We Have the Nobel Prize! – Fiat Euro! 41/2012

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We received the Nobel Peace Prize. The British want to have their own laws at home. Will we pay new taxes to fill in the Eurozone’s budget? ESM is officially working, we will see how much it will finally cost us. Red Cross is going to help Spain.

Majority of us haven’t ever won any award, so this news is completely out of the blue. We received the Nobel Peace Prize! Well, the European Union received it, but after all the Union is us, the citizens. It was kept secret until the very last moment, that’s why it couldn’t be recieved by representatives of the Greek party Golden Dawn, who are one of the symbols of the current peaceful coexistence in the EU.

Let’s end the propaganda and go back to reality. Hand in hand with the continuing integration  tension is also growing in the European Union. During her visit to Greece Angela was protected by 6000 policemen and Greek streets were flooded with swastikas, Spain banned referendum on independence in Catalonia and Venice would also like to get away from Rome. Traditionally also British are looking for more independence from Brussels, this time with bigger appetite.

Increasing Eurosceptic pressures led Prime Minister Cameron to promise support for the referendum. Not the one about stepping out of the EU which is asked by many,  but about review of the membership conditions. He used as an argument the continuing integration between the Eurozone’s countries, which makes it possible for the other EU members to reconsider their positions. The conservative government would be glad to see the rights concerning social issues, employment law and business regulations back in the hands of London. If you think that apart from green policy exactly these issues are the key areas of the EU policy, you are right. The British want more than that. Request of the Minister of Interior Theresa May to increase restrictions on the entry of the EU citizens and to introduce visas for some of the countries, is directly affecting the three main principles of the EU. They are also considering stepping out of about 130 agreements within the area of criminal law. Cameron didn’t avoid budgetary questions either, he is ready to veto the potential „massive increasing“ of the EU budget. He thinks that the EU should slowly start thinking about two budgets, one for the Eurozone and another one for the rest of the countries.

This thought is shared by other EU representatives – with small exception. Eurozone’s budget would be created in addition to the already existing budget of the EU. I believe that we are all looking forward to the new taxes. One of them could be tax on financial transactions, which is now officially brewed thanks to the support of 11 member states, including Slovakia. Under the populist cover term “taxes on speculations”, we will actually get tax on investors and pensioners, which was tested in recent history with disastrous effects.

Last Monday we finally witnessed the official launch of the bailout mechanism. It got AAA rating, but Moody’s assigned it negative outlook right away. Klaus Regling, the boss of EFSF, became the director and  Jean-Claude Juncker, Prime Minister of Luxemburg and the President of Ecofin, is the Chairman of the ESM Board of Governors. There is never enough power gathered in hands of just a couple of people. Until 2014 Slovakia is supposed to contribute with EUR 659 million and provide guarantees of more than EUR 5 billion. But in reality it could be much more and much sooner. Countries that are being saved today have 19% share in ESM, if Italy is added then it’s 37%. If any of these countries fail to meet their obligations as shareholders, they will lose their voting rights. These will go to other member states but they will have to pay missing funds. In the end the burden of the whole ESM will be divided between those who don’t go bankrupt themselves (yet). (For now) Slovakia is among them. Maybe it wouldn’t be bad to consider when would be the best time for our default? Proposed budget indicates that the government is already considering such secret plans, public debt continues to increase, in 2015 it is supposed to reach 56% of GDP (hopefully it will be halted at the 60% level by our constitutional debt brake)

Let’s move on to the traditional round of bad and worse news from Spain. S&P reduced its rating to BBB-, which is just one stage above the junk status. The Canary Islands are the sixth region, which requested help from the central government in the last couple of weeks. Red Cross, usually helping in the countries of Sub-Saharan Africa or in regions affected by either war or natural disasters, has just launched a campaign in Spain and is getting ready to help more than 2 million of Spaniards, who in the close future may need food. There are 1.7 million of Spaniards below the border of poverty….which in Spain is EUR 627 monthly, in Slovakia this is more or less the median gross salary.

Real estate crisis is affecting also the higher social class of Spain. At the beginning 4/5 of the foreclosed properties belonged to immigrants, nowadays more than a half of the affected are Spaniards. The victims were joined by many entrepreneurs, who used their properties as a collateral in order to obtain working capital for their businesses, when the crisis hit four years ago.

Three Spanish crisis front lines, namely the banking-real estate troubles, the regional and budgetary ones, were joined in Spain by the fourth one – companies. Budget for the year 2013 revealed that debts of the energy sector will require significant sum of EUR 25 billion from the budget. The fact that at the boards of these state-regulated energy giants you can find former Prime Minister, two Ministers of Finances or a Minister of Interior, is surely just a coincidence. There is nothing easier than buying voters with subsidized prices, if they are going to pay for it later anyway. Or maybe we will pay for it, through the bailout mechanism?

We will pay for Cyprus, country which currently holds the presidency of the EU. It has been known for a while already, but now a specific number came up, EUR 11 billion. Cyprus has a million of citizens. EUR 11 billion represents more or less one third of the whole Slovak debt. This will happen until the end of the year, in November they have to pay bigger number of bonds and towards the end of the year their budget will need higher sum due to year-end bonuses for the government employees.

French don’t want to pay. As a result of Hollande’s 75% income tax, real estate in Paris is flooded with luxurious dwellings. Around 500 residencies with a value over 1 million appeared on the market in response to the new law.

We had good news right at the beginning, so I just wish you a peaceful weekend

Martin Vlachynský

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