Monday, June 29, 2015

German History and the Greek Crisis

Puzzled by the widespread pretense that the Eurogroup negotiations broke down because Greece had refused to accept further austerity I looked up the final Greek proposal. Peter Spiegal explained the state of play 3 long days ago

Athens’ final counterproposal to its trio of bailout monitors would re-impose many of the large-scale corporate taxes and pension contributions that creditors demanded be stripped out amid concern it would plunge Greece into a deeper recession.

According to a copy, distributed to eurozone finance ministers Thursday and obtained by the Financial Times, Athens has stuck with its demand for a one-time 12 per cent tax on all corporate profits above €500,000, a measure the government estimates will raise nearly €1.4bn by the end of next year.

In addition, it would raise employer contributions to Greece’s main pension fund by 3.9 per cent and would more slowly implement measures to raise the country’s retirement age to 67 and “replace” rather than phase out a special “solidarity grant” to poorer pensioners.

We have posted a copy of the Greek counterproposal here.

Greece’s bailout creditors – the International Monetary Fund, European Central Bank and European Commission – eliminated the one-time profits tax and the increase in employer contributions to the pension system in their offer to Athens yesterday, arguing that such heavy levies on companies would severely hit economic growth. It also pushed for more aggressive timeline for raising the retirement age and cutting the special top-up for poorer pensioners.

Still, the Greek plans contain some key concessions from the original proposal submitted by Alexis Tsipras, the Greek prime minister, to creditors in an offer made on Monday. Although legislation raising the retirement age would not be implemented until the end of October – creditors want it to kick in immediately – it accepts the 67-year retirement age should be hit by 2022. Originally, Athens was proposing 2025.

So no further austerity, oh except for the 67-year retirement age.

A very key sticking point was the proposed one-time 12 per cent tax on all corporate profits above €500,000. I can understand why an Italians and French might not be familiar with the idea of a one off tax effectively on capital used to deal with a fiscal crisis. But, there were Germans involved. Germany has been there and done that.

How did Germany end its hyperinflation ?

Let's ask the Wikipedia

The newly created Rentenmark replaced the old Papiermark. Because of the economic crisis in Germany after World War I, there was no gold available to back the currency. Luther thus used Helfferich's idea of a currency backed by real goods. The new currency was backed by the land used for agriculture and business. This was mortgaged to the tune of 3.2 billion Goldmark, based on the 1913 wealth charge called Wehrbeitrag which had helped fund the German war effort in World War I.

This land is your land, this land is my land, this land is backing for the Rentenmaaaaaaark

Germany found itself in fiscal (and other difficulties) even after 1923 and again turned to a capital levy [pdf warning] This wassn't the very next capital levy to occur in Germany but I will skip one -- Goodwin's law and all that)

After World War II, in 1949, a capital levy was raised

on the asset base from 1948. It was conclusively

regulated as part of the burden-sharing legislation

(Lastenausgleich) in 1952.[9]

9 S. Bach, “Lastenausgleich aus heutiger Sicht: Renaissance der allgemeinen Verm√∂gensbesteuerung?” Vierteljahrshefte zur Wirtschaftsforschung des DIW Berlin, no. 80, (2011): 132.

Now Germans who remember German history might reject the Syriza proposal as much too little much too late compared to the bold willingness to seize capital to serve the common good demonstrated by Schacht, Luther, Helfferich, Schaffer, Erhard, and Adenauer. However, it is very odd that they argue that a one off tax on wealth must cause an even deeper depression, when their own country's history demonstrates that such policy has been immediately preceded a wirtschaftswunder.

1 comment:

reason said...

Last sentence - remove "been".

This really good post is wasted here. Post it on Angry Bear.