Europe continues to flounder

As another week goes by, Europe continues to flounder – even German car sales were off by 17% YOY, a decline which was presumably not all to be laid at the door of the unusually severe winter. Among the shrinking band of triple-A nations on whose creditworthiness the whole of the Zone rests like the globe on Atlas’ weary shoulders, Finland’s industrial output has come close to registering another one of those pitiful ‘lost decades’ as the aggregate inches painfully down from 2010’s incomplete recovery peak to levels typical of 2004.

Then again, why pick on the Finns when France – despite the latest minor uptick – sits at 1990 levels, a sixth below 2008’s best and now only 4% off the 2009 Crash lows. Or Italy – off 25% from the top, barely 2% off the trough, and at a level first attained in 1980. Or Spain – off 30%, making new 19-year lows and back at 1987’s mark.

Output may have held up better in the Netherlands, but the 20% drop in property prices is threatening to test a banking sector with the highest exposure to real estate in the entire EU. At around 340% of domestic banks’ capital and reserves, the margin for error is slender indeed and it may just be that the market is beginning to cotton on to the vulnerabilities as the country’s CDS have moved from parity with Germany to 25bps over and from 60 less than France to only 35bps less. Could this be the little acorn of doubt from which a mighty oak of positioning could grow?

More generally in Europe, the authorities seem to have taken heart from their assault on Cypriot depositors to continue to talk up the idea of clipping their ilk in all in failing banks now that those egregious corporate welfare queens, the major money centre banks, have had time and Target enough to reduce their exposures to the weaklings and so flee the front-line of the capital structure.

Forming the other pincer of what seems like a looming double envelopment of confiscation, our masters have lately become intensely fixated on sniffing out all expropriable sources of wealth (taxed or untaxed, legitimate or dubious) wherever they may be found.

Amid the suspiciously convenient release of the BVI account records by the self-proclaimed ‘muckrakers’ at the ICIJ, there has been a flurry of announcements regarding cross-border data sharing and the abrogation of banking confidentiality (sorry, ‘secrecy’) in several key jurisdictions, all of which will further shrink the already dwindling domain of the private sphere and increase our thrall to Big Brother.

The hypocrisy is breathtaking, whether it be President Hollande calling for the ‘eradication’ of tax havens (so that he can see whether he’s as rich as his cabinet colleagues, one presumes), the Russian crony state demanding that all state employees close their foreign bank accounts by quarter-end (something which may well be adding to the bid in securities markets everywhere) or would-be Chancellor Steinbrück demanding the automatic release of his fellow citizens’ financial details of a kind he himself was all too reluctant to divulge when the gargantuan scale of his own venality became a matter for controversy last year.

In all of this there appears an almost unchallenged assumption that rather than the state being the instrument of the people – as laid out by more than three centuries of Enlightenment thinking – the people are the property of Leviathan itself and should count themselves lucky that the Beast does not make any more repressive demands upon them than it already does. But as well as being supremely counter-productive, this runs contrary to any concept of natural justice. Gemeinnutz geht nicht vor Eigennutz, we might once more reaffirm or, in the lapidary phrase of the late, great Margaret Thatcher, “There is no such thing as society: there are individual men and women and there are families…” 

And, yes, since we have started on this tack, it is your author’s personal opinion that the whole business of offshore accounts, legal prestidigitation, and complicated tax structures are indeed grossly unfair, but only because the wholly defensible shelter to legitimate income and the worthy contribution to the preservation of carefully accumulated capital which they entail are denied to the populace at large, so that the ordinary man and the local entrepreneur are each rendered helpless and disadvantaged with regard to their better-off brethren (many of whom are, alas, rent-seekers who have themselves acquired their pile, or sheltered its source from honest competition, through the same sort of crass political manipulation which has now come to threatening their existing degree of privilege).

Thus, the market is hampered and opportunities for both personal advancement and the positive externalities of progress are squandered, not because we are not vigorous enough in soaking the established rich, but because we are soaking poor, that is to say the would-be rich, by denying them the exercise of their own natural right to render as little as possible of their hard-earned gains unto an arbitrary and insatiable Caesar.

But rather than abolishing such havens, while indulging in the invidious public vilification of anyone sufficiently well-heeled and astute to use them, they should simply be made redundant by making the same facilities available to everyone. It would do much for the common good, serving the material and moral improvement of us all, if every land became a tax haven.

No fancy lawyers and intricate chains of nameplate companies, no nested trusts and interlinked nominees would be needed, but only the introduction of a structure of taxation which was clear, simple, conducive to capital formation, and above all minimal. In that way, each man would rightly keep the maximum possible fraction of his income under his own control, while greatly limiting the ambition of the elective dictators such as Herr Steinbrück who presume to lord it over him. It would also fully emasculate the insidious, Tocquevillean tyranny of the clamouring ragtag of green millennialists, bien pensants, and Utopians, les Clercs from whose Trahison we have all so suffered since they were first sprung out of the Bastille 224 years ago.

And so it goes on in that continental-scale Potemkin village we know as Europe. Rather than attempt anything radical in diminishing the burden imposed on the outlay side of the ledger (which any businessman will tell you is usually the most efficacious way to restore lost profitability), the Commissars would much prefer that we few remaining Kulaks hand over even more of our already much-reduced harvest in order to feed their collectivist conceits. Ironically, the scale of this presumption is best revealed in the fact that for all her ill-humoured posturing about her partners’ budgetary indiscipline, Frau Merkel has, for the past 5 ½ years presided over a regime where the government ‘contribution’ to GDP has actually grown faster than has that of France.