The Eurozone continues to struggle. Slow growth, lots of debt and millions of unhappy people. I thought it might be informative and interesting to look at recent anecdotal evidence from four countries.
Secession is in the air in Spain. Catalonia, the Basque country and other regions are ready to become autonomous nations. The primary issue is… (drum roll)… money. These northern areas don’t want their tax dollars funding poorer regions in southern Spain. Catalonia, the home to Barcelona and millions of Catalans with their own language and culture, held elections Sunday. The results were inconclusive. The pro-independence parties won a majority of seats in Parliament, yet, Catalan President Mas, who has supported independence but also further austerity programs, saw his party lose some power. According to the Wall Street Journal on Monday, Catalans want independence and they don’t want austerity. Sounds like a group of teenagers to me.
Tax evasion has been rampant in Italy, Greece and some other countries for decades. It is estimated that Italy’s underground economy, excluding criminal ones such as drug rings, accounts for $350 billion per year. This is roughly 18% of the GDP. Taxes on that income, estimated at $150 billion, never make it to Rome. Roughly 50% of Italians report an annual income below $25,000, yet hundreds of thousands of these folks have large boats, luxury cars or helicopters. Now, the Italian government is fighting back. They are distributing a “tax-cheat self-test.” This allows people to gauge whether their declared income is in line with what they spend annually. The Italian tax authorities hope people will use this self-assessment tool to voluntarily file correctly in the future. In addition, the government is sponsoring TV ads comparing tax evaders to various animal, fish, wood and intestinal parasites. Two questions: Is it any surprise that Italy has troubles balancing its budget? And, do you think the self-test or calling someone a “tapeworm” in Italian will change their behavior?
France received a bond downgrade last week. Moody’s stripped it of its AAA rating; citing France’s sustained loss of competitiveness, deteriorating economic prospects and its large financial exposure to peripheral Europe. The Economist noted last week, in a special report on France, that the business climate has worsened. French employers pay 30% of labor costs to fund social security. No fewer than 34 laws and regulations start to apply once an enterprise reaches 50 employees. It’s not surprising that researchers are finding that a significant number of French companies have exactly 49 employees. There is now a 75% top income tax rate, unemployment is 10% and over 25% of the young are jobless. Is it any wonder that so many entrepreneurs are leaving the country and/or sending their children somewhere else in the world for a brighter future?
Greece received a bailout on Tuesday. European finance ministers eased the terms on emergency aid for Greece. In fact, Bloomberg reported that the ministers declared that after three years of false starts that “Europe has found the formula for nursing the debt-stricken country back to health.” The ministers cut rates on bailout loans, suspended interest payments for ten years and gave Greece more time to repay the loans. Quite a formula. Greece will get the December loan installment of $45 billion despite the fact that its economy continues to shrink. It is good to see they will make it through 2012 as part of the euro. January will be the next test. Greece needs $12 billion. They will get it only if the EU, ECB and IMF certify that they have implemented a tax reform by that time. Perhaps they can get the Italian tax self-test and the tape worm commercials translated into Greek.