Leaky Buckets

Unpleasant start for Croatia. Tithes are coming back. Little house for too many bankers.

Sometimes, we see Croatia only as a big beach resort. But the newest EU member is concerned about non-vacation topics like the economic crisis as well. The country’s economy hasn’t grown since 2008, the unemployment rate is approaching 20% and the debt is rising sharply. Since 2008 it has soared from 30% to 55% of the GDP. This year, the budget deficit will probably reach 3.5% while prediction for the next year is 5.5%.

Croatia will need to borrow 5.7 billion euros next year, which amounts to an eighth of its economy.  Given the worsening fiscal situation, rising yields on the government bonds might force the Croats to seek assistance from the IMF.

But the media so far have preferred to focus on blaming Germans for consuming too little and exporting too much to the PIIGS group countries. Besides the inaccuracy of the statement (Germany’s balance of trade with the eurozone has showed a negative figure for 2013 so far), the whole argument is upside down. Germany’s economic performance is not a problem, but a cure for the eurozone. It is not the German export that pushes the countries of the PIIGS group to the ground, but the incompetence of the politicians in setting up a favourable economic climate.

However, it is not perfect in Germany either. The Union urges Berlin to abolish the power-fee waivers which free large companies from paying the full fee to support the country’s clean energy expansion. Germany is a leader in the renewable energy sector, but only at the expense of 20 billion euros worth of yearly subsidies paid by the citizens. As large companies have successfully lobbied for the power-fee waivers, the expenditures have been charged on small companies and households. Repeal of the privileges might lead to lower electricity bills for the residents, as well as to a million job loss according to pesimistic scenarios. If one adds the internal and external pressures on the introduction of the universal minimum wage, it is going to gloom over the last bastion of the low unemployment.

Uncovered Greek budget gap predictions for 2014 have been softened to 0.5 – 1.2 billion euros. The government is confident about covering the amount without any further help. Meanwhile, the citizens held a general strike following a long hiatus. They showed their anger against the replacement of the emergency property tax with a permanent levy carried out by the government. That will affect also farmers who have been historically protected against such levies.

Public budgets are like leaky buckets to which governments are constantly trying to pour more water with the hope of saving some of it. The IMF has supported the idea of a one-off property tax (to add the right social facet, governments usually use the term wealth tax). According to the calculations of the IMF, one-time 10% wealth levy could solve the problems of banks and politicians. I guess you all know the saying about permanence of temporary government measures.

„Leaky buckets“ is not just an empty metaphor. Take the EU budget for example. The European Court of Auditors has revealed spending errors in the EU budget for 19th year in a row. Those were worth 6 billion euros in 2012. Furthermore, MEP Inge Gräßle accused the Commission of pushing the Court to modify the unfavorable results. So, they have allegedly omited half of the errors in the structural funds spending.

The new ECB bulding is another example. Last week we have informed you that the building had got gradually more expensive from 500 to 800, 1,000 and now to 1,200 million euros. Yet, it is not only extremely expensive (the construction budget is as high as the cost of renting offices in Bratislava for more than 150 years), but also too small! As the ECB is going to take over supervision of all eurozone banks, it will need 1,000 new members of staff. But the new building has not enough room for them, so they will have to look elsewhere for a place to work.

Banks are a worry for the whole Europe. In spite of a massive amount of money which they have received from the ECB, they still lent less than in the pre-crisis period. There are many reasons for that. Besides the worsening position of entrepreneurs in the member countries and their almost game-animal status, new global capital rules  play a significant role. Banks are forced to hold less risky assets, coincidentally, considered by policy makers to be in the form of government bonds. Therefore, banks invest more in government bonds and cut corporate lending.

Europe is going to vote for a new president of the Commission. Don’t worry, the trip to the ballot box won‘t spoil your lunch, as the most important EU representative is not elected by citizens, but by euro-deputies. Barroso is going to pack his bags in one year, but the speculations about his successor have just emerged. Martin Schulz, President of the Parliament, is the official candidate (well known in Slovakia too), while other unofficial candidates are Alexis Tsipras, head of the radical left-wing SYRIZA, and Enda Kenny, reputed favorite of the British.

How many laws are implemented by our parliament and how many are forced by Brussels? One needs an effort to count it. Swedes have figured out that 42% of their laws were implemented by Brussels in 2012.

Do you know how Brussels‘ capitalism looks like? Somewhat like this. The competitors of your company are much weaker, for which they sue you. The Commission lets you punish yourself. Then it asks the competitors whether the punishment was tough enough.

Funny, just like the rest of your week!


Michal Kollár