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Archive for the tag “Eurozone crisis”

It takes two to tango

Clothes maketh the man?

Clothes maketh the man?

Apart from the snow-white attire, it could have been, quite literally, two Old Joes getting together for Saturday lunch and a chinwag. Joseph Ratzinger and Jorge Bergoglio made history at the Castel Gandolfo outside Rome last week when, for the first time in at least 600 years, two popes met face to living face.

Watching their rather wooden performances before the cameras (neither of these gentlemen was groomed for Prime Time), it was the awkwardly staged prayer session  that caught my attention most. Here were two highly influential individuals who, despite their united front,  personified diverse spiritual and temporal states of the world.

Theologians have debated the contradiction inherent in God’s attributes of Justice and Mercy for Millennia. Here was the austere Pope Emeritus Benedict XVI, an aloof intellectual who had made his career looking for Truth through reconciling religion and science, praying with Pope Francis I who, despite his Jesuit background, has an emotiocentric approach to his calling. While Benedict XVI was more at home clinically wrestling with the scientific discovery of the God Particle than confronting the unfolding human tragedy within his own Church, Francis I (why do they insist on calling him “The First” ?) is more at home with the Sermon on the Mount. To anybody other than a dogmatic Christian, the meek inheriting the Earth might make no moral, rational or logical sense, but it does make people  feel good (especially if they are meek).

Then there is the temporal contrast. The German Pope, from the Northern Hemisphere and Northern Europe, for whom rules, discipline and tradition are sacrosanct, and the Argentinian/Italian (his father emigrated) Pope from the Southern Hemisphere and the Mediterranean basin of Europe, for whom life is too short to get caught up in the red tape so it makes more sense  just to hug and be friends.

The Euro crisis  involves both the trade-off between justice and mercy and a clash of cultures between Northern and Southern Europe. It was interesting to note how the citizens of Ireland coolly accepted their  fate (and, with a recent successful bond issue, the country is well on its way to recovery) while the Greeks and Spanish  kicked back with emotional protests.

All these guys pale into rational insignificance when compared with Cyprus. Cyprus is not in severe financial difficulties –  it is bankrupt. There is little room for useful restructuring.  Justice, mercy, logic and emotion will not help the country that has become Europe’s biggest basket case as it careers headlong towards Purgatory.

There has been a mixture of rational and emotional reporting on the Cypriot crisis over the last few weeks. It all started with negotiations for a bail-out package with the Troika – the European Central Bank, the IMF and the EU Commission.

Cyprus’s banks had invested rather too heavily in Greek banks and, when  the EU Council of Ministers decreed, as part of the Greek bail-out in 2011 that private investors would need to take a 50% haircut the then Cypriot Finance Minister  – who was present at the meeting – didn’t seem to realize that he needed to object so as to save his own country from bankruptcy. This speaks volumes about Cyprus which, quite incidentally, had a  genuine communist president at the time (even Russia and China had already given up on that nonsense).

Did someone mention haircut?

Did someone mention haircut?

With a new conservative government installed in January that was reputed to be capable of walking and chewing gum at the same time, a deal was negotiated whereby all depositors in Cypriot Banks, including the average Joe with deposit insurance up to €100,000,  would take a haircut – defined for some reason best known to the parties involved as that dreaded word “Tax”. The universal haircut is understood to have been the suggestion of the Cypriot Finance Minister. Now, at this point the Troika should have woken up and remembered from 2011 that the Cypriots do not have a very good track record on these financial things. Instead, they did not seem to realize that – by exposing insured deposits – they were risking a run on every slightly dodgy bank in the Euro-zone. This speaks volumes about the ECB, IMF and EU Commission.

In the event, when the news hit Cyprus all hell broke loose and Parliament threw out the proposal. Although the Cypriot people and much of the world’s popular press took a tear-jerk position on this (the BBC interviewed eloquently irate retired British expats living on the island with authoritative Home Counties accents) the Parliament’s decision gave the EU a second chance. The Cypriots, on the other hand, were left  needing to find €5.8 billion in order to be eligible for a €10 billion loan.

The deal that has now been reached is that small depositors (up to €100,000) will be protected while Cyprus’s second largest bank will be wound-up and its largest bank restructured. Although not yet clear, apart from shareholders and large creditors of the bankrupt bank being more-or-less wiped out, the haircut of large investors in the Bank of Cyprus is likely to be up to 60% with compensation in the form of worthless shares. In the meantime, as banks reopened a few days ago, draconian capital controls are being enforced to prevent a run on the entire system.

The result for Cyprus is that, with the restructuring of the banks, its offshore financial business – which is fundamental to the economy –  has been effectively eliminated. Much of the money invested in Cypriot banks is thought to be Russian laundered funds such that a Russian investor who sent a bed sheet to the Cypriot Laundry can now expect to get back a pillow slip (if he is lucky). He will not be a happy investor which may make the average Western European citizen smile, but this probably means an end to the Cypriot economy as we know it, which also means that the average Western European citizen will soon have the smile wiped off his face. It seems the only hope for Cyprus is reunification with the Turkish north paving the way for increased tourism and successful exploitation of the gas found off its coast. Confidence is so high in Cyprus that those English residents with clipped accents mentioned above will take comfort in the decision of the British government to divert their State pensions into UK accounts.

