Monday, May 21, 2012

Europe: taxes and lies

Last night I spoke about the unfolding denouement of the worldwide economic crisis.  It's proceeding apace, as you can imagine.  Developments are coming thick and fast - too thick and too fast for me to summarize them all on a blog like this.  I recommend you read national and international news reports, and refer to Web sites including (but not limited to) the following for more information:

Charles Hugh Smith's Of Two Minds

Financial Armageddon

Mike Shedlock's Global Economic Analysis

Karl Denninger's The Market Ticker

Zero Hedge

If you're not already getting it, you should also subscribe to John Mauldin's free newsletter 'Thoughts From The Frontline'.

Here are a few more useful (albeit depressing) headlines from today's news.  First, there's a tax revolt under way in Italy.  The San Francisco Chronicle reports:

Equitalia, the state tax-collection agency, has been targeted in a wave of attacks as Italians chafe under stepped-up efforts to recover an estimated 120 billion euros ($153 billion) in lost revenue from evasion. On May 12, a Molotov cocktail exploded outside Equitalia's Livorno office, one day after a parcel bomb was delivered to the Rome headquarters, site of a December explosion that tore off part of the general manager's hand.

"I have never seen such a tense atmosphere" said Ballico, who has been employed by Equitalia since 1998 and is now on temporary leave to work for the UGL labor union. "They call us loan sharks, bloodsuckers; my colleagues have to deal with anxiety and stomach aches every day and they are scared."

The crackdown is part of Prime Minister Mario Monti's 20 billion-euro austerity plan that also brought higher taxes, cuts in public spending and record gasoline prices. While the measures may have helped bring down bond yields from euro-era records, they helped push the economy into its fourth recession since 2001, making it harder even for law-abiding Italians to keep up with tax payments.

There's more at the link.

However, there's more to this 'tax revolt' than meets the eye.  Zero Hedge analyzes it thus:

The reactionary attacks are the result of the austerity measures being imposed in Italy and other highly indebted countries of the Eurozone periphery.  These measures are often described as savage cuts in spending when in actuality the public is being squeezed more to fund the government’s operations.  The political class remains unwilling to significantly scale back its operation and profligacy.  The money was supposed to be cheap.  The good times were never supposed to end.

And now the slaves are revolting.

. . .

Politicians and their bureaucratic foils think only in the short term.  They see less tax money flowing into their hands and instantly attempt to confiscate more.  This reaction is an inner glimpse into their true motive of reestablishing supremacy.  Why people would be reluctant to hand over even more of the sweat of their brow is never a consideration.  In the politician’s mind, it is the populace that serves the state, not vice versa.  Centuries of compulsory democracy haven’t altered the relationship between the aristocracy and the serfs who plow the field.  Today, serfdom is disguised with the existence of the ballot box.

Like a drug addict, the state must be sustained by increasing amounts of revenue to satisfy its craving of paying off voters.  It must continually buy legitimacy to hold up the veil which masks its thieving tendencies.  As the tax fund dwindles, governments in the West are becoming desperate.  Like the producers in Ayn Rand’s uncannily predictive novel Atlas Shrugged, many of the more productive members of society have grown tired of being soaked to pay for political handouts and unending wars of aggression.  The resistance isn’t limited to the rich as the Chronicle article points out, “much of the anger directed at Equitalia is from people with more modest means.”

Italian Interior Ministry Anna Maria has declared that attacking tax collectors “is the equivalent of attacking the state.”  What she won’t admit is that the state carries out a perpetual war on those who it feeds off of to function.

. . .

Decades ago in the depths of the Great Depression, Western governments took advantage of the crisis and consolidated power and enlarged the scope of their authority.  Voters barely put up a fight.  They gave up personal and economic liberty for entitlement programs.  It seemed like the right choice at the time.

It was the great swindle orchestrated by a ruling class looking only to expand its control.

Now that the money for the savior state is running out, the choice is clearer than ever.  The leeches living off the state apparatus are prepared to do whatever is necessary to preserve their well being.  From political protest to tax evasion, trampling the citizenry into compliance is their goal.  It is ultimately up to the public at large to decide how much they are individually willing to take.

Again, more at the link.

Yet another perspective is provided by a correspondent to Mish Shedlock.  Andrea writes:

Italy has a very long and strong "habit" of tax evasion and tax fraud compounded by an extremely high level of criminal activities and presence of criminal organizations in the economy.

This "habit" goes far beyond the economically difficult circumstances, and includes professionals (dentists, doctors, lawyers), retailers and small business.

The phenomenon is so widespread and dramatic that a few figures should help explaining it. Statistics show that owners of luxury cars, yachts or private planes declare in average very few tens of thousands Euros income per year, much less of the value of the objects they own. Clearly, this is simply mathematically impossible!

So far, no government has been able to tackle this issue, for a lack of will and a lack of capacity at the same time. But increasing debt, pressure from financial markets and increasing spending has increased so much the fiscal pressure on those that cannot evade that the problem now could no longer be avoided.

The recent governments have put in place a more and more efficient organization to fight this phenomenon and Prime Minister Mario Monti has now empowered this organization with powers that are really at the limit of democracy, a kind of Orwellian powers including some of the things you see described in the article but also much more. For example, the state now has the power to look into your bank account at any moment without any intervention from your bank.

