Evil Tax Haven to be Punished
There are now signs that further euro area bailouts – or rather a specific one – could be shipwrecked in Germany's parliament. The bailout of Cyprus allegedly has a good chance of not getting the nod of Germany's parliamentarians – who have to give said nod, after the most recent ruling by the constitutional court in Karlsruhe on the limitations of the bailout policy.
“Optimism has been in no short supply in the euro zone in recent weeks. Before the new year, both European Commissioner Olli Rehn and notoriously circumspect German Finance Minister Wolfgang Schäuble said they believed that the worst of the euro crisis had passed. European Commission President Jose Manuel Barroso joined the chorus late last week.
But for crisis late-comer Cyprus, the worst is almost surely still to come. Even more concerning for the Mediterranean island nation, Germany's opposition Social Democrats (SPD) now say they are considering voting against a badly needed aid package for the country. And the Green Party is skeptical too. With Chancellor Angela Merkel no longer able to rely on her own parliamentary majority to push through euro-zone bailout packages, help for Cyprus may not be forthcoming.
So why is poor Cyprus going to be left out in the cold? After all, it is in trouble mainly because its banks had to eat two Greek defaults in a row. Wait for it…
“As things currently stand, I can't imagine German taxpayers bailing out Cypriot banks, whose business model depends on abetting tax fraud," SPD head Sigmar Gabriel told the Süddeutsche Zeitung in comments published Wednesday. "If Ms. Merkel wants SPD support for a Cyprus aid package, she will have to have excellent arguments. At the moment, however, I don't see what those might be."
The SPD is not alone in its concern over the planned aid package for Cyprus. Other euro-zone capitals and many in Brussels are likewise wary of propping up the banking industry there due to its having become a favorite destination for money from Russian oligarchs. The country is widely seen as a tax haven.”
Taxes in this Mediterranean backwater are simply too low! We can't have that! It's an evil tax haven! Besides, their banks accept deposits from – gasp! – Russian oligarchs! That's actually Western media-speak for 'rich people who hail from Russia'. As far as we're aware the original 'oligarchs' got the boot from none other than Vladimir Putin, who was at the time not exactly heaped with praise for doing that. Damned if you do, damned if you don't.
So in other words: the eurocrats first pushed through the Greek PSI deal and the 'secondary haircut' (disguised as a harmless 'buyback') so that private sector investors in Greek bonds lost about 70% of their investment twice in a row. That inevitably ruined the Cypriot banks, which held quite a bit of Greek sovereign debt. And now they want their pound of flesh from Cyprus before they agree to help. You can already guess what that is from the above: raise taxes! Will Ireland's 12.5% corporate tax be on the agenda next? The eurocrats are still fuming that Ireland didn't give in on that and the country isn't out of the woods yet – it too will reportedly require more help with its insolvent banks.
However, all of this might turn into a bit of a miscalculation if Cyprus becomes the next crisis trigger in the process – which it may or may not, given its small size. Who ends up paying for the resulting mess if that happens? Our guess would be every holder and user of the euro, as the ECB will then likely crank up the printing presses as promises alone will no longer work. Mind, we're not saying that anyone should be bailed out – we're merely pointing out the inescapable logical progression should a refusal to help Cyprus end up reigniting crisis conditions over a wider area, based on the 'the euro is irreversible' mantra.
Moreover, it appears now that the eurocratic centralizers and 'tax harmonizers' are trying to use the bailouts as a carrot and stick to force recalcitrant low tax jurisdictions into raising their taxes so as to snuff out tax competition. This will ultimately end with EU citizens everywhere paying the maximum amount of taxes imaginable. Hitherto tax competition provided a welcome check on the ambitions of politicians in the high tax countries. We're not surprised to see the socialist Sigmar 'light-bulb killer' Gabriel in the forefront of trying to bring an end to the relative freedom from onerous taxation enjoyed by the people of Cyprus.
Sun, sea, and low taxes…clearly they're having too much fun in Cyprus!
(Photo via content-mag.com)
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