They never had this trouble when the Church was in charge

They never had this trouble when the Church was in charge

It is tempting to think that there could have been another solution for Cyprus involving, perhaps, a less onerous bail-out. Rationally and in the name of justice there was not. It is a country that built its future on, at best, legal offshore financing that is going out of fashion and , at worst, Russian money-laundering. But what about emotionally? Could, and should, the Troika have turned a blind eye and advanced more funds?Didn’t someone once say “Let he who is without sin cast the first stone”?

Roman Circus

Didn't anybody tell them that the Messiah will have a beard?

Didn’t anybody tell them that the Messiah will have a beard?

“He is not the Messiah, he is a very naughty boy”. Thus spake Mandy Cohen, mother of Brian, to the ignorant  mob besieging her home,  rejecting  their mindless veneration of  her son. Her statement would have been appropriate at many points in history – the world has had no shortage of false messiahs. The human condition demands hope. When collective hope is lost, up pops an improbable saviour  promising salvation. Same plot, different protagonists.

Once upon a time they could plug into religion for a narrative (the occasional halo-wearer  still raises his angelic head in third world countries as well as American States south of the Mason Dixon Line) but in the cynical, secular modern world despair has to seek new panaceas.

Nowadays, the Hosannas are reserved for General Elections. The Eurozone crisis and its aftermath of German imposed austerity led to hope-inspiring changes of government in, among others,  Greece, Ireland, Spain and France (alright – maybe not France).  However, after a period of technocratic rule it was left to the Gigolos of Europe to take the Faustian route and threaten to bugger the entire European enterprise.

Having rid themselves in 2011 of an administration that seemed to govern from the loins, the Italians went on to remarkable things under the unelected  Mario Monti. Then, just as things were starting to straighten out, the former prime minister awoke from a court-case-induced coma and brought down the Government.

Now, in any normal country the expected result in the ensuing election would have been an outpouring of support for Mr Monti and an AC Milan football kicked up the buttocks of that venerable team’s chairman. But not Italy, a country where they strive to walk on water.

Rather than take the whole thing seriously Italian voters decided, as one man, to kick off their shoes, pass round a  communal joint, lie back  and inhale their way out of reality. Hallelujah!

Every Brit knows what a bidet is for

Every Brit knows what a bidet is for

The good news was that ex-King Bunga-Bunga did not win. The bad news was that neither did anybody else. A full 25% of eligible voters stayed home to watch Bunga-Bunga-owned television and Bunga-Bunga-owned football, while, among those who voted,  25% went for a Billy Connolly lookalike (but not soundalike) “comedian” with knock-out lines like: “Did you know that the British think a bidet is a bath for a violin?”  Duh? The retro any-left-wing- port-in-a-storm Pier Luigi Bersani with 29% scraped only a smidgen more than his nemesis, while Mario Monti, whose only crime was that he had both feet  planted firmly on the ground, picked up a pathetic 10%. His job in the new parliament is expected to be holding up the laugh prompt card.

The Italians proved once more what we have known for years. They do not like taxes and damn the consequences. One of the central features of Berlusconi’s campaign was the repeal and refund of the hated IMU tax that Monti imposed on second homes. Ironically, the expected take from that tax is only €4 billion each year. Meanwhile, anybody who managed to control his tears of mirth long enough to read Beppe Grillo’s blog would know that, while he does not object to taxes in principle, he doesn’t like the ones everybody is talking about at the moment – which is populist poppycock (unless that was supposed to be another of his side-splitting jokes).

If truth be told (and, as this is Italy, why the hell should it?) most responsible macro-economists groveling in search of a Nobel Prize today think that the policy of raising taxes in response to the Eurozone crisis is misjudged. On the other hand that does not justify the  complete abrogation of responsibility by an entire nation to behave like adults (and not just consenting ones). Italian taxes are extremely high. The problem is not the tax rates but the fact that so many residents do not pay their fair share. Like red lights in Rome (of the traffic variety), taxes are a suggestion rather than an order.

Italians rejected Monti, not because he put taxes up but because he came up with clever ideas to catch those not paying them. The Redditometro which, from this month,  enables the authorities to estimate what taxpayers should have declared based on databases of expenses and complex formulae,  is a particular turn-off for the fun-loving population. And what about those cash-strapped citizens who live in fear of the knock at the door of the family Ferarri.

The Italians would rather just lean back and wait for the Messiah – these days a frumpy, middle-aged lady in Berlin who is going to be placed  under steadily more pressure as she faces her own re-election battle later this year.

The Italians never could get the hang of the walking-on-water thing

The Italians never could get the hang of the walking-on-water thing

Of course, Italians and their politicians are not the only ones to make fools of themselves (although nobody can deny that  they are exceedingly good at it). The current political and religious goings on in Rome reminded me of a story from the 1960s when George Brown was British Foreign Secretary. To call a spade a spade,  it was universally known that Brown had a little problem with drink – he could never get enough of it. At a diplomatic ball he eyed a stunning black lady in a striking purple satin evening gown. Plucking up the courage, he ambled over and asked her to dance. “I cannot dance with you for two reasons’, came the curt reply. “Firstly, I do not dance. And, secondly, I am the Archbishop of Lagos”.

Perhaps, if every time Italians had to elect a government they were locked in a room with murals covering the walls and ceilings and not let out until there was a clear victor, they might take the whole process more seriously. On second thoughts, there is more chance of the coming of the Messiah.