In principle I do not like these enforcements, as it sounds quite tyrannical but at the same time nothing else seemed to work so far.

Coming back to the point: restoring fiscal loyalty is absolutely necessary for Italy and those measures seem to have effect to this respect.

The problem is that this "fiscal machine" is not making any difference between a fiscal fraud or robbery and simple problems of people that cannot pay because they have no money and they have troubles with their firms.

The latter group should be helped to keep their companies alive during these troubled times. Instead, stories of people that commit suicide after getting a tough payment request from "Agenzia delle Entrate" can be heard almost every day in Italy along with weapon aggression to “Agenzia delle Entrate” employees.

. . .

Note the injustice: Central and local governments are agonizingly slow (as in years late) in paying bills but now demand citizens to pay immediately.

More at the link.  Bold print is my emphasis.  Andrea's comments certainly seem to support Zero Hedge's analysis (see above), don't they?

Walter Russell Mead points out that Europe's crisis is becoming 'more dangerous and harder to solve'.  I found this excerpt most compelling:

As the prospect of Greece leaving the euro becomes more likely, savers in Portugal, Spain and Italy have to start wondering if their countries, too, will have to jump ship. Sophisticated investors have been moving their money out of those countries for some time; things may soon reach a pass in which ordinary, unsophisticated investors start to do the same thing. Again, why have your money in some gut-shot Spanish bank when you can transfer it to a German, Austrian or Dutch bank with a mouse click? And if you are worried about the whole eurozone, or that devious financial trolls will find a way to convert all deposits held by Spanish citizens in European banks to pesos when and if the change comes, put the money in Switzerland, the UK or even the US.

If a few thousands or a few tens of thousands do this in Portugal, Italy and Spain, no problem. But if hundreds of thousands or millions of people shift their money out of their home banking systems, then you have a new and very grave bank crisis that blows the December fix out of the water. Either the ECB would start creating trillions of euros to bail out the Club Med banks (and Club Med under some circumstances could stretch as far north as France), or banking systems start exploding like firecrackers across the southern tier. At the same time you would have a new panic on the bond markets; nobody is going to want to own Spanish or Italian debt under those circumstances.

This is one of those cases when what is good for one is bad for all. A good financial investor would probably be suggesting to anybody in Spain or even Italy that it is a good idea to separate the fate of your savings from the fate of your country’s currency or its banking system. The trivial costs of moving money into a safer banking system are well worth the protection you gain.

But if everyone gets and acts on this sound and prudent advice, the whole banking system and perhaps the whole eurozone comes down.

Europe’s stability now rests on the sloth and stupidity of European savers. As long as millions of retail investors think their money is OK, it will be sort of OK for a while. But while governments can and will lie, and while soothing official pronouncements can be printed up almost as fast as the ECB produces euros out of thin air, sooner or later people may start to put two and two together.

More at the link.  Bold print is my emphasis.

Mr. Mead notes that 'governments can and will lie'.  Oh, yes, indeed!  The Wall Street Journal pointed out a few days ago just how blatant and unrepentant such lying has become in some European circles.

Is lying considered an appropriate mode of communication for euro-zone leaders?

We have to wonder after a strange episode on Friday evening. Here’s what happened:

Just before 6 p.m., German news magazine Spiegel Online distributed a report saying that euro-zone finance ministers were convening a secret, emergency meeting in Luxembourg that evening to discuss a Greek demand to quit the euro zone.

Calls from reporters flooded in to Guy Schuller, the spokesman for Luxembourg Prime Minister Jean-Claude Juncker, the man who is the head of the Eurogroup council of euro-zone finance ministers.

In a phone call and text messages with two reporters for Dow Jones and the Wall Street Journal, Mr. Schuller repeatedly said no meeting would be held. He apparently said the same to other news outlets; at least one more moved his denials on financial newswires.

Of course, there was a meeting – although not, apparently, to talk about Greece quitting the currency, which would be an extreme step to say the least. Mr. Juncker even said a few words to reporters who had hustled to Luxembourg to stake out the gathering.

So why the lie?

“I was told to say there was no meeting,” said Mr. Schuller, reached by telephone Monday. “We had certain necessities to consider.”

. . .

Mr. Juncker has voiced support for the practice of lying before.

The Web site EUobserver has video of Mr. Juncker, at a conference on economic governance in April, expounding on the practice and reasons for lying in financial and economic communications.

On the tape, Mr. Juncker says he has “had to lie” and, speaking about touchy economic topics, “When it becomes serious, you have to lie.”

More at the link.

Makes you think, doesn't it?




Carteach said...


Your work finding and sharing information like this is invaluable.

Thank you.

Anonymous said...

And yet, there was a lovely, very sincere piece in the WSJ yesterday by a gent from Europe about how they can spend themselves out of the problem . . . As I read it I kept thinking "with what money, sir?"

Ah, Italian tax evasion, a work in progress since 4 BC at least. And the earthquake on Sunday is not going to help their economy, methinks.


perlhaqr said...

+1 million on that Zero Hedge article.

Popgun said...

I agree with Carteach; I very much appreciate your research. I no longer trust mainstream news media to keep us informed on this type of subject.

Thank you.