Tax Break

Who said tax is boring?

Archive for the tag “Greece”

Trying to keep the relationship platonic

Following the recent news of Greece’s continuing woes, and thinking about what to write, I soon realized that very little has changed since I penned the two Posts below in 2012. The country’s new whacko Government has won a reprieve from a fatal dose of international hemlock by promising to come up with alternative measures to meet the ‘Troika’ demands for a formal extension of its bail-out package. It looks like the great deficit-plug is to come from the ruthless prosecution of tax evaders (ha, ha). Indeed, a former finance minister went on trial yesterday for allegedly removing relatives’ names from a list of unreported offshore bank accounts (see Post from 2012 below – and ponder the relative amount of time it took to get him and the whistleblower to court). Furthermore, another former finance minister received a four year sentence last November for undereporting his income, although ‘four years’ subsequently turned into a €14,500 fine (the annual price of freedom in Greece, it turns out, is €3,625. Cheap at half the price). In short, Greece continues to be a hopeless case. The only question is whether foreign creditors are actively engaged in allowing the wool to be pulled over their eyes. Read on (I apologize in advance that you may be seeing this again in 2018):

Olympic spirit lost

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.

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.

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.

The Greecy pole

When it was suggested last week by a sympathetic BBC interviewer that the Italian government’s decision not to fund Rome’s bid for the 2020 Olympic Games had cost Italy the chance of taking its place on the world stage, the interviewee retorted sharply “Italy has been on the world stage for 2000 years”. Meanwhile, the Greeks keep reminding us that, as the cradle of democracy and western civilization, their continued hammering by the European Union is beyond comprehension. We should be thankful, at least, that the Germans have not yet chosen to harp back to the past.

Greece really does appear to be sliding down a greasy pole. The new government has continued its predecessor’s vain attempts at improving tax collection while trying to make new taxes stick in a country in which, thanks to rampant corruption, tax evasion is effectively state sponsored.

On January 22, a list of 4152 tax cheats was published in an effort to shame people – they must be joking – into paying up. Most fascinating was the fact that, even though the authorities know where they live, most of them have not been prosecuted. This is evidently thanks to there being a backlog of 165,000 cases in the courts. One prominent exception is, top of the list, Nikos Kassimatis (an accountant!) with an amazing 952 million euro owed, who is currently serving a prison sentence for VAT fraud which has probably taken away his appetite to settle. In a country where the judiciary clearly has a problem getting its act together, this may not be a case of the punishment not fitting the crime but – to put it in perspective – had he been convicted just before Henry VIII became King of England in 1509 he would be looking at walking free about now (not allowing for a couple of hundred years knocked off from his 504 year sentence for good behaviour).

An earlier list of 6000 major corporate delinquents was made public in September 2011. First prize went to the Hellenic Railway Organization which was running incredibly late with an unpaid tax bill of a whopping 1.26 billion euro – a real achievement given the fact that its owner is none other than the Greek government.

The now famous aerial inspection of houses with undeclared swimming pools, reported as carried out at great government expense by helicopter surveillance when the same result could have been achieved on Google Earth, has at least caused economic growth in the form of an increased demand for camouflage material. It has not been reported whether swimming pool owners have been paying cash for these purchases.

Meanwhile, while various officials have been forced out for either having their palms greased or turning a blind eye to the actions of others, the government came up with two quite ingenious methods of improving collection. Firstly, the new and much hated (along with every other) property tax is to be collected through household electricity bills. Non payment would result in disconnection from the National Grid and, in winter, death from hypothermia. Secondly, there is some madly complex , novel system using a smart card that enables the authorities to track a taxpayer’s payments. In keeping with Greek tradition, use of these cards is voluntary although it is not clear why the authorities don’t just start by looking up the names on that tax dodger list in the telephone directory and go knocking on their doors.

Alongside tax collection, privatization and reduced salaries, Greece has also been told by the EU and IMF to revamp its tourist industry. Knowing the Greeks’ record on compliance, left to their own devices, this will probably result in a new set of floodlights for the Acropolis and creation of more , euphemistically titled, clothing-optional beaches where German tourists can get an all-over tan while they are being burnt at home by the forced write-off of Greek sovereign debt.

