Late last year, the Spanish government changed its tax rules to make it more expensive to be fabulously wealthy. Amid the country’s financial crisis, the boost to a 56 percent personal income tax rate for people earning more than 300,000 Euros a year–about 10 times the national average–should have had populist appeal. It didn’t. Among the reasons were fears that star soccer players might abandon Spanish teams to play in other countries that take smaller cuts from their wealthy residents’ compensation packages. The soccer-tax issue even inspired a UC Berkeley study. Specifically, ... Read More
The Icelandic Model of Handling Debt Crises
November 2, 2011 • By • Leave a Comment
The latest euro rescue plan lurched into crisis this week after the Greek prime minister decided to put the package to a popular vote. This unexpected gesture of independence "sent tremors through Europe's financial markets," according to The New York Times, and "hammered" U.S. markets, "showing once again how the domestic politics of even the smallest members of the European Union can create troubles" beyond all proportion. The panic over Greece, of course, is panic over the euro. Another European country, Iceland, took a far more radical path than did Greece, yet it went largely ... Read More
German Conservatives Discover Populism In Euro Crisis
August 31, 2011 • By • Leave a Comment
A visceral disgust for handing out cash to "save the euro" has seized German leaders like a gag reflex in the declining weeks of summer. The idea of paying for the mounting debts of euro-zone countries like Spain and Greece has suddenly struck a number of people in Chancellor Angela Merkel's circle as insane, if not criminal. Christian Wulff, the normally quiet and uncontroversial German president, wondered out loud during a keynote speech last week whether the European Central Bank really should be starting a second round of massive debt purchase in the form of Greek and other European ... Read More
Greek Economic Collapse: Pulling Europe and U.S. Down?
July 29, 2011 • By • Leave a Comment
From Ireland to Italy, governments all across Europe are grappling with sky-high deficits, soaring unemployment, and economies that are stuck in first gear. Nowhere are the problems worse than in Greece, which has an unemployment rate over 15 percent and a government debt load that is well over 150 percent of the country's gross domestic product. Which kinda puts the U.S. debt ceiling crisis in perspective ... Greece's debts are so high that the entire European financial system stands at the brink of collapse, with even the future of the Euro in doubt. In the podcast, Benjamin J. Cohen — ... Read More
Merkel May Have Rescued the Eurozone
February 9, 2011 • By • Leave a Comment
Germany Chancellor Angela Merkel made progress last week toward a long-term rescue of the euro, along with other EU leaders, by imposing some discipline on wobbling European economies that may need German help in the future to keep them from defaulting on sovereign debt. "Merkel," Bloomberg reported on Friday, "is turning Europe's sovereign-debt crisis into an opportunity to reshape the euro region in Germany's image." For years she's been known as "Frau Nein," at least to English-speaking journalists. Lately she's uttered consistent refusals to promise German money for new, direct eurozone ... Read More
A ‘Two-Speed’ Europe?
August 25, 2010 • By • Leave a Comment
The most recent growth spurt in Germany was good news for Europe, on the surface, because it showed the German economic engine pulling the euro zone into positive territory for the second quarter of 2010. The suffering southern economies were still in recession by mid-2010, but the euro zone's GDP as a whole grew by 1 percent. Great! So the euro crisis is over, and we can all think about something else, like terrorists, right? No — actually Europe's economic divide, if anything, makes a profound change in the euro more likely. The euro panic last spring focused on an exaggerated vision ... Read More
O Frau Merkel, How Does Your Garden Grow?
August 18, 2010 • By • Leave a Comment
Last week the German government reported a growth figure that should be the envy of the Western world, as long as most of the West struggles with mountains of debt while its citizens remain underemployed. The number itself is boring, 2.2 percent. It's the amount the German GDP grew in the second quarter of 2010, compared to the same quarter in 2009. That's a record in Germany over the past 20 years — since reunification in 1990. If all four quarters were to expand at the same rate this year, Germany would be headed for an annual growth of something near 9 percent. Germany managed this ... Read More
A Brief History of the Dollar
August 11, 2010 • By • Leave a Comment
This year's derby between the euro and the dollar is nothing but an extension of age-old trade relationships across the Atlantic, and as unstable as the last few years have been, it's astonishing how little has changed, essentially, over the last three or four centuries. We think of the U.S. dollar as a single firm currency and the euro as a rickety new experiment in economic union, but the name "dollar" itself is an echo of an earlier union in Europe. The thaler became a general name for money in the Holy Roman Empire after a successful regional coin called the Joachimsthaler was minted ... Read More
Greatly Exaggerated: Rumors of the Euro’s ‘Collapse’
August 4, 2010 • By • Leave a Comment
The demise of the euro has been rumored for months, and Europe's sovereign-debt crisis ginned up a cloud of speculation this year that the currency would "collapse." This sort of talk has abated since the EU established its so-called bailout fund in May, but observers tend to agree that a trillion dollars in financing bought the euro nothing but time. So the currency's future is still obscure. But "collapse" is a dramatic word. It's also not very specific. What on Earth does it mean? The immediate fear last spring was a partial dismantling of the euro zone. Before the bailout package, it ... Read More
Bank Tax, We Hardly Knew Ye
July 14, 2010 • By • Leave a Comment
In June, most Western governments, more or less in unison, mulled a "bank tax" that promised to spare taxpayers another trillion-dollar bailout for investment banks in case of another credit crunch. And most Western governments, more or less in unison, turned it down. Why? By the end of June, the tax had dropped out of the financial reform bill moving through Congress; it had dropped off the G20 agenda in Toronto; it had found support, and then resistance, in Canada and the U.K. But the tax is a fundamentally sound idea. Forged and applied in Sweden, after a credit crunch there in the '90s, ... Read More