The 2012/13 Overture

Brezhnev was not the only superpower leader to have difficulties with Sharansky

Brezhnev was not the only superpower leader to have difficulties with Sharansky

In the ’70s and ’80s  there was a major movement worldwide to gently nudge the Soviet authorities to “Let my people go”. Mass rallies, protests and disruption of Russian cultural events were the order of the day from London to New York to Sydney. With the collapse of Communism, the ’90s saw the influx to Israel of   close to a million Soviet Citizens, by no means all of whom were descendants of Pharaoh’s slaves, while oligarchs started popping up in the unlikeliest of places, like the directors’ box of an unimpressive London football club.

I, therefore, found it quite dizzying when former French  actor Gérard Depardieu was spotted  bear-hugging former KGB officer Vladimir Putin on receipt of his gleaming new Russian Passport. Until last week, the only people who ever thought of moving into Russia had Christian names like Kim, Guy, Adolf and Napoleon.

The story hardly needs retelling. French bête noire  most recently remembered for urinating on the floor of a plane awaiting take-off in Paris, is so incensed by Mad Hatter President’s  intention to apply a humongous tax rate on the wealthy that he contemplates joining the rest of Peter Pan’s  lost (rich) boys in a Belgian town near the French border.

In what initially appears a stroke of tax genius, at the last-minute he diverts his attention eastward and makes a play for Russian citizenship. By moving tax residence to Russia he can swap the 75% (and then some) tax rate for 13%. Although France now has an Exit Tax for those perceived to be betraying the Fifth Republic,  the French/Russian Double Taxation Treaty refers in its nondiscrimination clause to nationals rather than residents implying that Exit Tax might not be charged.

Nice theory, but it ignores one critical factor. Depardieu is ethnically, if no longer nationally, French. Too rational.

Tailless amphibian

Tailless amphibian

Not satisfied with the  royal welcome that turned this tailless amphibian (use your imagination)  into a Russian Prince, Depardieu proceeded to chuck  his French citizenship into the Seine  while spouting nonsense about Russian democracy. The Russians, for their part, warmly welcomed their new comrade who had recently shown his Motherland credentials by appearing in a movie as Rasputin. Now, I know little about Russian history and, with all that has happened in the last hundred years,  I have great difficulty in keeping track of who is currently welcome on the podium in Red Square,  but  if there is one thing all Russia is agreed on, it is that Rasputin does not get a look-in.

In short, Depardieu just appears to have been on a typically French emotional bender that was planned as well as the Soviet economy.

Had he not been such an exhibitionist, he might have gone for one of the more traditional tax havens. Switzerland, with its lump-sum expense based system, is a particular favourite for sportsmen and actors while the UK, with its non-domiciliary status is excellent for those well planned in deriving income  outside the UK. Monaco and Andorra (wherever that is) tend to be more liberal in their residency requirements. The Channel Islands and Isle of Man offer a peculiarly British middle-class environment which would have surely suited our hero – they particularly appreciate Gauls who pee on carpets.

And if all he wanted was a new passport, for a suitable fee he could have picked up citizenship in the Dominican Republic or St Kitts, two countries even the French could have conquered had they managed to find them on the map.

As yet it is impossible to know what the unpredictable Comrade Depardieu will do. Does he really intend to sit out 183 or so days each year in Mother Russia?  Has a man who lives by the French language not realised that, whilst in Tolstoy’s St Petersburg Soirées, Pierre and his friends chatted happily in French, it is not only Napoleon who has moved on since then? Or, is he just attempting to become another of the modern world’s “Tax Tourists” who thinks he can swing  the residence tie-breaker clause in the  double taxation treaty by popping in for  an occasional  vodka while en route from London to Los Angeles? Fat chance, fat boy.

One can sympathise with Depardieu’s desire to make a break for it from France. Its economy is by all accounts (apart from that of its clownish Government) heading down a bidet’s drain. Rather than attempting to avert the crisis, the Government has adopted a policy of assisted national suicide while offering the wealthy the choice between the guillotine and exile.

Erstwhile French Icon

Erstwhile French Icon

However, it really is beginning to look like the Asterix star might live to regret his decision. One of the attributes of a tax haven is that it leaves the tax exile to get on largely unhindered with his or her life. While, as M Depardieu has proudly stated, Russia is undoubtedly a great democracy, it would be interesting to see what would happen if he chose to relieve himself on the floor of an Aeroflot airliner or, for that matter, not to turn up in court to answer a charge of driving under the influence, as was the case this week in France.

Olympic spirit lost

It didn’t say “Wet”

My trip to New York cancelled last week courtesy of Superstorm Sandy, I decided to take advantage of the hour before anyone realized my  calendar was empty to clear my desk. Forgetting the utterly ignored disposable cup of coffee nestling under a sheet of foolscap, I watched in helpless horror as it tipped drunkenly on its side and lazily cast forth its contents over my diary and neighbouring assorted papers. My barely legible handwriting disappeared as the ink, dissolving into the coffee, was dispersed across the open page. Taking a leaf out of the book of the intrepid New Yorkers, by midday I had a spanking new diary and only the merest hint of brown on numerous documents newly piled at the edge of the desk.

