The times when state bonds underwent haircut or ‘debt restructuring’ to easy the national debts seem to be over. Cyprus showed the way with ‘seizing’ 50% of savings over 100,000 euro. While the International Monetary Fund and the Eurozone quarrel over a possible Greek debt haircut and the debt/bailout program sustainability, the IMF-technocrats come with a new revolutionary idea:
to impose a tax of 10% on savings in order to solve debt problems in eurozone member countries.
Below a excerpt of the report about the genius idea of the IMF technocrats who are known to make wrong calculations on bailout programs and have run of ideas on how to properly use calculation machines.
IMF Discusses A Super Tax Of 10% On All Savings In Eurozone
One of the latest reports from the IMF discusses a super taxation of 10% on savings in the Eurozone. That would solve the debt problem in most sovereign countries. It would be an alternative of higher taxes or spending cuts.
The economists who wrote the paper hasten to say that it is a theoretical proposal. Still, it appears to be “an efficient solution” for the debt problem. For a group of 15 European countries such a measure would bring the debt ratio to “acceptable” levels, i.e. comparable to levels before the 2008 crisis.
The report itself is embedded at the bottom of this article. In the last section of the report, on page 58, right before the appendices, it says:
The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”— a one-off tax on private wealth—as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair). There have been illustrious supporters, including Pigou, Ricardo, Schumpeter, and—until he changed his mind—Keynes. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away (these, in turn, are a particular form of wealth tax—on bondholders—that also falls on nonresidents)
There is a surprisingly large amount of experience to draw on, as such levies were widely adopted in Europe after World War I and in Germany and Japan after World War II. Reviewed in Eichengreen (1990), this experience suggests that more notable than any loss of credibility was a simple failure to achieve debt reduction, largely because the delay in introduction gave space for extensive avoidance and capital flight – in turn spurring inflation.
The tax rates needed to bring down public debt to precrisis levels, moreover, are sizable: reducing debt ratios to end-2007 levels would require (for a sample of 15 euro area countries) a tax rate of about 10 percent on households with positive net wealth(*).
(*) IMF staff calculation using the Eurosystem’s Household Finance and Consumption Survey; unweighted average.
full article here
I suppose, this proposal is being probably discussed within the eurozone in general and Germany in particular under the table and behind closed doors. And that’s why Germany vehemently opposes the possibility of a new Greek debt haircut.
If the next haircut of Greek debt will materialize with a 10% tax on all savings -over or below 100,000 euro- there would be no EUROzone citizen to leave his money in the banks. Angela Merkel will have to face her most creepy experience: to see her beloved banks running empty. A EURO contagion will blow up. For real.