European Political Elite React to Deteriorating Fiscal Outlook with Decisive Moves to…Kill the Messenger
I’m not a big fan of the rating agencies. I’ve warned in TV interviews that they generally wait too long before downgrading profligate governments.
So when the rating agencies finally catch up to everyone else and lower their outlook for failing welfare states such as Greece and Portugal, one would think that this would be seen as a useful – albeit late – warning sign. But European politicians are not very happy about this development. At the risk of mixing metaphors, they want everyone to keep their heads buried in the sand and to continue complimenting the emperor on his new clothes.
Here are some excerpts from a BBC report.
The European Commission has strongly criticised international credit ratings agencies following the downgrade of Portugal by Moody’s. The Commission said the timing of the downgrade was “questionable” and raised the issue of the “appropriateness of behaviour” of the agencies in general. Earlier, Greek Foreign Minister Stavros Lambridinis said the agencies’ actions in the debt crisis had been “madness”. Ratings agencies have downgraded Greece and Portugal many times recently. …German Finance Minister Wolfgang Schaeuble told a news conference that he wanted to “break the oligopoly of the ratings agencies” and limit their influence. …”The timing of Moody’s decision is not only questionable, but also based on absolutely hypothetical scenarios which are not in line at all with implementation,” said Commission spokesman Amadeu Altafaj. “This is an unfortunate episode and it raises once more the issue of the appropriateness of behaviour of credit rating agencies.” Commission President Manuel Barroso added that the move by Moody’s “added another speculative element to the situation”.
This is not the first time this has happened, by the way. Back in January, I mocked the President of the European Council for whining that “bond vigilantes” had the nerve and gall to demand higher interest rates to compensate for the risk of lending money to incontinent governments.
Should Legislatures, Commissions, and Such Figure Out Privacy Problems?
The recent European Commission proposal to create a radical and likely near impossible-to-implement “right to be forgotten” provides an opportunity to do some thinking about how privacy norms should be established.
In 1961, Italian liberal philosopher and lawyer Bruno Leoni published Freedom and the Law, an excellent, if dense, rumination on law and legislation, which, as he emphasized, are quite different things.
Legislation appears today to be a quick, rational, and far-reaching remedy against every kind of evil or inconvenience, as compared with, say, judicial decisions, the settlement of disputes by private arbiters, conventions, customs, and similar kinds of spontaneous adjustments on the part of individuals. A fact that almost always goes unnoticed is that a remedy by way of legislation may be too quick to be efficacious, too unpredictably far-reaching to be wholly beneficial, and too directly connected with the contingent views and interests of a handful of people (the legislators), whoever they may be, to be, in fact, a remedy for all concerned. Even when all this is noticed, the criticism is usually directed against particular statutes rather than against legislation as such, and a new remedy is always looked for in “better” statutes instead of in something altogether different from legislation. (page 7, 1991 Liberty Fund edition)
The new Commission proposal is an example. Apparently the EU’s 1995 Data Protection Directive didn’t do it.
Rather than some central authority, it is in vernacular practice that we should discover the appropriate “common” law, emphasizes Leoni.
“[A] legal system centered on legislation resembles . . . a centralized economy in which all the relevant decisions are made by a handful of directors, whose knowledge of the whole situation is fatally limited and whose respect, if any, for the people’s wishes is subject to that limitation. No solemn titles, no pompous ceremonies, no enthusiasm on the part of the applauding masses can conceal the crude fact that both the legislators and the directors of a centralized economy are only particular individuals like you and me, ignorant of 99 percent of what is going on around them as far as the real transactions, agreements, attitudes, feelings, and convictions of people are concerned. (page 22-23, emphasis removed)
The proposed “right to be forgotten” is a soaring flight of fancy, produced by detached intellects who lack the knowledge to devise appropriate privacy norms. If it were to move forward as is, it would cripple Europe’s information economy while hamstringing international data flows. More importantly, it would deny European consumers the benefits of a modernizing economy by giving them more privacy than they probably want.
I say “probably” because I don’t know what European consumers want. I only know how to learn what they want—and that is not by observing the dictates of the people who occupy Europe’s many government bureaucracies.
Thanks to Tax Competition, Corporate Tax Rates Continue to Fall in Europe
Many people assume that Europe is the land of high-tax welfare states and America is an outpost of laissez-faire capitalism. We should be so lucky. The burden of government in America is still lower than it is in the average European nation, but the United States is a lot closer to France than it is to Hong Kong — and the trend is not comforting.
