.
It’s not just USA who is raising minimum wages significantly. New or increased minimum wages are spreading all across the EU, too (e.g. Germany, UK, Portugal..). If we take McDonald’s as a symbol of "minimum wage jobs", which governments are working the hardest to deprive such workers of any job at all?
If it wasn’t obvious already, Greeks do their taxes differently.. They rely more than is customary in OECD on the less visible taxes of VAT and Social Security. Income tax revenue (from people and companies) is much less prominent. If they are risking a lot less, it time to try to actually lower the income tax rate?
New retail tax in Hungary discriminates big business, which just happens to coincide with the finance minister’s nationalistic interest. New retail tax in Czechia favours big business, which just happens to coincide with the finance minister’s business interest. Curious thing, Coincidence...
You’ve heard of Bitcoin. Is it primarily a currency or a service? Its users probably could not care less; for many it will be both. Yet a distinction is necessary. Why? Well, taxes, of course! What else? If it is primarily a currency, buying or (...)
Are Germans the redeemer or destroyer of the Greek tax system?
Two recent stories from Greece reveal very different treatments of Germans paying taxes in Greece – depending on whether they are people or corporations.
New IREF book
Thomas Piketty’s book “Capital in the 21st century” was dubbed as “blockbuster”. But for a group of French intellectuals under the lead of IREF, a free market institute in Paris, it was important to demonstrate that the French economist’s “Capital” did not deserve its commercial success. “Anti-Piketty” is a collection of essays by renowned international economists and historians, critical of Thomas Piketty’s (...)
BIS report | Bank Stress Tests
Ultra Low Interest Rates have destabilized the global Economy whose capital markets now show signs of Illiquidity. Stress testing of banks by central banking authorities has come to prominence as reliance on the traditional accounting standards has waned. Europe’s banking system was successfully stress tested last October, but we were not impressed.
Greece failed to pay a 1.5 billion installment by the end of June. The rhetoric has long portrayed the lenders as fat cats living off Greece’s misery. Varoufakis had his sight on 1.9 billion which he called “ECB’s profiteering on poor Greeks” and should be “returned” to the Greeks to cover the IMF payment. In reality, the sum not only would not solve anything, its interpretation is plainly wrong. But it’s great propaganda for the (...)
How do you make a credible list of countries whose tax policies you don’t agree with? Do you ask only half of your members, let them decide their own criteria, and have it approved by a few interest groups? If you are the EU, then yes.
Two decades after the last EU bananagate, it’s going bananas again. EU subsidy programme to bring "fruits, vegetables and bananas" [sic!] to schools is only partly trying to do a "good thing". Partly it’s changing schools into dumpsters for excess output of oversubsidised agriculture. And the EU Parliament has just infused it with EU propaganda: "EU food good, other food bad". Orwell’s Ministry of Truth would be (...)
UK & ECB | Criminal convictions for banks
As the US vs European recovery story swings our way, what lessons can Europe learn from the strong swing to the centre right in Britain’s elections? Is there a possibility of Brexit? Banks have been hit with more fines, but more importantly, also with Criminal Convictions. Is this banking out of control because it has been deregulated? Is it fair to call the regulatory changes (...)
So you thought you could have your cake and eat it. That you reduce tax on something which has benefitial implications for a disadvantaged social group, saves resources and is good for the environment. Think again, says the EU Court. Your young ones are, apparently, not a legitimate aim of social policy. (And you didn’t declare the goal in your law! Off with you!)
How do you know that any institution has too much money? When it does not manage, in spite of best intentions, to spend them all. Then there is room for scaling down the budget. The money will not disappear - it will be spent by the original "donors" instead. We show that the EU is, at least to some extent, such institution.
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.
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 (...)
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 (...)
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.
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.
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.
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.
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 (...)
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 (...)
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...
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 (...)
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.
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 (...)
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.
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.
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 (...)
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 (...)
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.
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.