A Bubble in Germany

The debt crisis has long tentacles. Left-wing criticism of high taxes. Victorious battles of the Venezuelan army.

Populations are aging, social systems are under pressure, banks are going weak at the knees and national budgets are no more generous than they were during the 2002-2007 bubble. Nobody can avoid budget issues, even the strongest and wealthiest ones.

Vienna was ambitious to press the budget deficit down to zero in 2016. After the last elections, politicians are now preparing for a different scenario. According to the newest recalculations, the cumulative budget deficit of the 2013-2017 period is expected to reach 40 billion euros. Bad health and an urgent need for a billion euros of a formerly rescued (and nationalized) Hypo Alpe Adria bank are among the reasons for the budget hole.

This is a file from the Wikimedia Commons

As a reminder of the not-yet-ended crisis, the ECB has lowered the interest rates and remains ready to cut them further. Thus, it has been using the same medicine since 2008 expecting that it will work. Germany is a bit scared of this move. It is concerned about a potentiality of too low interest rates to create asset bubbles like the ones at the end of the century.

The Czech National Bank has prepared an even bigger surprise. The rumours of the upcoming first intervention on the foreign exchange market have been circulating for a long time. But its intensity surprised the most, as the CNB knocked the crown down (and value of people’s savings) by almost 5%. The fact is that the Czech Republic already has a positive trade balance of around 10%. The intervention is alleged to „stimulate people’s spending,” because greedy people save too much and embitter politicians’ lives.

Mercantilist logic is still alive in Europe. The Commission started to examine Germany’s high trade surplus. It doesn’t matter that the surplus has not been created via trade with the eurozone, where Germany shows a trade deficit. As the CSU General Secretary Alexander Dobrindt said: „you don’t strengthen Europe by weakening Germany. “ Actually, when will the Commission review Greece or Spain for „an import obsession“?

But the French have been criticized as well, and by an unexpected person. You know that something’s really wrong when a former student leader of a Maoist party and the current President of the Commission says that „France is by far the country where companies pay the highest taxes and that’s a problem for growth and employment.” Standard & Poor’s downgraded France’s credit rating to AA on Friday. The Government has stepped back from imposing the new tax on large vehicles which raised a big wave of protests, and postponed its implementation by half a year.

The Spanish have also been innovative in the area of taxes. In August they de facto taxed the sun as they ordered to hook home solar panels up to the national grid to be metered and taxed. Now they have set up solar police team which may knock down your door and search your house for any solar panels for your own personal use only.

Politicians are happy to impose taxes and they are even happier when these are paid. But there is much bigger trouble when they themselves also have to pay the taxes. Just remember the former Prime Minister of the third largest eurozone economy who was convicted (but not punished) of tax fraud. Currently, Trade Commissioner Karel De Gucht is facing a similar problem. He allegedly forgot to report some of his 2009 income for which he would be taxed 900,000 euros. The case will be brought before court.

There’s one positive piece of news. Following 16-hour long negotiations, the Parliament and the Commission have clinched a deal on the 2014 EU budget. Headline spending is set to fall by 6% against 2013. So, finally some cuts have been made, but let’s not forget that it had been preceded by the Commission’s successful demand for extra funds to increase the 2013 budget retroactively.

There’s still a lot of work to be done in the area of wasting money from the EU budget. The island of Pitcairn (overseas territory of the United Kingdom) has received 4.4 million euros in the last 13 years from the European Development Fund. What’s strange about that? The fact that the island is inhabited by only 50 people. Maybe there’s a nice bungalow there owned by some Commissioner… But it’s only a drop in the ocean. For instance, the EU intended to spend almost 10 billion euros on fast broadband connection programme in the 2014-2020 budget period. The programme budget has been slashed to 1 billion euros. According to the central planners, half of the EU households will have subscribed to internet access above 100 mbps by 2020. The unemployed in Slovak “hungry valleys” are already looking forward to better tomorrows brought by faster internet connection.

The third big stress test for European banks is coming, and it’s supposed to be a proper one this time. But it’s still uncertain how the government bonds, until recently considered to be „100% safe“, will be rated. Jens Weidman, president of the Bundesbank, has argued clearly that „government bonds should be treated like other bonds or loans to companies.”

The south has not been very eventful this week. Madrid is a garbage mess due to the strike of rubbish collectors. The city hall has come up with a foxy solution. As the cleaning services are provided by private companies, they consider the strike to be an issue between employers and workers. They are said to be ready to terminate the contracts if the strike doesn’t end soon. Following other member countries, Malta has started selling citizenship. The price is 650,000 euros.

Within the fight against tobacco, Brussels has decided to track (and record for a four-year period) each cigarette packet. Since there are about 30 billion packets sold in Europe every year, many suspect the Commission’s officials of smoking something stronger than tobacco while thinking this up. Just like the Mayor of Toronto.

We will end up the week in South America. First, the heroic Venezuelan army has rescued cleanliness of the Venezuelan citizen’s private parts when it mounted a brave attack on a toilet paper factory. And it doesn’t slack off during its campaign against capitalism as it has seized a chain of electronics shops and forced it to sell goods more cheaply.

It comes in handy right before Christmas. I hope that you will fight for some shopping discounts too!

Translated by Michal Kollár