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.

Did you hear the one about…..?

Once upon a time timing was everything

Comedians  fear the moment in their careers when they lose their timing. Evidently not the Cypriots.

This week Cyprus proudly assumes the six month rotating presidency of the EU. Last week, after knocking on the doors of friends and distant neighbours to see if they could spare a dime, they finally asked the EU for a bail-out to prop up the banking system that has, understandably, been heavily exposed to that accident of comic timing, Greece. So far, embarrassing but containable.

However, at the end of May – fully aware that the EU presidency was just around the corner and that the bailiffs were approaching fast across the Mediterranean, the Finance Minister announced a new tax regime for Intellectual Property. Put in brutally simple terms, find an excuse for painting income routed through Cyprus as deriving from intellectual property – in the broadest sense – and they will tax you at the exorbitant rate of …2%. Never mind that they have one of the lowest tax rates in Europe. Never mind that they are begging for money from their colleagues. They are clearly grabbing some more of the zero sum international economic cake and biting off the hands that feed them.

Of course, just as Churchill explained the use of diplomatic language when declaring war on Japan: ” When you have to kill a man, it costs nothing to be polite”, they put up a smokescreen. Rather than offering 2% tax it was announced that an 80% deduction would be granted for investments of this nature, the headline tax rate being an already  rock-bottom 10%. Brilliant. Like the rest of us are really stupid.

“From each nation according to its ability to each nation according to its needs” – Marxist-Cypriot philosophy?

Now being the product of a daft and naive western liberal education, I would have said that the immorality of this scam was pretty slam dunk. Not so. If their past pronouncements are anything to go by, members of right-wing economic, and totally loony right-wing libertarian economic, fish (sorry, think) tanks would have jumped on the first carbon guzzling plane to kiss cheeks with the Cypriot president (who happens to be a communist which makes the mind really boggle) in gratitude for saving the world economy.

Why? I will explain.

In the good old days of the twentieth century, when there were barriers to trade, when international travel took so long you had to check luggage, when there were great recessions and depressions, when one world war followed another – newly socially concerned governments would fret over their sovereign tax systems. The received wisdom on all sides of the economic divide was that “tax neutrality”  – trying to make sure that taxation did not cause distortions in economic decisions – was a desirable goal. On the other hand, as with everything else in the real world, this policy was more honoured  in the breach than in the observance. Individuals were exposed to progressive taxation – a form of redistribution of income. Consumption taxes such as VAT were regressive in that poorer people spent a higher proportion of their income. There were Pigouvian taxes such as those on alcohol and cigarettes (and more recently carbon emissions) designed to compensate for social costs. And then, there was tax relief  to encourage savings. 

Another option

Overall, the attitude to tax neutrality for most nations was the temporal equivalent of the British approach to the Church of England – a good lamppost when you are looking for something to lean on. However, what was important was that electorates could vote into office  parties that promoted “Big Government” (like in Britain, France and Germany) “Small Government” (like the Americans like to  think they were doing) or “No Government” (like the Greeks didn’t realise they were doing). Thus, tax rates were free to be high, low or, if you happened to be living it up in the Cayman Islands , non-existent (go on – how many people reading this could pinpoint Georgetown on a map at the first attempt?).

And just as the Americans, Japanese and Europeans were starting to understand the Laffer Curve (the relationship between government revenue and tax rates) and were reducing tax rates in order to actually increase revenue, globalization kicked in.

Have a Tax Break. Have a Fair Trade Kit Kat

Of course for most people who don’t walk around with straggly hair, beards and open leather sandals (or happen to be the Commie president of Cyprus) ,  the liberalization of the world economy has been generally viewed as a good thing. Competition encourages efficiency and, as long as there are certain bells and whistles included such as the amazing Fair Trade movement aimed to help producers in developing nations, more power to the global elbow. Lower tax rates have also proved a boost – average corporate rates came down drastically across the world from the 1980’s onwards as noted above without destroying the ability of sovereign governments to determine fiscal policy.