The experience took me back 40 years to the summer of 1972 when we were just finishing 8th Grade (in England it was called the 3rd Form which was a bit confusing since we had already had one of those several years earlier). Our Form Master was Severus Snape minus the charm with whom one messed at one’s peril. Of course, as healthily idiotic teenage grunts we messed at our peril – but we all knew our limits. All of us, that is, excluding one. There is one in every class. A totally incorrigible youth with no academic aspirations who is programmed to kick back at all cost against authority. Civilly disobedient – Mahatma Gandhi without a cause. Anarchic without knowing the meaning of the word. Angry young man who wasn’t even angry. If we were told to write the address on our report envelopes in the centre, he wrote it in the top left-hand corner. If we were told to sit down, he stood up. Told to write in pencil, he wrote in ink. You get the picture.

We “knew” our limits

In those days part of the daily ritual was the redundant task of calling the register to corroborate the evident  fact that, while  so-and-so’s desk was clearly empty, he (we were all He’s) was not hiding somewhere else in the room. Each morning the dreaded Commandant would labour through the 31 names and mark squares on that term’s page with an alternating diagonal pencil-mark producing, over time, a herring-bone effect that was quite aesthetic. Trusting in his absolute power over us, the register was left in his unlocked desk – a Holy Ark that we assumed, if touched, meant  instant death.

Then came that fateful morning when our revered leader marched to his desk, removed the register, opened it, fell totally silent, shook with rage and then sat down with his head buried in his hands. Carnage. Somebody (guess who) had poured an entire bottle of Parker Quink over the sacred tome. I don’t remember precisely what happened next but, despite the temptation to embellish the story, I am pretty sure there was no blood and there was definitely no ambulance.

Why am I writing all this? Because the European Union appears these days increasingly like a class of juveniles. And no prizes for guessing the incorrigible country. They were at it again last week.

Last Sunday, the editor of an investigative magazine published a list of over 2000 names of account holders in the Geneva branch of HSBC bank and was promptly arrested for breaching privacy laws. What is more, in a show of absolute legal efficiency, he was brought to trial on Thursday and, equally promptly, acquitted of the charges against him.

This all sounds quite impressive, if a waste of taxpayers money, other than for one thing – all the actors in this little play were Greek. The list, transferred to the Greek Government two years ago by the then French Finance Minister and now Head of the IMF, ostensibly pointed to wealthy Greeks who may be running a sideline in tax evasion. Somebody (the hot potato is now passing between former government ministers) stuck it in a drawer and “forgot” about it. Meanwhile, as I noted on this blog back in February there are (or, at least, were) over 165,000 (one hundred and sixty-five thousand)  cases awaiting trial in the Greek court system. But they still managed to get this guy up in front of the Beak within 4 days.

What privacy?

I am not a lawyer and I do not know how heinous it is to breach someone’s privacy when it is in the public interest (if I am not mistaken Woodward and Bernstein did something similar 40 years ago that rather inconveniently brought down the President of the United States – and nobody tried to put them in the Electric Chair). However, even I know that there is something absolutely heinous with the government of a country that is struggling on the ropes with its budget deficit, not pursuing tax evaders. The fact that this case was taken to trial so fast is not heinous – it is just a sign of how morally bankrupt and obviously beyond the pale Greece is. I had goose pimples when the current Greek Front Man, Antonis Samaras was praised by Angela Merkel in Berlin. I know  that a Greek exit from the Euro would not be simple for the creditor nations and that fact is heavily influencing Germany’s approach. But sometimes  the school principal has to realise that it is not enough to make the errant youth write a thousand times “I must not tell lies in class” or “I must keep my promises”. If he proves himself totally incorrigible he needs to be expelled.

The Greeks like to keep telling us that they are the cradle of modern civilization and also the inspiration for the world’s greatest sporting event – the Olympics. Agreed. And what is the greatest problem facing competitive sport in the 21st century? Doping. Greek governments have been “enhancing” their statistics and breaking their promises, rather than records,  for years.

It is clearly time to expel Greece from the Eurozone and disqualify it, for a period of several years, from the benefits of EU membership.

Blessed are the consumers (part 1)

It had its advantages

One of my first memories as a child is of the working forge across the road from our home where rag-and-bone men and other deniers of the 20th century could take their carthorses to be shod. A couple of days ago I was driving with my son through an ultra-orthodox enclave, where the regular upkeep of roads is evidently far too temporal an issue for the local council to be bothered with, when I realized that I had a puncture.  I have been changing wheels for over 35 years on an array of  semi-roadworthy vehicles that generally departed my ownership straight for the great carpark in the sky. But this was the first time I was shodding my precious Volvo, purchased 3 years ago after I was finally persuaded that as, of the 150 cars in the firm’s fleet, my faithful Mazda (of blessed memory) was the only one built in the second millennium, it just had to go.

Beats white gloves

Opening up the boot (trunk in foreign English), and raising the floor, we found suitable cavemen drawings explaining without resort to Swedish idiom, what we had to do.  But there was one thing that captured my interest. My son who – being of the new generation that knows how to work things out from cavemen drawings – had a much better handle on the situation, produced a pouch containing a pair of white cloth gloves and a large plastic bag. The pictures on the plastic bag led us to understand that the gloves were to protect my lily- white hands as I wrestled with the jack and crippled wheel while the bag was for the offending wheel. This was presumably to protect the seldom spied underfloor of my boot (trunk) from annoying dirt. My first thought was “How bloody ridiculous”. My second thought was “I wonder what they put in the back of a Bentley – a cocktail cabinet to take your mind off things while they airlift a new tire in by helicopter?”. It was only on the way home, wearing the daft gloves to prevent my grease-ridden hands ruining the steering wheel, that I got to thinking about the utter absurdity of it all. Modern life, that is.

