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Bundesbank's Stunner To Broke Eurozone Nations: First "Bail In" Your Rich Citizens
In what is sure to be met with cries of derision across the European Union, in line with what the IMF had previously recommended (and we had previously warned as inevitable), the Bundesbank said on Monday that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help. As Reuters reports, the Bundesbank states, "(A capital levy) corresponds to the principle of national responsibility, according to which tax payers are responsible for their government's obligations before solidarity of other states is required." However, they note that they will not support an implementation of a recurrent wealth tax in Germany, saying it would harm growth. We await the refutation (or Draghi's jawbone solution to this line in the sand.)
Germany's Bundesbank said on Monday that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help.
The Bundesbank's tough stance comes after years of euro zone crisis that saw five government bailouts. There have also bond market interventions by the European Central Bank in, for example, Italy where households' average net wealth is higher than in Germany.
"(A capital levy) corresponds to the principle of national responsibility, according to which tax payers are responsible for their government's obligations before solidarity of other states is required," the Bundesbank said in its monthly report.
It warned that such a levy carried significant risks and its implementation would not be easy, adding it should only be considered in absolute exceptional cases, for example to avert a looming sovereign insolvency.
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The German Institute for Economic Research calculated in 2012 that in Germany a 10-percent levy on a tax base derived from a personal allowance of 250,000 euros would add up to around 230 billion euros. It did not give a figure for crisis countries due to lack of sufficient data.
Greece has been granted bailout funds of 240 billion euros from the euro area, its national central banks and IMF to protect it from a chaotic default and possible exit from the euro zone. Not all funds have been paid out yet.
In Germany, however, the Bundesbank said it would not support an implementation of a recurrent wealth tax, saying it would harm growth.
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"It is not the purpose of European monetary policy to ensure solvency of national banking systems or governments and it cannot replace necessary economic adjustments or bank balance sheet clean ups," the Bundesbank said.
In considering some of the potential measures likely to be required, the reader may be struck by the essential problem facing politicians: there may be only painful ways out of the crisis.
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There is one thing we would like to bring to our readers' attention because we are confident, that one way or another, sooner or later, it will be implemented. Namely a one-time wealth tax: in other words, instead of stealth inflation, the government will be forced to proceed with over transfer of wealth. According to BCG, the amount of developed world debt between household, corporate and government that needs to be eliminated is just over $21 trillion. Which unfortunately means that there is an equity shortfall that will have to be funded with incremental cash which will have to come from somewhere. That somewhere is tax of the middle and upper classes, which are in possession of $74 trillion in financial assets, which in turn will have to be taxed at a blended rate of 28.7%.
The programs BCG (and the Bundesbank) described would be drastic. They would not be popular, and they would require broad political coordinate and leadership – something that politicians have replaced up til now with playing for time, in spite of a deteriorating outlook. Acknowledgment of the facts may be the biggest hurdle. Politicians and central bankers still do not agree on the full scale of the crisis and are therefore placing too much hope on easy solutions. We need to understand that balance sheet recessions are very different from normal recessions. The longer the politicians and bankers wait, the more necessary will be the response outlined in this paper. Unfortunately, reaching consensus on such tough action might requiring an environment last seen in the 1930s
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Compared to what, exactly?
Gold
Bitcoin
"... no one can guarantee deposits, especially after the decisions of the recent EU Summit and ECOFIN for the bail-in, while in case of a new banking crisis, HFSF will suffer significant damage - in case that will still hold the largest part of the banks' shares - because according to the bail-in "rules", shareholders must also participate in the bank rescue. Therefore, according to the best scenario, the Greek Public, as guarantor of the HFSF, will be forced to sign a new loan agreement to cover additional damage thus loaded with additional debt."
http://failedevolution.blogspot.gr/2014/01/greece-only-public-in-banks-i...
And this is a news flash? Really...
"(A capital levy)
Meaning:...Theft
zis ist gut ya.
eye ist german unt dis is ok super cool
i liken zee rockunt roller bono unt u2 are super cool zer bailin ist zer german peeples vey of helping lord rothschild unt zer jewish peeples.
herr merkel giving israel nuclear submarines ist not enoughen compensation for zer hollow cause.
zer jewish peeple still suffer especiallee simon weesel unt steven spielburger.
zer taking of are savings is important compensation for zer juden sorry zer jewish folks.
vee needs to keeps zem happy ya.
my peeples vee are all bail inners now
With all this endless talk about what they will do, or might do, down the road, the ECB keeps banging away at Germany to do more, and sooner rather then later, but that may never happen. Mervyn King once said it was not rational to start a bank run but rational to participate in one once it has started. The governor of the Bank of England was right, of course. With the agreement on a depositor haircut for Cyprus the eurozone has effectively defaulted on a deposit insurance guarantee for bank deposits. With this action, the finance ministers of the eurozone may well have started a bank run, if you do not protect depositors they will simply run away, flee to safer areas, and that is a fact that you can take to the bank! More on the problems of forming a Euro-zone Banking Union in the post below,
http://brucewilds.blogspot.com/2013/05/eu-banking-union-in-several-years...
Print up paper Euros backed by nothing. Exchange for real goods. Then create a fake crisis, take back the Euros. Much profit.