Now an unaffordable luxury. Like the 12.5% tax rate

But then things started to get out of hand. Not satisfied with economic competition, countries started to go for tax competition. The star player in this game was Ireland with its 12.5% corporate tax rate that made them so successful in attracting American investment. Other countries followed and the race  to the bottom commenced. Meanwhile, both the OECD and the EU introduced various measures against harmful tax competition to try and contain the epidemic – but these inevitably led to ever cleverer schemes and enhanced competition. The result (leaving aside the Euro Crisis) is less ability of governments to choose between social welfare and survival of the fittest which, judging  by the nature of opposing major parties in many national parliaments, should be a major part of the democratic process.

However, reading the literature of such right wing organizations as the Cato Institute and the Adam Smith Institute you would think the turbo competition of nations like Cyprus and common-or-garden tax havens is an economic ideal. The theory, as is so often the case with right wing thinking as far back as Adam Smith himself , is simple (dare I say, simplistic). Governments will be forced to lower their tax rates which will increase Tax Neutrality, ensure that economic flows are not distorted and leave individuals in charge of their fates.

This is every bit as cynical as Cyprus’s latest game. What they are actually saying is that harmful tax competition, such as the utterly contrived Cypriot IP regime,  is good because it does away with “Big Government”. That is wrong. The question of size of government should be decided, as far as still possible,  at the ballot box and not by the underhand tactics of small nations.

So, the members of those illustrious think tanks should  indeed be flocking to the Cypriot president whose nation is, not for the first time, contributing to the hammering of Big Government. As a Communist, while he would presumably wail at the thought of the decimation of government , he should at least recognize  the concept of the ends justifying the means. What a joke.

Teaching Mrs Merkel German

How many times in one reign does a monarch have to listen to Tom Jones singing Delilah?

Nostalgia ruled for most of last week. While the British indulged in a House of Windsor love fest, the world delighted in snippets of the Queen over her sixty year reign. It was Prince Charles, the King-in-Waiting, who stated the obvious at the Buckingham Palace Doorstep Concert noting that for many people this was the third jubilee they were enjoying along with the Queen (who, frankly, did not by that stage look like she was enjoying anything very much).

My memory leapfrogged over the Golden Jubilee and sprinted straight for the 1977 Silver Jubilee. That was a very different occasion – the generation which, back then, we called middle-aged had lived through the Second World War and brought an old camaraderie to the festivities, as opposed to today’s middle-aged who brought Stevie Wonder, Tom Jones and Paul McCartney.

Maybe it was just the glasses, Jim. Or maybe not

But, Silver Jubilees aside, I was reminded that 1977 was an annus horribilis (as, indeed, was much of the decade but my Latin does not stretch that far). Britain was governed by a minority Labour Government which, in turn, was governed by the Trade Unions who kept bringing the country to its knees.  James Callaghan, the hapless Prime Minister being fattened  for the slaughter by Mrs Thatcher, had swept into No 10 a year earlier with the slogan “Jim Won’t Fix It”. This was a play on the title of a popular TV show and branded him immediately as totally incompetent.

 Meanwhile, across the pond the Americans put a Georgian peanut farmer into the White House who, apart from claiming to have been attacked by killer rabbits, let his team spread compost over US diplomacy. At one diplomatic function Chief of Staff Hamilton Jordan (another Georgian) was reported to have told the Egyptian Ambassador’s wife that he had always wanted to see the pyramids, while fixing his gaze somewhere well south of her eyes.

Jack and Bobby Kennedy. Or maybe not

From the economic viewpoint  the world was down the tubes. The collapse of the Bretton Woods exchange rate system  early in the decade followed by the Arab Oil Crisis had led to rampant inflation – or to be more specific – stagflation. This state of affairs was the nightmare of every adherent of the  school of economic thought that had ruled since the 1930s – it broke the rules of Keynesianism. Inflation together with slow growth and steadily high unemployment was not to be found in Lord Keynes’s song book.

