Stupidity May Have Limits, But It Has No Boundary
Stupidity is a bit like the universe. There is simply too much of it for us to fully comprehend it.
The most recent example of what we may call 'applied stupidity' emanating from the eurocracy brings us more proof that H.L. Mencken was perfectly right when he said: "Democracy is the theory that the common people know what they want, and deserve to get it good and hard.“
While the euro-land economy is on the verge of imploding as a result of the sovereign debt crisis and the associated crisis of the fractionally reserved banking system, what do the eurocrats have time to debate?
The introduction of a new tax! Once again, every expert opinion and study done on the topic tells them that this tax will lower the euro-zone's GDP, won't increase overall tax revenues due to the negative effect on economic activity and will weaken the already severely weakened financial system further. And yet there are few things on which unanimity has been achieved faster than this tax (there are a few holdouts, see further below). No wonder, as the manner in which politicians have framed this taxation proposal – the financial transaction tax - has transformed it into a populist cause that promises to find the approval of the mob of uneducated sheeple who will actually end up paying through the nose for it.
On the surface, it sounds harmless. A 0.1% tax on financial transactions? It doesn't sound like much, although the eurocrats (falsely) claim that it will generate €57 billion in annual tax revenue. Allegedly this tax is supposed to be a punishment for the transgressions of the banks that have led to the 2008 crisis. They must now 'contribute something' to restore the public purse to health, so it is argued. Many people apparently believe this nonsense, judging from comments we have read on the inter-tubes. First of all, once the tax is introduced, it won't remain at 0.1%, for the simple reason that the projected revenues won't materialize. Business will migrate to other places in the world where capital is treated better. The eurocrats will then 'logically' conclude that 0.1% isn't high enough. Secondly, the banks won't actually pay one red cent. Pension funds will see their returns diminish, lowering the net present value of every private pension plan in the EU. Insurance companies will see their investment income fall, necessitating higher premiums or lower payout ratios. Banks will simply pass the costs on to their clients. The very mob that cheers the politicians on in its righteous wrath against the perceived perpetrators of the financial crisis will end up paying for the tax.
But even worse than this is the sheer incalculable damage that may be done to the economy as liquidity in European capital markets evaporates, making the raising of capital less efficient and more costly.
We would note that the politicians most in favor of this tax are the very ones who judging from their public comments are among the economically most illiterate politicians in Europe and in some cases are well known for hating free markets, especially the financial markets, which they deem to be populated by 'evil speculators' intent on destroying their statist dreams. At the top of the list of market-haters and economic illiterates we find of course French president Nicolas Sarkozy, closely followed by Mrs. Merkel from Germany and Austria's minister of finance Maria Fekter.
Luckily, the tax threatens one of the centers of international finance disproportionally – namely London.
We say 'luckily' because this means the UK is highly unlikely to agree to the proposal, and its opposition may yet stop it from being implemented. However, Merkel and Sarkozy already let it be known that in this case the euro-area members would consider going it alone. Let's destroy our capital markets, what could be better?
Meanwhile, Sweden already once introduced such a tax and has warned the rest of the EU in no uncertain terms of the negative consequences. As Swedish finance minister Anders Borg noted:
“Sweden attempted a transaction tax and “basically, our futures trading, our bond trading and our stock trading to a large extent just moved to London,” Borg said in an interview with Francine Lacqua on Bloomberg TV’s Countdown program before the meeting. “If we would introduce a unilateral European system, it’s quite likely the trading will move to the U.S. or Switzerland. It’s not a system that can work actually.”
Borg said there’s “a lot” of opposition to a transaction tax, which will “increase the risks and make the markets less liquid.” Such a measure is “quite likely to reduce our public revenues because we will lose in capital gains taxes and if the trading moves elsewhere, the taxes will also move elsewhere.”
What more does one need to know? Alas, this has not deterred the eurocrats from proceeding anyway. As Bloomberg reports (below are a few pertinent snips with our comments in  brackets):
“The European Union proposed a financial-transactions tax that would take effect in 2014 and raise about 57 billion euros ($78 billion) a year, prompting renewed opposition from the U.K.
The proposal would apply a tax of 0.1 percent on trading of stocks and bonds, with a 0.01 percent rate for derivatives contracts, the European Commission, the EU executive, said today in Brussels. Those minimum rates would apply throughout the 27- nation bloc. The measure would deliver “a fair contribution from the financial sector,” EU Tax Commissioner Algirdas Semeta said. [as noted bove, this is simply a lie; the cost of the tax would be passed one and citizens would pay for it, ed.]
European governments are split over the merits of a transactions tax, while British banks warn that an EU-only measure would drive business to other regions. The U.K., home to Europe’s biggest financial center, has opposed the move, which requires the unanimous support of all EU countries [this leaves us slightly hopeful, ed.]. The U.K. Treasury reiterated today that such a levy would need to apply globally [not a chance, ed.]
“Treasury Secretary Timothy F. Geithner said this month that a transaction tax could create “frictions” that would worsen the impact of a crisis without offering a protective reduction in volatility or risk-taking. [for once, we agree with Turbo-Tim, ed.]”
“Europe needs to focus on rebuilding its economies and fostering recovery. This proposal will do nothing to support either of those aims,” the Association for Financial Markets in Europe, a lobby group that represents banks and brokers including Goldman Sachs Group Inc., Deutsche Bank AG and UBS AG, said in an e-mailed statement. “Europe’s leaders should reject this proposal as potentially damaging to their economies and the financial system.” [Amen, ed.]
Transactions with the European Central Bank and other central banks wouldn’t be covered by the tax, according to the proposal. It also features an exemption for the “primary market,” which includes sovereign and corporate bond auctions [of course they would exempt sovereign debt, ed.]
The BBA said “banks conduct transactions for their customers, therefore any tax on transactions would be an additional tax on customers.” [and that is the crux, ed.]
The plan drew support from Oxfam International and Catholic Development Agencies, who said the measure would increase justice and provide funding for environmental and social goals. [this is a joke, right?, ed.]
French President Nicolas Sarkozy and German Chancellor Angela Merkel have called for the EU to introduce its own transactions tax irrespective of whether other regions follow suit. The finance ministers of Spain and Belgium said on Sept. 17 that the euro area’s 17 governments should consider introducing their own transaction tax if no agreement were possible at the global or EU level. [translation: we want to be stupid regardless of the cost, because we think it will buy us votes from the deluded mob, ed.]
Today’s announcement follows a 2010 proposal that failed to draw agreement among member nations. The financial industry says a transaction tax would affect the broader economy because banks would pass on costs to clients [that much should be crystal clear, ed.].
An impact assessment accompanying the proposal says that the plan would have a “long-run” negative impact of 0.5 percent of gross domestic product. [and this may turn out to be an understatement; it is not possible to truly calculate the cost, but crippling one's capital markets certainly doesn't come for free, ed.]
And so the EU keeps blundering from one economically damaging policy to the next. No wonder the continent has become 'sclerotic' and barely has any real economic growth anymore. The recent mini-boom in Germany due to the ECB's low interest rate regime is a rare exception that will likely turn out to have done considerable economic damage now that it is winding down (it is probably superfluous to comment on the economic boom the periphery went through in 2003-2007 – that this short 'feel-good' period has exacted a steep price should by now be obvious to all).
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