Lest our readers might consider that our seemingly disparate range of monthly topics are randomly chosen, we summarise below how our newsletters attempt to form a pattern enabling some overall analysis of ECB thinking to be deduced. We see increasing parallels between the ECB/ Eurosystem’s approach to creative accounting and masking of its debts, and the banking system’s use of financial engineering to conceal exposures in off balance sheet vehicles.
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Public debt in the whole world keeps growing. As recently reported in “A Mountain of Debt: Navigating the Legacy of the Pandemic” and “The Aftermath of Debt Surges”, it is just the last “debt wave” in a long-established tendency. Yet, the rise has accelerated during the Covid-19 Pandemic: during 2020, public debt increased by 16 percentage points to 120% of GDP in the advanced economies, and by 13 percentage points to 97% of GDP globally. What are the possible ways out?
Mario Draghi’s government is about to approve an eight-billion euro tax cut – about 1.5% of the estimated 2021 tax revenues. Is this a credible a promise or just an illusion?
The restrictions that followed Covid-19 have taken a heavy toll. Last year, GDP dropped about 9%, tax revenues decreased, and government expenditure soared. As a result, the budget deficit reached around 9.5% of GDP. The 2021 figure should be about the same. Of course, public debt has also risen and is expected to reach 150% of GDP by the end of this year (see Fig. 1).
Since the 2006 reform, Germany’s federal states are free to set the tax rate concerning real estate transfers. Yet, decentralising tax power has not led to lower taxation. In fact, the opposite happened: since 2006, average tax levels for real estate have risen from 3.5% to 5.4%,: no state has ever decreased the tax rate, and except for Bavaria and Saxony, all states have increased the rate at least once.
According to the recent report by the United Nations Intergovernmental Panel on Climate Change (IPCC), the global average temperature increase over the period 1850–1900 was about 1.1°C by the 2010s. Several countries in the world have seen increases in average temperatures approaching 2°C. From 1820 to 2016, gross domestic product (GDP) per capita in most of the Western world grew by about 25 times, and in the non-Western world by 13.5 times. This economic growth has been associated with enormous improvements in different indicators of human well-being, such as higher life expectancy, lower child mortality, and lower malnutrition.
Cryptocurrency assets are now mainstream, with multiple banks and businesses globally investing in crypto software and financial architecture. Seven million individuals have accounts with Coinbase, the US’ largest, though only one of multiple, exchanges.
As prices of bitcoin and Ethereum reach new highs (recent gains being attributed to endorsement from celebrity businesspeople such as Tim Cook of Apple), we wonder whether the popularity of bitcoin might wane on energy grounds.
On December 17, 2010, a young Tunisian by the name of Mohamed Bouazizi set himself on fire to protest against police harassment. His act triggered a wave of revolts across the Arab world as people rose against authoritarianism and poverty. The fall of Ben Ali’s regime in Tunisia after 23 years in power generated enormous expectations. People throughout the region hoped to end injustice and corruption, and start moving towards freedom, democracy and economic prosperity.
This year and a half of pandemic has rekindled the debate about the relationship between individual freedom and its limits, especially when health is at stake. While in several countries governments seem to be reasonably cautious in this regard, Italy has adopted policies (i.e., the so called “green-pass”) that have no equal among Western democracies in terms of extension and invasiveness. Italian citizens cannot take a train, attend a university class or go to work without giving proof, possibly via a specific App in their smartphone, that they are vaccinated (or to be negative to a Covid-test taken in the last 72-hours). Despite the perplexity shown by some commentators, general support for the green-pass in Italy is rather high. About two Italians out of three believe that far from depriving them of liberty, the green pass actually enhances their liberty. Although this reaction may be surprising, it could perhaps be understandable, if such policies were thought as temporary. Some data, however, highlight a different and less optimistic scenario.
The IFO Institute (Munich) has just revised its forecast for the German economy. GDP is now expected to grow 2.5%. IFO’s previous prediction was 3.3% and the prediction the European Commission put forward last Summer was 3.6% (Fig.1). However, according to IFO the economy will rise 5.1% in 2022 and thus bring the country back where it was before the Covid-19 shock.
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