We recently endured the embarrassing spectacle of President Obama arguing with Europeans that they should increase the burden of government spending. Now we have a new report from the European Commission indicating that the average corporate tax rate in member nations of the European Union has plummeted to just 23.5 percent while the corporate tax rate in the U.S. has stagnated at 35 percent. In the past dozen years alone, as the chart illustrates, the average corporate tax rate in the European Union has dropped by nearly 12 percentage points. To make matters worse, the corporate tax rate in America actually is closer to 40 percent if state tax burdens are added to the mix.
This is not to say that European politicians are reading Hayek and Friedman (or watching Dan Mitchell videos on corporate taxation). Almost all of the positive reforms are because of tax competition. Thanks to globalization, it is increasingly easy for labor and (especially) capital to cross national borders to escape bad policy. As such, nations now have to compete for jobs and investment, and this liberalizing process is particularly powerful among nations that are neighbors.
Not surprisingly, European politicians despise tax competition and instead would prefer to impose a one-size-fits-all policy of tax harmonization. These efforts to create a tax cartel have a long history, beginning even before Reagan and Thatcher lowered tax rates and triggered the modern era of tax competition. The European Commission originally wanted to require a minimum corporate tax rate of 45 percent. And as recently as 1992, there were an effort to require a minimum corporate tax rate of 30 percent.
Fortunately, the politicians did not succeed in any of these efforts. As such, tax competition remains alive and corporate tax rates continue to fall. What remains to be seen, however, is whether America will join the race to lower corporate tax rates — and more jobs and investment.
Great Moments in International Bureaucracy
Greece’s fiscal disarray is a visible manifestation of Europe’s future, but the most appropriate symbol of what’s wrong with the continent comes from Brussels, where there are three “presidents” fighting over the right to represent Europe at international gatherings. The contestants include the President of the European Commission, the President of the European Council, and the European Union President (which rotates every six months among different national leaders).
While these three personalities fight over who gets to sit where and shake hands first, the real problem is that they all agree that government should be bigger, taxes should be higher, and power should be more centralized as part of the effort to create a superstate in Brussels. Inside this gilded cage, insulated from actual voters, Europe’s technocratic elite is content to enjoy a parasitical existence while the welfare states of member nations slowly but surely collapse and lead to social chaos. Here’s an excerpt from the UK-based Express about the fight between the the philosophical descendants of Louis XVI. Or would Nero be a better analogy? How about the Three Stooges? Well, you get the idea:
Promises by EU leaders that the Lisbon Treaty would herald a new era of clarity have been shattered after attempts to settle a major internal power feud resulted in a typical Brussels fudge. Bureaucrats have decided to send not just one president and his entourage to global summits but a tax-draining three. Only four months after the fanfare of Herman Van Rompuy’s appointment as European Council president, his most jealous and powerful rival in Brussels has persuaded allies to allow him to muscle in too. José Manuel Barroso, president of the European Commission, has succeeded in his demands that he should also go to diplomatic summits, such as the G20, after insisting only he has the expertise to deal with specific policy matters. At certain summits there will even be a third representative – the leader of the country holding the EU’s rotating presidency. This seems to justify criticism that the Lisbon Treaty would add to the EU’s murky waters and not be a move towards transparency. …Since the Lisbon Treaty came into force at the end of last year, arguments have raged in Brussels over which department does what. Mr Van Rompuy, the former Belgian prime minister dismissed last month by Ukip MEP Nigel Farage as a “damp rag” and a “low-grade bank clerk”, is the permanent president of the European Council.
Lessons from the Greek Budget Debacle
Fiscal crises have a predictable pattern.
Step 1 occurs when the economy is prospering and tax revenues are growing faster than forecast.
Step 2 is when politicians use the additional money to increase government spending.
Step 3 is that politicians do not treat the extra tax revenue like a temporary windfall and budget accordingly.Instead, they adopt policies – more entitlements, more bureaucrats – that permanently expand the burden of the public sector.
Step 4 occurs when the economy stumbles (in part because more resources are being diverted from the productive sector to the government) and tax revenues stagnate. If the resulting fiscal gap is large enough, as it is in places such as Greece and California, a crisis atmosphere is created.
Step 5 takes place when politicians solemnly proclaim that “tough measures” are necessary, but very rarely does that mean a reversal of the policies that caused the mess. Instead, the result in higher taxes.
Greece is now at this stage. I’ve already argued that perhaps bankruptcy is the best option for Greece, and I showed the data proving that Greece has a too-much-spending crisis rather than a too-little-revenue crisis. I’ve also commented elsewhere about the feckless behavior of Greek politicians. Sadly, it looks like things are getting even worse. The government has announced a huge increase in the value-added tax, pushing this European version of a national sales tax up to 21 percent. On the spending side of the ledger, though, the government is only proposing to reduce bonuses that are automatically given to bureaucrats three times per year. Here’s an excerpt from the Associated Press report, including a typically hysterical responses from a Greek interest group:
Government officials said the measures would include cuts in civil servant’s annual pay through reducing their Easter, Christmas and vacation bonuses by 30 percent each, and a 2 percentage point increase in sales tax to bring it to 21 percent from the current 19 percent. …One government official, speaking on condition of anonymity ahead of the official announcement, said…that “we have exhausted our limits.” …”It is a very difficult day for us … These cuts will take us to the brink,” said Panayiotis Vavouyious, the head of the retired civil servants’ association.
