It has been almost a year since we had already warned that the council of German experts advising Chancellor Merkel recommended that the leaders of southern Europe confiscate a portion of the value of property from owners in the EU’s periphery in order to prevent the collapse of the peripheral financial system. At that time, this body – known as the «five wise men» – argued that whenever a bailout of banks or southern European states was necessary, it should be carried out internally (a «bail-in»), that is, using money from the citizens themselves living in the countries in distress. And that confiscating a proportion of the value of property was the easiest, most practical and simplest way to obtain the money needed to prevent the collapse of peripheral states and the financial system. This was because doing it the Cypriot way – by confiscating a portion of bank accounts – caused greater public alarm, and it was also easier for ‘the targets’ to avoid confiscation by transferring the money out of the country (as the better-advised Cypriots did). Property, on the other hand, is tied up; it cannot be transferred overnight to Luxembourg, Switzerland or Germany, and at the same time it is viewed more favourably to steal to confiscate property from property owners – who are presumed to have greater wealth – rather than from savers or investors who live in rented accommodation.
Well then, ladies and gentlemen, This week, it was the German Central Bank (Bundesbank) itself that recommended carrying out this massive and one-off confiscation of wealth as a matter of urgency. In full view of the public, in the midst of Wall Street Journal. What they call «one-off tax on private wealth«, is something that is going to happen as soon as Greece defaults on its debts (May and August 2014) once again shake the financial systems of Europe’s periphery (namely Italy and, in particular, Portugal and Spain), jolting them out of this strange honeymoon period – characterised by insolvency – which has seen the risk premium fall to absurdly low levels. It is difficult to say exactly when, but it is easy to guess that sooner or later it must happen. The EU, led by Germany, has decided as much and is planning it meticulously.
«A European Central Bank study in April showed that households in Europe’s vulnerable southern countries have far greater paper wealth than those in Germany, highlighting a dichotomy between cash-strapped governments and their citizens. A one-off levy on private assets such as property could even be cheaper than other options for reducing sovereign debt, the Bundesbank said.»
The Bundesbank takes the view, just like the «five wise men», that this is not only the best and fairest (from the EU’s north-south perspective) way of tackling the black hole in the periphery, but also prevents contagion spreading to more solvent economies, which will thus will be spared from being dragged down into the mire of bankruptcy along with the periphery.
«The central bank argued that consumption- or income-related tax increases and further austerity measures might not be sufficient and could be difficult to push through in an exceptional situation of imminent bankruptcy. Introducing such a tax could also strengthen incentives for sound policy in the future by signalling that such burdens cannot be shifted onto the shoulders of taxpayers in other countries during a crisis.»
Furthermore, they emphasise the urgency and the need for the element of surprise in the confiscation to make it more effective:
«To prevent tax evasion, governments would need to act swiftly, the Bundesbank said. To limit capital flight and the negative impact on investment, governments would also have to credibly demonstrate that such a levy was a one-off measure taken in response to a national crisis. Meanwhile, the latest surveys suggest that there may be less wealth to tax.»
The order in which the assets are to be seized has already been It was quietly settled in Brussels last summer, under cover of darkness and with malice aforethought. There will be no more improvisations like the botched job in Cyprus – no. Next time, assets will be confiscated in a «legalised and orderly» manner. In short, dear investors, the outlook is bleak for those with assets tied up in Spain. Although it is also true that to own the assets in Luxembourg, As we recommended a year ago, this is no absolute guarantee that it will not be affected, because our dearly beloved Montoro has seen to it that it is scrutinised wherever it may be. But it is no less true that Those who own property and hold bank accounts in Spain are in the front line of targeted wealth confiscation. They are cannon fodder for this «one-off tax on private wealth», which someone will soon officially christen with an imaginative, altruistic and politically correct name. Confiscating wealth across borders – even when it is declared and identified – has always been legally more complicated than the traditional domestic ‘corralito’.