It was no wonder, therefore, that a radically different breed of economist managed to insinuate itself into the frontal lobes of the world’s politicians and the world was presented with Monetarism in the UK and Reaganomics in the US while the French elected the rabid socialist Francois Mitterand just to prove a point. That should have been the end of history, but it wasn’t. Things started going visibly pear-shaped towards the end of the century and neo-keynesianism ( a potpourri of everything that had come before) has been on the ascendant among economists, if not politicians, ever since.

Sadly, since the financial crisis hit in 2008 all we have heard from European leaders (until the French played their usual “driving the wrong way down a one way street card’  in electing a socialist president) is austerity, austerity, austerity. The Eurozone has to collectively tighten its financial belt, balance its budget (well, almost) and keep within very low inflation targets.  Bung up taxation, slash public spending, pay off your loans. And, meanwhile, let the continent  burn.

Strange. I always thought Paul was born around the same time as Beethoven

Leading this bloody crusade is none other than Europe’s Supreme Leader – Angela Merkel. Locked into a  mindset of classical economics and simple housekeeping Frau Merkel, along with all the other European big chiefs  other than M Hollande who has yet to prove that he is not a left wing nutjob,  is missing something fundamental. And that something was observed by a German – Georg Wilhelm Friedrich Hegel.

Frau Merkel should ask the Queen about Hegel’s “Zeitgeist” . She should ask her about her 60 years of regular meetings with her prime ministers from Winston Churchill to the current young boy. The Queen would doubtless tell her that the spirit of the times  has changed.  Beethoven could not have written the Ode to Joy in 1967 London and Paul McCartney would have had trouble with Yesterday in 1827 Vienna. So why is there an assumption among political leaders that, because something did not work in 1977 it will not work in 2012 OR that something that did work  in 1982 will work in 2012?

Did I say at any cost? Maybe not

Back in the 1970’s inflation had got out of control  and – let’s make no mistake – reasonably stable prices are a sine qua non (Latin again) for a stable economy. Stagflation was a reality. Unions were at their most powerful. People’s expectations were at the bottom of the pit. It was critical to bring order to the money markets and bring the unions in line, at whatever the short-term cost, to facilitate a basis for nations to move on. It was left to  Thatcher to tame the Coalminers and Reagan the air traffic controllers.

The European crisis of the last few years is against a very different historical backdrop. Inflation and the unions are not a major threat. The financial crisis is precisely that and not a crisis of economic fundamentals (with the exception of Greece which will soon be sent on its way to Hades). It is the handling of the crisis that threatens to upset the applecart.

Any fool can see that, by everyone getting their house in order at the same time demand just deflates (Paul Krugman has pointed out that  you cannot use the analogy of a spendthrift household that needs to tighten its belt when referring to an entire country because the spendthrift household can rely on demand being created by responsible households as opposed to the entire country where demand just disappears).

Should I buy ingredients for another cake or pay off the mortgage?

Krugman, like Keynes, has no problem with  balancing budgets when the economy is booming. However, when the economy is in recession it is time for increased government spending. It is clear that, whilst in the long-run governments may be highly inefficient participants in the economy, in the short run they will spend much more freely than private households concerned about the future. This supports the contention that taxes should not  be reduced in a recession if that means less government spending. Alongside all this there should be quantitative easing (basically, central banks injecting cash into the economy) and increased targets for inflation.  Balanced Budgets would  still be sought but over a much longer period. Within the Eurozone they will need more banking unity and some form of joint eurobonds to protect weaker economies that cannot devalue their currency to increase competition.

Angela, go with the flow!

It is not an exaggeration to state that the next few months are going to be  critical for the future of the European Union. If Mrs Merkel prefers not to battle with the stark prose of her fellow German, Mr Hegel, she might prefer that nice Mr Shakespeare’s Julius Caesar (not in Latin):

There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.

The Euro – a mental exercise

Polish ex-president demonstrates best tool for unblocking an S bend

Zbig does not understand what the fuss over austerity in Europe is all about. He fails to comprehend the fall of the Dutch government, the elevation of a socialist to the presidency of France, the  inconclusive election in Greece, bailouts and quantitative easing.  All he can say, with his utterly limited command of at least 10 European languages, is that the European Union is “good”.