Now, time for some predictions. It is unlikely that higher taxes and cosmetic spending restraint will solve Greece’s fiscal problem. Strong global growth would make a difference, but that also seems doubtful. So Greece will probably move to Step 6, which is a bailout, though it is unclear whether the money will come from other European nations, the European Commission, and/or the European Central Bank.
Step 7 is when politicians in nations such as Spain and Italy decide that financing spending (i.e., buying votes) with money from German and Dutch taxpayers is a swell idea, so they continue their profligate fiscal policies in order to become eligible for bailouts. Step 8 is when there is no more bailout money in Europe and the IMF (i.e., American taxpayers) ride to the rescue. Step 9 occurs when the United States faces a fiscal criss because of too much spending.
For Step 10, read Atlas Shrugged.
Statism Update from Brussels
America may have dodged the bullet of Obamacare thanks to voters in Massachusetts, but even if the left ultimately succeeds in expanding government’s control of health care, the United States will still have more freedom than Europe. It seems that the European Union’s governing entities, the European Commission and the semi-ceremonial European Parliament, combine the worst features of statism and collectivism from the entire continent. The Euro-crats make lots of noises about subsidiarity and other policies to leave decision making in the hands of national and local governments, but virtually every policy coming from Brussels is a new power grab for unelected and unaccountable bureaucrats. The latest example is possible EU-wide driving laws for the purposes of imposing absurdly low speed limits and to requiring foolish rules against more comfortable and safer large cars. Here’s what the UK-based Express wrote about the topic:
Brussels bureaucrats want to slap draconian European Union driving laws on Britain’s roads in a new “green” campaign on motorists, it emerged last night. Measures being considered include a barrage of new maximum speed limits in town and city areas. British motorists could also be forced to undertake exams in “environmentally-friendly” road skills as part of an EU-wide overhaul of driving tests. And many large cars and other so-called gas-guzzling vehicles face being banned from newly-declared “green zones” in urban centres. The latest threat of meddling from Brussels comes in an Action Plan on Urban Mobility drawn up by European Commission transport chiefs. …Mats Persson, of the Euro-sceptic think tank Open Europe, commented: “This illustrates that the EU simply can’t stop interfering in every aspect of people’s lives.”
Meanwhile, a different tentacle of the European octopus is proposing that the European Union be given the power to audit budget numbers from member nations. Given the fiscal fiasco in Greece, this seems like it might be a reasonable step – until one remembers that the EU’s auditors every year give a failing grade to the EU’s own budget practices. The EU Observer reports on the issue, but the phrase “blind leading the blind” somehow did not get included:
…the European Commission has indicated it will seek audit powers for the EU’s statistics office, Eurostat, in order to verify elements of national government accounts. …Speaking to journalists after a meeting of EU finance ministers on Tuesday (19 January), outgoing EU economy commissioner Joaquin Almunia said greater Eurostat auditing powers could have avoided the mistakes that led to the Greek revision. He said the commission will propose “a new regulation in order to obtain powers, which we’ve already requested, to give Eurostat the possibility of carrying out audits.”
Last but not least, that same EU Observer story has a tiny bit of good news, or at least a dark cloud with a silver lining. Some of Europe’s governments want to impose an EU-wide tax on banks. This certainly fits the theme of ever-growing levels of bureaucracy and interference from Brussels, but the good news is that there is still (even under the statist Lisbon Treaty) a national veto on tax matters. So even though some of the big nations in Europe want to demagogue against the financial sector, the EU’s taxation commissioner (and former communist apparatchik from Hungary) indicated with sadness that such a tax probably would not make it through the process:
While discussion on Greece took up considerable time, EU finance ministers did have an opportunity to discuss a Swedish proposal for an EU-wide bank levy to mitigate the effects of future financial crises. …British, Belgian and German ministers were amongst those who showed moderate support for the idea. However, outgoing EU taxation commissioner Laszlo Kovacs said it was unlikely to fly because of EU unanimity voting in the area of taxation.
Someone in Europe Is Talking Sense on Carbon Tariffs
The nominee for EU Trade Commissioner Karel de Gucht has taken the brave step of opposing carbon tariffs, called for by many European politicians (including, notably, French President Nicolas Sarkozy).
