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Bailout Paradox: Who Earns More Than Germans? Italians, Spaniards...And Cypriots Too

A new report finds that southern European households have higher net household income than places like Germany, which is shelling out euro bailout cash. Things must change.

A surprisingly sweet crisis for some...
A surprisingly sweet crisis for some...
Alexander Hagelüken

-OpEd-

MUNICH - These numbers are sure to get German taxpayers fuming.

As they continue to pump hundreds of billions of euros into the crisis-riddled south of Europe, they only now find out that the Spaniards and the Italians turn out to be much wealthier than them!

What until now had only been estimates and hearsay has just gotten a lot more concrete: according to a new study by European central banks, households in Spain and Italy have on average, net – that is, after taxes have been deducted – several tens of thousands of euros more than German households.

Even the Cypriots are richer than the Germans...

So what does that mean? Stop the bailouts? No. But honest debate is necessary about who should be paying for what in the monetary union. Honest debate means: no foaming at the mouth for Germans -- and southern Europeans need to stop all the weaseling around.

Many profited hugely from the creation of the monetary union in 1999 -- for example, residents of what are today the crisis states where micro-interest-rates unleashed a construction boom and salaries ballooned exaggeratedly high. In the case of Germany, it was an export boom. And now many are suffering from the euro rollercoaster ride: workers and pensioners in the crisis states, taxpayers in the countries dishing out the aid – and depositors everywhere, because the banks have to keep interest rates low.

This brief list shows how unevenly profits and costs are divided around the single monetary union. The wealthy, who in economically good times usually profit disproportionately, are bearing too little of the burden.

That applies to the wealthy in the helping countries, although bailouts have been mostly footed by taxpayers -- which is to say nearly all citizens. But only seldom is it mainly the wealthy who foot the bill, and yet they are the ones who will have benefitted most from the interest boom in southern Europe or the export boom in Germany: they’re the ones holding the shares in financial entities and companies.

But things are even more uneven if one considers how little of the burden the wealthy in southern Europe have shouldered. Of course they too are hit by the recession in the crisis nations. However they are far less burdened than the workers and pensioners in their countries, or northern European taxpayers. Consider that 1.4 million millionaires live in Italy, nearly 400,000 more than in larger (and supposedly economically healthier) Germany.

Italy enjoyed a major economic upturn from the security the euro gave its formerly chaotic economy. But that’s not all: Italy – like other crisis nations – goes easy on taxes for its high earners, much easier than Germany. And the Italian political class often has a vested interest in keeping things that way, since they often benefit from low taxation rates, as the example of Silvio Berlusconi amply illustrates.

Get tough on tax evasion

But now the time has come when the monetary union is no longer producing wins the way it did at the outset: it’s producing high costs – the cost of its own rescue. And it’s the moment for the burdens to finally be distributed more fairly. Those who were raking it in in the early years (and who, once the crisis is over, will be doing so again) must pay more than middle-class workers and taxpayers. Take from the rich, particularly in the south!

Raising taxes, and seriously going after unpaid taxes in Italy and Greece, would be only a first step. Europe’s governments should be giving serious thought to other ways the rich in the crisis states can be brought into sharing the burden of rescuing the euro. Private wealth amounting to 11 trillion euros in Italy and Spain alone (as compared to Germany’s 8 trillion) speaks for itself – tapping into some of that would go a long way to ease things up for average earners across Europe. Of course it would also be imperative for the EU countries to put an end to what is sometimes downright nonsensical tax competition and become more cooperative with one another with regard to tax evaders.

In the process of getting the rich to share more of the burden, it has to be recognized that the substance of some assets like real estate or businesses is not easily taxable. But we should make it clear that sacrifices will have to be made by workers and pensioners in crisis states, because these countries need to strengthen their competitiveness -- and that means lower salaries and social spending.

Yes, all of these factors must be taken into account, but the bottom line remains: Europe has to put more of the burden on the rich to make the crisis more bearable for the rest of Europeans.

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Society

In Northern Kenya, Where Climate Change Is Measured In Starving Children

The worst drought in 40 years, which has deepened from the effects of climate change, is hitting the young the hardest around the Horn of Africa. A close-up look at the victims, and attempts to save lives and limit lasting effects on an already fragile region in Kenya.

Photo of five mothers holding their malnourished children

At feeding time, nurses and aides encourage mothers to socialize their children and stimulate them to eat.

Georgina Gustin

KAKUMA — The words "Stabilization Ward" are painted in uneven black letters above the entrance, but everyone in this massive refugee camp in Kakuma, Kenya, calls it ya maziwa: The place of milk.

Rescue workers and doctors, mothers and fathers, have carried hundreds of starving children through the doors of this one-room hospital wing, which is sometimes so crowded that babies and toddlers have to share beds. A pediatric unit is only a few steps away, but malnourished children don’t go there. They need special care, and even that doesn’t always save them.

In an office of the International Rescue Committee nearby, Vincent Opinya sits behind a desk with figures on dry-erase boards and a map of the camp on the walls around him. “We’ve lost 45 children this year due to malnutrition,” he says, juggling emergencies, phone calls, and texts. “We’re seeing a significant increase in malnutrition cases as a result of the drought — the worst we’ve faced in 40 years.”

From January to June, the ward experienced an 800 percent rise in admissions of children under 5 who needed treatment for malnourishment — a surge that aid groups blame mostly on a climate change-fueled drought that has turned the region into a parched barren.

Opinya, the nutrition manager for the IRC here, has had to rattle off these statistics many times, but the reality of the numbers is starting to crack his professional armor. “It’s a very sad situation,” he says, wearily. And he believes it will only get worse. A third year of drought is likely on the way.

More children may die. But millions will survive malnutrition and hunger only to live through a compromised future, researchers say. The longer-term health effects of this drought — weakened immune systems, developmental problems — will persist for a generation or more, with consequences that will cascade into communities and societies for decades.

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