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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

Colombia Celebrates Its Beloved Drug For The Ages, Coffee

This essential morning drink for millions worldwide was once considered an addictive menace, earning itself a ban on pain of death in the Islamic world.

Colombia's star product: coffee beans.

Julián López de Mesa Samudio

-Essay-

BOGOTÁ — October 1st is International Coffee Day. Recently it seems as if every day of the calendar year commemorates something — but for Colombia, coffee is indeed special.

For almost a century now we have largely tied our national destiny, culture and image abroad to this drink. Indeed it isn't just Colombia's star product, it became through the course of the 20th century the world's favorite beverage — and the most commonly used drug to boost work output.

Precisely for its stimulating qualities — and for being a mild drug — coffee was not always celebrated, and its history is peppered with the kinds of bans, restrictions and penalties imposed on the 'evil' drugs of today.

Keep reading...Show less

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