Regular readers of this blog will know that I am fond of Charles Dickens. Probably because of the socially reduced circumstances of much of  his youth, Dickens loved to send his characters out on the open road. From the moment of his debut novel, the wealthy Samuel Pickwick and his friends would bundle up and climb atop a horse-drawn coach to be bounced around and exposed to the elements through a long winter’s night of travel. Less than 200 years later, in western countries at least, a run-of-the-mill factory worker can climb inside his  motor car in the middle of winter, turn on the heater to shut out the cold and arrive at his destination in a fraction of the time, protected from shock by a suspension system and, if not choosing the same enclaves as me, suitably inflated pneumatic tires. It is fair to say that any person in modest employment today lives in greater bodily comfort than a King 200 years ago.

That in itself is wonderful and may the rest of the world catch up soon – but there is a dark side and my white gloves are a small pointer.

Most of my generation were raised to consider frugality a virtue. Just as it took me until past my 50th birthday to be persuaded to succumb to an elevated motor experience (I justified it on long-term financial  grounds that my wife refuses to believe), I have – to this day- never owned any product of a certain fruit company, be it pod, pad or phone. The reason is simple – I have never felt I needed any one of them, and that is my litmus test. Apart from that I buy most of my clothes in the above-mentioned enclave where you can get any colour you like as long as it is black, grey or blue – which is good enough for me (I have a Christian Dior tie, still in its box,  lying in my wardrobe, that was a gift several years ago).

Charlton Heston playing Ralph Nader

If modern economics is to be believed, when I finally get to the Pearly Gates, the only slim chance I have of being admitted to Heaven will be thanks to the pleas of those poor Chinese and comfortable Belgians who make all the bits for my no-longer-Swedish Volvo. It appears that my frugality has been depriving the world. And when you have a population that has grown in the space of 85 years from 2 billion to 7 billion and shows no signs of slowing down  in the immediate future – that is a lot of world to deprive. Evidently, while I was sleeping, somebody tampered with the Ten Commandments. We are now told: Forget the Sabbath day to keep it commercial; Covet thy neighbour’s SUV; Honour thy children’s credit card bills.

When they are not talking about destroying Europe with austerity, politicians and economists are talking about expanding demand. Germany has to inflate to save the Euro, China has to open its economy to more foreign investment and concentrate on consumer demand, India has to grow, not just for itself, but to import from the west and taxes or debt have got to finance the growing social security costs of   stubbornly aging populations. So our Fridges die after 5 years, our cars are replaced every 3 years (over my dead body), our mobile phones are outdated by the time they leave the factory and manufacturers come up with things you didn’t know you didn’t need like white gloves (why white for heaven’s sake?) and body bags for dead tires buried in  the bottom of your car…

To be continued

Pole position

Brilliant Belgian

Several years ago we went on a family trip to Holland. Sitting in the front passenger seat of the taxi taking us south from Schiphol, I tried to keep the driver’s attention while the kids re-enacted the Second World War in the rear of the van. Observing that signs on the motorway to Uit appeared over a distance of several kilometres  I suggested that Uit must be a very big town. The cabbie promptly asked me if I was sure I was not Belgian. I learned two things on that trip: firstly, that Belgians are to the Dutch what the Irish are to the English, and the Polish are to the Americans; and secondly, that “Uit” (pronounced “oot”)  is Dutch for “Exit”.

The Polish are always on my mind as hot lazy August melts  into cool vigorous September; the invasion of Poland on the first of the month in 1939 prompted the British and French – who couldn’t give a fig about the Poles but had to respect their pacts –  to declare war on Germany.

Stupid Irishman

Much as I have never shared the prejudiced view of the Irish concocted by  the English (I believe the last century produced more Irish literary geniuses per capita), I never bought the American take on the Polish. That was, at least, until I encountered their kamikaze tax laws. Fortunately – for them – the knock-on effects of the Euro crisis (lucky Poland is not in the Eurozone) lead the Polish government earlier this month to re-embrace life and announce proposed amendments to the tax law which should serve to bring their law safely back to earth and increase tax revenue.

The most prominent proposal is, at first sight, the least bellicose. Until now, limited joint-stock partnerships (SKAs) have been transparent for tax purposes which should not cause the average reader of this blog to blink. It is now proposed that SKAs should be corporate taxpayers which, while being  a far less common phenomenon, is by no means unheard of.  However, this change is mushroom cloud-sized.

French Polish

For several years, much foreign investment in Poland, especially in real estate, has been effectively tax free. Put in simple terms, investment funds that enjoy tax free status when they invest in securities, invest in SKAs. Despite being partnerships, the holdings in the SKAs are considered to be holdings in securities  while the SKAs do not pay tax because they are transparent. As such, foreign investors in such structures can walk away tax-free in Poland which is, frankly, a bit stupid. With the change in status of the SKA, this planning device will be completely annihilated. Poland will still be attractive as its corporate tax rate is a mere 19% (and unlike its eurozone colleagues it does not need to beg for bailouts). As long as investors are coming from countries with electricity, running water and a worldwide tax system, if they plan themselves properly, other than timing differences they should be no worse  off (or not much worse off) than now.