Whenever he finds himself a bit short of  work Zbig chucks his monkey wrench into his volumnous bag of tricks and heads for the next member state and fortune.  An optimistic chap, his education evidently did not include Steinbeck’s masterpiece “Grapes of Wrath” about the hardships of American migration during the Great Depression or, for that matter,  AA Milne’s “The House at Pooh Corner”. Noticing that children’s classic in the bathroom of one of his clients, he casually asked the lady of the house if it was the only book they had on plumbing.

“Next stop, Berlin!”

The media is currently obsessed with the woes of the Euro.  Faced with the inability of some countries to service sovereign debt 25 of the 27 members of the EU entered into a pact, under the extremely persuasive eye of Angela Merkel of Germany, to slash  deficits. Meanwhile rescue packages were put together where required and the European Central Bank eased credit.  The  austerity resulting from the contractionary fiscal policy has been roundly condemned by much of  the economics profession and is being clearly rejected by the electorates of countries with the chance to choose.

With only an undergraduate degree in monetary economics, when the Euro was first mooted my inital reaction  to the plan was “This is mental but I am sure that better men than I know what they are doing”. IT WAS MENTAL.

Don’t tell me what to do!

Now our economic gurus are telling anyone willing to listen (which is  just about everyone except Angela Merkel who is the only person who needs to listen) that prudent northern Europe needs to expand demand and encourage inflation to compensate for the inability of countries like Greece to devalue their Euro against everybody else’s Euro. A few days ago the Germans gave the first indication that they might be prepared to budge on this.

At the same time they place faith in the ability of workers to migrate freely between states thus solving the chronic unemployment problem in distressed countries. While Zbig, working with his hands in a pretty homogenous Europe-wide market for pipes and washers,  can get by with a few necessary words in whatever language he happens to be being paid in – for most people migration is hardly an option. Language barriers, recognition of qualifications, home ownership and pension rights are just some of the factors that put paid to serious mobility.

As it appears to be silly season for macroeconomics, I thought I might throw in an idea of my own. I am aware that it is full of holes – indeed, when I briefly spoke to the editor of  a respected financial newspaper last summer, he gently advised me that, although I was clearly a young man,  economics had moved on a bit since my student days.

If they want to save the Euro, it is time to employ some highly unorthodox tax policies “for a limited period only”  that go against everything the EU and OECD believe in (which is probably as  good  a reason as any to employ them). The following idea might provide a short-term solution to the mobility problem.

Greek workers demonstrating their flexibility

Countries with official unemployment above a certain level should be allowed to ring fence job-enhancing investment from low unemployment EU countries from taxation.  Thus, for example, a German company could invest in a factory in Greece starting  2012 or 2013 employing 800 workers and would get a tax holiday in Greece for, say, 10 years. At the same time, to ensure that the tax is not simply shifted, Germany would apply tax sparing (a credit for notional tax paid in Greece). Investing companies would have to prove that their existing employment numbers in other EU countries did not drop as a result of the new investment. What the Germans should like is that it does not involve them directly dipping their hands in their pockets and, as long as the OECD can imagine the EU as one country – there is no issue of unfair tax competition.

As a result of investment and increased employment in distressed countries demand should be enhanced, leading to optimism and recovery. In the meantime economists can keep pushing for the European Central Bank to continue printing Euros (quantitative easing) and German expansion  while citizens sporadically revolt against draconian deficit reductions.

With the spread of English as the international language across the globe (even the French, Russians, Japanese and Chinese have learnt to play the game) when all is said and done mobility may one day work in the EU. But there is one country that still seems to insist it hasn’t lost the language war – and that country is quite important.

In those days there was always someone who spoke English

A few weeks ago I had to join a conference call with a foreign colleague and his client in Germany. When I called the conference number the taped instructions were entirely in German which, I confess, I did not understand. Mildly frustrated by the experience of getting nowhere and surrounded by my bemused team I started jokingly shouting at the phone. Exasperated and beyond hope, I eventually hit the hash button and, to my utter surprise, was connected to the call.  At that point, the prerecorded call identifications started – first my German colleague, then his client and then……..a bellowing “Speak English!”  I don’t think they understood.