In the first day of his confirmation hearings, Mr. de Gucht expressed concern that carbon tariffs were a possible first step in a “trade war” and implied that they were in any event inconsistent with current trade law. (I agree.) He also called for abolishing tariffs on goods beneficial to the environment as a trade-friendly way to reduce greenhouse gases, and expressed support for the Doha round of multilateral trade talks. (More here.) While the Trade Commissioner’s influence over actual trade policy in the EU is arguably limited, it is good to have someone in the post who is instinctively suspicious of green protectionism and friendly towards the WTO.
The European Parliament is due to vote on the European Commission nominees (en masse) on January 26.
Great Moments in Government Waste, the European Version
While American politicians are experts when it comes to squandering money, they may not be the world’s most profligate group of lawmakers. To be sure, American politicians sometimes give big piles of other people’s money to bail out Fannie Mae and Freddie Mac, but the politicians at the European Commission in Brussels engage in similar forms of corporate welfare with their Emissions Trading Scheme.
The overall burden of government is heavier in Europe, so that certainly suggests that there are greater opportunities to waste money, but what makes the European Commission special is that it is insulated from democratic accountability and there is no system of checks and balances. So even though the actual amount of money spent by Brussels is small compared to what is wasted by national governments in Europe, the outcomes are especially obscene. Here’s a story from the UK-based Daily Mail, reporting on a program (no joke) to fund activities such as basket weaving and siestas:
British taxpayers are helping to fund basket-weaving and slapstick acting workshops for young people across Europe. The projects, which include meetings about folk dancing and even a scheme to promote afternoon siestas, are part of an £800million EU programme to help people aged 13-30 ‘feel European’. …Another venture in Finland received thousands to support a coffee house which offered ‘everyone the chance to have a sleep for free’. It aimed to encourage afternoon naps to reduce stress. ‘Youth exchange participants’ also flocked to Macedonia last year for a meeting entitled Stories And Legends, receiving £18,000 to explore storytelling. …An EC spokesman said the projects were about exposing young people to other cultures and increasing their participation in society. He added: ‘I don’t see anything wrong with basket-weaving or music-making if it encourages young people to meet other Europeans and learn a new skill from another part of Europe.’
Readers may be thinking this is no big deal. After all, American politicians fund pork projects all the time. But here’s the clincher. The UK’s Daily Telegraph reports that the European Commission is subsidizing a ski trip for…drum roll, please… the children of European politicians, and that the subsidies even go to households with income equivalent to about $175,000:
Taxpayers will heavily subsidise a skiing holiday in the Italian Alps for the children of MEPs and European Parliament officials in February. …The eight-day skiing trip for 80 children aged between eight and 17 is timed to begin over the weekend of St Valentine’s Day, providing some romantic time off from parenting for officials. Costs, the holiday is priced at 920 euros (£822), are generously subsidised by the parliament’s budget. Households receive different levels of subsidy depending on their monthly income but even those on a income of over £108,000 get a discount. There is reduction of up to 52 per cent for officials earning £69,620 a year and an MEP, earning £86,000, is eligible for a subsidy of 45 per cent. …The children will enjoy full board in a three-star hotel in the beautiful village of Spiazzi. The trip includes “workshops” in a “multilingual environment” on the themes of “the mountain, its snow, its nature”. …The parliament’s spokesman declined to comment on the holiday.
Perhaps I’m not paying close enough attention, but I can’t think of anything the crowd in Washington has done that rivals this odious example of self-serving by lawmakers. Can anybody come up with an example that tops this?
The High Cost of European Union Bureaucracy
The clever folks at the Taxpayers Alliance in the United Kingdom have a new video documenting some of the wasteful European Union programs that are imposing a heavy burden on average people.
The European Union Stops Banning Ugly Veggies
The European Union has helped create a continental European market and knock down protectionist barriers, which is good. But it also has created another opportunity for meddling bureaucrats to interfere with people’s lives.
Now consumer protests have led to at least one victory for liberty. Reports London’s Sun newspaper:
Now the European Commission has finally scrapped the 20-year ban on 26 types of fruit and veg including asparagus, celery and aubergines.
They ruled they can now be sold – as long as they are labelled as “intended for processing”.
Sainbury’s spokeswoman Lucy Maclennan said: “We are delighted to have played a part in winning the wonky veg war against these bonkers EU regulations.”
Tesco spokesman Adam Fisher said: “It’s not before time. We welcome this move.”
And last night it was predicted the change could see some prices fall by 40 PER CENT.
A Commission official said: “Times have changed – now household budgets are tighter and there is the problem of wasting food.”
One bad regulation down. Who knows how many to go?
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