Talking of stupidity, today is the 70th anniversary of one of the major foul-ups-at-sea of the Second World War. On September 12, 1942 the British merchant vessel Laconia was torpedoed and sunk by a German U-Boat. At that point sea warfare was still “civilised” (it changed as a result of this incident) and, when the U-Boat commander realized he had hit a ship carrying civilians and Italian prisoners of war – as well as British and Polish servicemen – he brought the submarine to the surface. Many of the passengers were in life boats (the Laconia was an ocean liner launched a decade after the Titanic and the shipbuilders weren’t going to make that mistake again) and those in the water – many of whom were servicemen – were brought onto the deck or, in the case of civilians,  into the interior. The commander even called for other ships to come to their aid promising not to attack unless they were attacked and two more U-Boats and an Italian submarine  joined them. They then proceeded to start  towing the lifeboats towards the shore of Africa to meet up with Vichy French ships.  To ensure no mistakes, they draped Red Cross flags over the gun turrets of the submarines.

With Joseph Heller’s classic Catch 22 satire about the US Air Force still nearly 20 years away, on the morning of September 16 the flotilla was spotted by a US bomber pilot who could have been the prototype for Hungry Joe or Havermeyer. Radioing back to his base for orders he proceeded to use the Red Crosses for target practice as he attacked the U-Boats. The German commanders immediately cut the lifeboats adrift and submerged leaving all those on deck to drown. I pass no further comment on this incident other than to mention that among the dead servicemen was my father’s  brother, Joe. He was 29 years old.

And finally, on a more cheerful note, Happy New Year to all those who choose to celebrate it in the middle of September.

French toast

Indignant Frenchman

The French are the masters of indignation. Staring at an offender from the top of his Gallic aquiline nose,  a Frenchman can turn any opponent to blancmange faster than a speeding escargot. You don’t cross the French.

Marking Bastille Day last weekend with a cafe-au-lait and croissant in the comfort of my salon,  my mind wandered back to Mrs Thatcher’s run-in with the last socialist president and his entourage at the bicentennial celebrations in Paris in 1989.

World leaders getting focused for photo shoot at 2010 G20 summit. Mrs Thatcher should be grateful Mitterand put her in the back row

Determined to be cast in the role of the wicked fairy at the feast, even before celebrations started she had told French journalists that the ideas  fought for in the Revolution were filched from the ancient Greeks and less ancient British. In gratitude for her kind words she was stuck in the back row of world leaders for a photo shoot and her car was only allowed to leave the Opera after that of the President of Zaire. It would not have been lost on Mrs Thatcher that, being France – the flag bearer of  “Liberté egalité fraternité” –  President Mobutu of Zaire was only allowed to leave after everybody else, although – to be fair – that may have been because he wasn’t even invited and chose to crash the party.

1812 is ancient history. Russian with French luggage

After five years of Sarkozic bling-bling, the French are back in their sanctimonious “We may not rule the world any more, but we will show you the moral high ground by finding someone to be indignant about” mood. Since the revolution it has gone: Louis XVI, the British, the Russians, the Germans,  Dreyfus, the Germans, the Germans, the British, the Algerians, the Rosbifs (British), the British. Having booted Sarkozy out of the Elysé Palace, over the last couple of months when he wasn’t being indignant at his serial concubines and children for tweeting each others eyes out, Francois Hollande has been frantically consolidating power in the National Assembly while downsizing his own and ministers’ cars and salaries.  Two weeks ago he was finally ready to resume the national sport with  the announcement of the new government’s budget which passed the Lower House last Friday. Bored with the British and with a morganatic marriage to the Germans , the new president went gung-ho for the hammering of the filthy rich.

This man has blurred vision

Hollande having been elected on the back of a promise of a 75% individual tax rate on people earning more than € 1 million, renewed that pledge immediately after the election. The Budget contains proposals for an  increased wealth tax, tightening of inheritance tax provisions and an additional 3% on most dividends. Taken together with the additional 5% surcharge on major corporate profits (a Sarkozian legacy) which makes France among the highest taxing jurisdictions on the planet, it is no wonder that there has been an exodus of French men, women and the undecided to that cultural backwater, London. Then there is the levy on oil inventory and the souped up Banking Levy (can’t you just see the executioner holding up the banker’s corpseless head as the guillotine’s blade is raised ready for the next happy financier?). Companies employing more than 20 people used to be entitled to give a tax exemption for overtime. Not anymore – why would a socialist president want to encourage the exploitation of the proletariat by the owners of capital, even if it was the proletariat that benefited?  One thing that did come out looking better  was CFC legislation – which is probably because Hollande doesn’t have a clue what it is. Meanwhile, transfer of tax losses between group companies will be subject to various restrictions. The general expectation is that rich-bashing  has only just started while various instruments of torture have been retrieved from museums and are being oiled for use.  An employers’ union leader, reacting to the Budget, suggested a state of “systematic strangling” which is more reminiscent of Spanish garrotting than the preferred method of disposal in France.