The Greecy pole

The World Stage

When it was suggested last week by a sympathetic BBC interviewer that the Italian government’s decision not to fund Rome’s bid for the 2020 Olympic Games  had cost Italy the chance of taking its place on the world stage, the interviewee retorted sharply “Italy has been on the world stage for 2000 years”. Meanwhile, the Greeks keep reminding us that, as the cradle of democracy and western civilization, their continued hammering by the European Union is beyond comprehension. We should be thankful, at least, that the Germans  have not yet chosen to harp back to the past.

Greece really does appear to be sliding down a greasy pole. The new government has continued its predecessor’s vain attempts at improving tax collection while trying to make new taxes stick in a country in which, thanks to rampant corruption, tax evasion is effectively state sponsored.

On January 22, a list of 4152 tax cheats was published in an effort to shame people – they must be joking – into paying up. Most fascinating was the fact that, even though the authorities know where they live, most of them have not been prosecuted. This is evidently thanks to there being a backlog of 165,000 cases in the courts. One prominent exception is, top of the list, Nikos Kassimatis (an accountant!) with an amazing 952 million euro owed, who is currently serving a  prison sentence for VAT fraud which has probably taken away his appetite to settle. In a country where the judiciary clearly has a problem getting its act together, this may not be a case of the punishment not fitting the crime but  – to put it in perspective – had he been convicted just before Henry VIII became King of England in 1509 he would be looking at walking free about now (not allowing for a couple of hundred years  knocked off from his 504 year sentence for good behaviour).

It is not just their trains that are late

An earlier list of  6000 major corporate delinquents was made public in September 2011. First prize went to the Hellenic Railway Organization which was running incredibly late with an unpaid tax bill of  a whopping 1.26 billion euro –  a real achievement given the fact that its owner is none other than the Greek government.

The now famous aerial inspection of houses with undeclared swimming pools, reported as carried out at great government expense by helicopter surveillance when the same result could have been achieved on Google Earth, has at least caused economic growth in the form of an increased demand for camouflage material. It has not been reported whether swimming pool owners have been  paying cash for these purchases.

 Meanwhile, while various officials have been forced out for either having their palms greased or turning a blind eye to the actions of others, the government came up with two quite ingenious methods of improving collection. Firstly, the new and much hated (along with every other) property tax is to be collected through household electricity bills. Non payment would result in disconnection from the National Grid and, in winter, death from hypothermia. Secondly, there is some madly complex , novel system using a smart card that enables the authorities to track a taxpayer’s payments. In keeping with Greek tradition, use of these cards is voluntary although it is not clear why the authorities don’t just start by looking up the names on that tax dodger list  in the telephone directory and go knocking on their doors.

The brochure said "clothing-optional"

Alongside tax collection, privatization and reduced salaries, Greece has also been told by the EU and IMF to revamp its tourist industry. Knowing the Greeks’ record on compliance, left to their own devices, this will probably result in a new set of floodlights for the Acropolis and creation of more , euphemistically titled, clothing-optional beaches  where German tourists can get an all-over tan while they are being burnt at home by the forced write-off of Greek sovereign debt.

A Greek tragedy – the gods’ revenge

If you were Angela Merkel, would you take them seriously?

The scene: a windswept precipice at the very edge of Europe overlooking the Aegean Sea. A little man in a business suit stands nervously  behind a robust middle-aged woman dressed in what appears, in the failing light, to be a teletubbies jumpsuit. Both are a safe distance from the cliff-face.  She is evidently in charge. Two nondescript blacksuited men stand dangerously hunched over the precipice.

“Mario, Jose – pull him up a little – schnell!”, barks the boss at the two bent-over goons as it becomes clear to the innocent bystander that each is holding a trousered leg of a person suspended vertically over the edge and staring down into oblivion.

