Draghi and Tremonti clash over Robin Hood tax
In his address to the Italian bankers association, Mario Draghi renewed his criticisms of the Robin Hood tax, a windfall tax levied by the new Italian governments on energy companies and banks. Draghi said there is a big risk that the rise in market interest rates and higher taxes would hit Italian consumption, as Draghi argued there is a risk that this tax increase would be passed onto the final consumer, il sole 24 ore reports. In a response, Giulio Tremonti said the notion that taxes are passed on to consumers was based on “old doctrine”, which was no longer relevant.
Why the Robin Hood tax is a misnomer
Writing in Lavoce, Silvia Giannini and Maria Cecilia Guerra argue that Tremonti’s Robin Hood tax has no impact on tax revenues this year, and will contribute some €3-4bn in revenues over the next three years. There are doubts about the efficiency of this tax, as well as its redistributive effects. It does not transfer wealth to the poor for sure. Less than 10% of the extra revenues are earmarked for the solidarity fund to help support the poor. And this only applies to this year.
Rogoff warns of a global economic crisis
Kenneth Rogoff, writing in a Project Syndicate column, published in FT Deutschland, warns that a stimulation of demand would only drive prices higher, and make the oil and commodity crisis much worse. What the world now needs is a combination of tighter fiscal and monetary policies to reduce global demand for energy. He also made the point that in previous periods, constraints in the labour markets is what drove the business cycle into a downturn. This is no longer true. The main constraint now is oil and raw materials.
Freddy Mac is technically insolvent
The smaller of the two US quasi-state back mortgage coproration, Freddy Mac, is effectively insolvent, according to William Poole, the former head of the St Louis Fed. He was quoted by the Calculated Risk blog as saying that the US would probably end bailing out both Fannie Mae and Freddy Mac, the latter owing $5.2 bn more than its assets were worth, making it insolvent under fair value accounting rules. CR also quoted another source saying that the Bush administration has already entered into talks about how to react if Freddy and Fanny falter.
After Ireland and Spain, is the Netherlands next?
Ivo Arnold writes in RGE Europe Economonitor that the Dutch are in denial over the housing market. The IMF has recently written that Dutch house prices were overvalued by some 30%, which has prompted angry responses from finance minister Wouter Bos and central bank chief Nout Wellink, who produce the familiar “our housing market is different” line. But Arnold argues that the Netherlands is not all that different. There are many risky mortgages out there, and the market was driven by easy credit, and this is now going in reverse.
Ordóñez warns of further deterioration
It slowly dawns on the Spanish that their economy is about to hit a rock. El Pais reports that Bank of Spain governor Miguel Ordóñez said the global financial crisis is much worse than previously thought. Speaking in Madrid, the risk was now that inflation is driven by wage increases if they are linked to headline rates of inflation. He also advised the Spanish not to counteract the decline in the property sector through subsidies to builders.
Juncker says euro area will step up pressure on China over exchange rate
Jean-Claude Juncker said the euro area’s top policy trio – Trichet, Almunia and he himself – would have another meeting with their Chinese counterparts this year, at the EU-China summit to be held in Lyon in December, to discuss the exchange rate. The Europeans are deeply unhappy about the yuan-euro exchange rate, which has hardly moved. The Europeans consider the yuan massively undervalued.
Another inflation hawk to join ECB
The Wall Street Journal economics blog has the story that Ivan Sramko, the central bank governor of Slovakia, who will join the ECB’s governing council next year, is known inside his country as another inflation hawk who will tilt the balance of the governing council further into a hawkish direction.
German current account deteriorates
One would have expected this to happen eventually, and it is now happening. The rise in the euro and the slowdown in global growth have finally made a dent in the German trade balance. The annual rate of increase in exports in May, of 2.5%, was dwarfed by the rise in imports of 8.2%. On a month-on-mongh basis, German exports fell by 3.2%, Frankfurter Allgemeine reports.
Why the size of the G8 should be increased
Frankfurter Allgemeine has an editorial saying that the G8 should be increased to a G13, i.e. including the G5 – China, India, Brazil, Mexico and South Africa. The argument is that the most pressing problems, climate change or even global economic management can no longer be effectively carried out by the G8. Next year’s plan by Berlusconi, the incoming G8 president, to have a special programme for the G5 is more likely to be seen as partonising. The alternative to G13 is for the newly industrialised countries to form their own club.
Sarkozy’s European protectionism
Writing in Le Monde Arnaud Leparmentier takes an in-depth look at Sarkozy’s claim that Europe should protect its people. He concludes that Sarkozy has not thought out his strategy, it is almost entirely rhetoric. If he were serious about it, he would not have launched a national strategy based on the Caisse des dépôts as a French sovereign wealth fund to protect French corporate interests.
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