Despite the suicidal tendencies of several of the new edicts there is some light at the end of the tunnel. Indignation is not Fury. An indignant person still acts rationally and will calm down. Within five years the French Revolution had imploded. Within five weeks of election, Francois Hollande had received the report of the State Controller (a socialist) telling him what everyone else already knew – that to meet this year’s 4.5% and next year’s 3% deficit reduction targets as well as reducing the mammoth public debt standing at 90% of GDP,  tax has to go up or spending has to go down. And the Controller sided with the reduction of spending.

Pointless to try and come up with a caption for this

The Budget Minister said recently that the problem with public spending is that it is like “slowing down a supertanker – it takes time”. As a Frenchman he might have bettered the metaphor by saying it is “like starting up a Renault – it takes time” ,which is part of  France’s real problem. However, he also stated last week that the proposed 75% top tax rate might only be temporary until the deficit is brought under control. That is more like it mon cher. You are starting to talk like a pragmatist. Keep on like this and within a few years you will be able to go back to being indignant about the British. It is much more fun and gives British newspapers so much to talk about.

Rocket tax

Where is the Higgs Boson when you need it?

At the dawn of my career when I would flit from audit client to audit client, red and green pens at the ready, every accounting department would resonate at least once each day to the gravelly voice of Bonnie Tyler singing  “Every now and then I fall apart”.

Well, last week scientists finally proved (almost) that she was talking rubbish and people and things and the universe don’t fall apart. This is  because of something called the Higgs Boson. What really got up my nose were  all those goofy scientists, whose parents were too tight to pay for orthodontic treatment, coming down off Mount Olympus to explain to us mere mortals the significance of the discovery of the “God Particle” in a multitude of idiots guides, guides for dummies, table-tennis balls on trays of sugar and impossible cartoons.

Who, in heaven’s name, do these physicists think they are? It occurred to me that I should return the compliment, so if any scientists read this blog – this post is meant for you.

The cost to the American taxpayer was $170 billion.

Everybody knows that taxation is rocket science. It is full of equations and graphs that mean nothing to the scientist in the street but make people with doctorates in taxation feel that they have not wasted their lives.

The European Union is currently facing a major crisis among the countries that make up the Eurozone. As I have pointed out  in previous posts, the only way the Euro has a future is if the countries achieve fiscal unity, a significant level of political unity and there is cultural convergence. Following negotiations last week, the first two are looking increasingly likely in the medium term – but nobody is talking about the last. This is complex stuff and invites a plethora of  courses in Euro for Dummies. To try and make it simple, I will use the analogy of the Higgs Boson to explain.

It is no coincidence that the countries causing Euro problems are predominantly in Southern Europe (Greece, Spain, Italy, Portugal, Cyprus – Ireland is a special case). It is a fact of life that the weather around the Mediterranean is a lot more clement than in the North. There is incontrovertible empirical evidence to show that when the weather is good and you have a Mediterranean coast down the road, there is a desire to spend less hours in the office. The incontrovertible empirical evidence stems from my experience of having spent half of my life so far (hopefully only a half-life) in the smog of London and the other half with a view of the Mediterranean from my office window.

No escape – 24/7

As mentioned in my last post there is a widespread belief among tax professionals in “Tax Neutrality” – that tax should not affect the allocation of economic resources. One of the many divergences from this rule is the tax treatment of leisure. When people’s work income is taxed their desire to work diminishes and their desire for leisure increases. Ever since Corlett and Hague (1953) it has been recognized that, to rectify this disequilibrium, leisure should be taxed. However, since governments cannot tax something intangible, they should tax leisure “complements” while, possibly, offering tax relief for tax substitutes.

Getting difficult? Let’s shoot over to the Higgs Boson. Scientists have known for eons that atoms are made up of electrons and a nucleus. The nucleus is made up of protons and neutrons which, themselves are made up of quarks and lots of other bits and pieces. But it was not clear what gave all these particles mass – in other words what kept everything together. Peter Higgs (and others) developed a theory in 1964 that the missing ingredient was an invisible particle of force which came to be called the Higgs Boson. As particles went flying madly around they collided with the Higgs Field (made up of Higgs Bosons) which permeates the whole universe. Depending on the nature of the particles these were slowed down at various rates and success by the Higgs Bosons. Some particles, such as photons, are so aerodynamic, that they shoot through the Higgs field at the speed of light. The existence of the Higgs Boson was (almost) proven this week by crashing protons head-on in the 27km Large Hadron Collider spanning the Swiss-French border near Geneva.

Southern European compromise?

Now let’s imagine that the citizens of the Eurozone are particles and that tax is the Higgs Field. The workers of Northern Europe are slowed down by taxation, making them more interested in leisure but it takes such effort and money to create meaningful leisure in most of the miserable months of the year that they are not slowed down significantly. The workers of  the Mediterranean Basin, on the other hand, are slowed down totally by the tax because their leisure in outdoor activities such as the beach and  barbeques at the back of the house, is cheap. 

It follows, therefore, that for the Eurozone to survive – through, among other things, increased productivity in Southern Europe – leisure needs to be taxed. The way to achieve that is by increasing consumption taxes (VAT) and other charges on the products that complement cheap leisure. Examples would be charging for using beaches, banning outdoor cooking on weekdays, increased VAT on swimsuits (wouldn’t help much in parts of Greece) as well as deodorant (which would encourage people to stay in air-conditioned offices).