“Save me, please!” , calls the hapless victim in a distinctly Greek accent, his suit jacket flapping about his topsy-turvy head. “What do you want? We have agreed to a cut of 22% in the minimum wage and a freeze for three years, no salary increases, a cut of 150,000 government jobs. What else can I do? All this austerity will destroy us. We need Keynesian policies that will expand the economy – increased expenditure by the government, reduced taxes and quantitative easing of money.”

The little man taps the boss nervously on the shoulder and whispers: “Angel, we have to keep him alive otherwise we are not going to save ourselves. Greece must stay in the Eurozone for now, or default will be total and there will be a knock-on effect to Portugal, Spain and maybe even Italy.The Euro will be finished and our dream  of a United Europe will be in tatters. Let’s bring him up before he pulls the ECB and European Commission down with him”. She swats him off “If you can’t stand the heat, get back in your haute cuisine kitchen, Niko. Leave this to me.”

Greek Tax Authority - Please Give Generously

“Lucas. I want so much to feel your pain. Your people have  been so naughty. All those lies about deficits. All those broken promises. Why do you talk to me of Keynes? He is dead – long term. We politicians believe in free market classical economics, the Chicago School – Al Capone, George “Bugs” Moran, Milton Friedman, George Stigler. We might let you off this time but it is not going to help if you don’t reform your public sector, revamp your tourist industry AND – LISTEN CAREFULLY – CONVINCE PEOPLE, INCLUDING THE MEMBERS OF YOUR GOVERNMENT  THAT PAYING TAXES IS NOT VOLUNTARY.”

“OK! OK!  Just save me!” cries Lucas.

“Sacre bleu, I can’t take this anymore!  We must save him”, pleads  Niko.

“You galling man! Of course, I am going to save him. But he has to be fooled into agreeing to die slowly and painfully over the next ten years instead of a quick end now. Boys, pull him up! I think he has learned his lesson, but next time it will be the cement shoes “.

The sovereign debt crisis, as it relates to Greece, is turning into a tragedy. The country is clearly between a rock and a hard place.  If it defaults on its debt (which thanks to last Thursday’s agreement and last night’s Greek vote will probably not happen this time) it will likely exit the Euro, resulting in exchange rate chaos as the Drachma goes into free-fall from Day 1 and inflation rears its ugly head. There will be wide-scale business failures as corporate debt denominated in Euros becomes hyper-expensive and the public and private sectors will  face closed doors to credit markets.  On the other hand, by accepting the onerous conditions of  the European Central Bank, European Commission and International Monetary Fund , it is starting to look like the Post World War I Treaty of Versailles all over again when Germany was pinned to the wall by the victorious allies and forced to make reparations that pushed the country into crisis. If saddled with its current debt and required to go the whole way on this (albeit including a haircut for private investors) the Greeks really could become the long-term hewers of wood and drawers of water for Europe.

John Maynard Who?

For all the righteous indignation of European leaders towards Greece’s dishonesty over its statistics and its diabolical record on tax evasion, a line in John Maynard Keynes’s General Theory (his masterwork) is particularly apt: “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist”. Although largely discredited in the 1970’s and replaced by the theories of the Chicago School, a modified Keynesianism has made a comeback since the turn of the century – but the politicians are, in computer terminology, “not responding”, preferring to harp back to earlier, widely discredited, laissez faire policies which have little chance of working in the current circumstances. In the past, Keynesianism scored some great successes and, indeed, in the 1950’s British Prime Minister Harold Macmillan was able to boast: “You’ve never had it so good” although it was not entirely clear whether he was talking to the general public or his older brother Dan who had been Keynes’s first love at Eton.

The Greeks could do with a few new ideas

A sanity check suggests that, hopefully, this is one big international confidence trick – the plan being to string Greece along until it gets its house in order while allowing time for Portugal, Spain and Italy to climb totally clear of the danger of default.  Once Greece has made itself more competitive by reforming its public sector, revamping its private sector (significantly, tourism) and ensuring that the tax collection system works, debt will be forgiven, credit lines will be opened up and Greece can get going again.  Wishful thinking? Perhaps, but don’t go out and buy the cement shoes just yet.

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