Socialism is roaring back in Europe

Eyeglasses with newspaper and coffee cup

The next time someone tells you America should be more like Europe, tell them to check out this socialist disaster:

Senior figures in Germany are now arguing that some richer home owners in countries like Spain, Portugal and Greece have so far avoided paying their fair share to rescue the euro, leaving Germany paying too much.

Taxes on property or other assets would mark a significant change in Europe’s approach to funding bail-outs for eurozone members. Until now, the cost of rescue packages for countries like Ireland, Greece and Portugal has fallen largely on people who invest money in either those countries’ bonds or – in the case of Cyprus – bank accounts.

Prof Peter Bofinger, an adviser to Mrs Merkel, said that levies on bank accounts are the wrong way of funding bail-outs, because rich people are able to shift their money out of the country.

“The resourceful rich just move their money to banks in northern Europe and avoid paying,” Prof Bofinger told Der Spiegel, a German magazine.

Instead of taxing cash, European Union governments should in future target property and other, less mobile assets, he said.

“For example, over the next 10 years, the rich should give up a portion of their assets,” Prof Bofinger said. Spain was last year forced to seek international help to prop up its banks. Despite recent signs of progress, some analysts believe the Spanish government itself could also have to seek a bail-out in order to pay its debts.

The discussion basically boils down to this: Germany is the wealthiest and most economically powerful nation in the European Union and has been ponying up for bailouts of other nations. Nations in trouble say this is only fair. German economists disagree:

The ECB study found that the “median” wealth in Cyprus is €267,000 (£227,600), compared to just €51,000 in Germany.

The median or midpoint level – which strips out the distorting effect of the super-rich – was €183,000 for Spain, €172,000 for Italy, and €102,000 for Greece, and even €75,000 for Portugal.

Average wealth in Cyprus is €671,000, far higher than in the four AAA creditor states: Austria (€265,000), Germany (€195,000), Holland (€170,000), Finland (€161,000).

Prof Feld said the report showed that people in the crisis countries are richer than the Germans. “This shows that Germany has been right to take a tough line of euro rescue loans,” he said.

It’s easy to be torn on this. Do we blame Germany’s leaders for calling for higher taxes in other countries? Socialist policies on taxes don’t work, but it’s also not right for Germany to shoulder so much weight for bailouts. This is the crux of the problem – on either side of the coin, Europe continues its disastrous fall into socialism. Bailouts and higher taxes are not free market solutions to Europe’s fiscal straits, and will simply make a government-created problem worse.

Keynesian economists in America argue that we don’t have to worry about Europe’s fate – investors are still putting money into America at high rates, we have our own currency, and interest rates are low. Once again, they completely misunderstand the problem. Just because we have more breathing room is no reason to finance bad decisions.