Sounds pretty horrible. Agreed. The alternative would be for the Southern European populations to behave responsibly. The prognosis is not good. It would require a quantum leap in behavioural patterns. In the meantime the Eurozone crisis is a case of an irresistible force (Germany) meeting an immovable object (Southern Europe).

Waltz or requiem?

Trust? Yes I could set you up one of those for a suitable fee

I was in Vienna last week for a European tax conference. Inevitably, the Eurozone crisis loomed enormously large but, in addition to the crop of European experts, there were speakers from China, Africa and the US to remind participants that Europe is not an island. Throughout the two days there was one word that refused to lie down. It kept popping up in just about every speech or comment. That word was “Trust”. The need to restore trust between nations in Europe. The need to restore trust between governments and their electorates. The need for trust in forming companies’ tax policies. The need for trust between tax authorities and taxpayers. The keynote speaker was a brilliant financial journalist, highly prominent in her field, with a PhD in Social Anthropology who set the tone for the entire conference.

Overall, the vision was remarkably optimistic. Faced with economic armageddon in Europe, EU nations from North and South will understand that they need to cooperate. With the stampede of government changes at the polls voters will regain confidence in the executive branch. Faced with the nagging protests via social media and Occupy the World movements companies will abandon over-aggressive tax planning and adopt ‘moral’ tax strategies. With the prospect of never-ending tax disputes and lack of certainty companies will come forward and expose themselves to real time tax audits while tax authorities will be put on a leash to stop them going for the taxpayers’ throats.

And they will all live happily ever after.

Not quite.

All men are created equal – but it doesn’t mean they are the same

In what I can only put down to western Europe’s post Holocaust obsession with, what itself can only be euphemistically referred to as, ‘political correctness’  everybody ignored the elephant in the room – and that elephant was cultural diversity. Different cultures have varying views on what constitutes the truth, fairness, morality – you name it. The only speaker I heard touch on the subject was the Chinese guest who suggested that companies’ approach to national tax authorities should depend on the nature of the executive, judiciary and tax authority in a particular country- but then until two years ago it was politically correct to be executed for tax evasion in China.

You can talk until the cows come home about building trust vertically, horizontally or three dimensionally – but, to put the matter in perspective, I would have happily challenged any of the speakers to convince the average Greek in the Street that he has a moral obligation to pay tax. For crying out loud, one of the  speakers was the geezer who wrote the Liechtenstein Tax Code which, although I have not yet set aside the 5 minutes  required to read it (rumour has it that he wrote it while traveling in an elevator), must surely be full of trust and  love to all men. Another guest was a former finance minister of Greece (I understand there have been quite a lot of them)  who, on the odd occasion he was coherent, expressed absolutely no remorse for anything that had happened and looked forward to  being bailed out by Germany, despite the fact that successive governments lied about their statistics.

Stunning! But Mozart must have turned in his grave

If, to survive, the Eurozone needs to look for a single European cultural standard, then surely Austria should lead the way. Austria, of course, is a synonym for culture. It is, simply put, a cultural paradise. What nation could be more appropriate?  A quiet economically strong country, its people are the epitome of politeness. From the minute I boarded the Austrian plane my ears were massaged with Strauss’s Blue Danube Waltz. The service was perfect. Viennese architecture is absolutely breathtaking and, as an American colleague commented to me while  we admired the Throne Room of  the Hofburg Palace , “We don’t get this in Miami”. Precisely. And the natural beauty, of course, only starts in Vienna.


Good bye! By 11am on November 11, 1918 the number of deaths had shot up from 2 to around 16,000,000.

While I sat last Tuesday in my hotel room thoroughly enjoying England’s richly undeserved win against the soccer representatives of the Thugdom of Ukraine (from which my grandparents fled a century ago), my mind wandered elsewhere.  While Ukraine is receiving much coverage for proudly co-hosting Euro 2012, didn’t Austria, in living memory, proudly co-host a slightly bigger competition- namely the Second World War? And for that matter, might the Austrians be responsible for that little contretemps attracting the title “Second World War”, since arguably if it wasn’t for them there wouldn’t have been a first one. And wasn’t it their president, the upright one-time Secretary General of the United Nations who was discovered to be a little too enthusiastic member of the Wehrmacht? And not one word of remorse from him or the country.  Even in the field of international taxation, in their own quiet way they have historically had one of the most brutally favourable holding company tax regimes in the developed world, grabbing what they could from the competition.

Greek workers taking a clandestine 5 hour lunch break

In short, Austria suffers from cultural schizophrenia. And maybe – just maybe – that is PRECISELY what Europe needs just now. And that is why the choice of Austria to stage the conference this year was so appropriate. Perhaps the other  members of the European Union – ignoring  Britain which surely won’t be there ten years  from now-  need to accept publicly the credo of German economic ethics while maintaining their own differing cultures at home.  They could take their cue from the Marrano Jews of Spain who chose conversion to Christianity over the auto-de-fe during the Spanish Inquisition but maintained their Jewish traditions at home in secret (although a cautionary word – that option did not work for the Jews in the 1940s). Alert readers will have spotted that this idea essentially represents Virtual Occupation. Given the history of the Continent, if the European project is not saved, Virtual Occupation may well be preferable to the alternative.

Next year’s conference is in Berlin.

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