European Fiscal and Economic Notes

Europe has now plunged back into economic recession, despite the efforts of the European Monetary Union to end the crisis in the eurozone.  However, the promises by the European Central Bank to lend to member states that are reducing their debt significantly has continued to decrease the spread between the yields on Spanish and Italian sovereign bonds and the benchmark German bonds, thereby reducing interest payments for the governments of Spain and Italy.  

France’s credit rating has been downgraded, in a reflection of its new Socialist government’s policies of abandoning austerity by increasing spending.  The French government is also dramatically increasing taxes on businesses and the wealthy while threatening to nationalize businesses.

There was progress towards a new deal for Greece for its next tranche of bailout funds from the European Monetary Union and other institutions supporting it, as the Greeks have been agreeing to additional austerity measures (e.g. spending cuts).  Meanwhile, the Hellenic Republic cut a deal with its bondholders reducing the amount of debt it would default on and cause the bondholders to have to write off.

Italy is enjoying some success in cutting down on tax evasion, according to CNBC, something Greece needs to do more.  Apparently, not only did many southern Europeans receive much government largesse while not having to work many hours and days and while retiring early, some of them also did not pay their share in taxes.  It is shocking to many observers that they would react violently against austerity, which was necessitated because of their sloth and greed, but once people get accustomed to a lifestyle, it is apparently difficult to sacrifice even such ill-gotten gains.  Encouragingly, more Italians are informing on their fellow countrymen, especially business owners whom they suspect are evading sales taxes, in recognition that tax evaders cost everyone else, according to CNBC.  

The British newspaper, The Telegraph reports that after the United Kingdom’s liberal government raised its tax on million-pound earners to 50% in 2009, the number of millionaires decreased by two thirds, either because they fled the U.K. or found ways to reduce taxable income, according to a government report.  The paper reports, however, that the announced reduction by the Conservative-led coalition government, to 45% has already increased the number of millionaires significantly.  The report bolsters the government’s argument that the report proves that increasing taxes reduces revenue, The U.K. is a member of the European Union, but not of the Monetary Union.