Bankrupt states should levy citizens before bailout – Buba
Germany's Bundesbank has said that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help.
Had this happened here, Brian Cowen's government would have taxed assets rather than going cap-in-hand to foreign countries for a bailout that will take decades to repay.
The Bundesbank's tough stance comes after years of eurozone crisis that saw five government bailouts. There were also bond market interventions by the European Central Bank in, for example, Italy, where households' average net wealth is higher than in Germany.
"(A capital levy) corresponds to the principle of national responsibility, according to which taxpayers are responsible for their government's obligations before solidarity of other states is required," the Bundesbank said.
It warned that such a levy carried significant risks and its implementation would not be easy, adding it should only be considered in absolute exceptional cases, for example to avert a looming sovereign insolvency.
The IMF discussed the option in a report in October and said that reducing debt ratios to end-2007 levels for a sample of 15 euro-area countries would require a tax rate of about 10pc on households with positive net wealth.
The German Institute for Economic Research calculated in 2012 that in Germany a 10pc levy on a tax base derived from a personal allowance of €250,000 would add up to around €230bn. It did not give a figure for crisis countries due to lack of sufficient data.
Greece has been granted bailout funds of €240bn from the euro area, its national central banks and IMF to protect it from a chaotic default and possible exit from the eurozone.
In Germany, however, the Bundesbank said it would not support an implementation of a recurrent wealth tax, saying it would harm growth.
Recent reforms and adjustments in the eurozone's struggling countries have improved conditions for sustainable growth, the Bundesbank said, but remained concerned about high debt levels.
It was still a key challenge to drive down public as well as private debt and the ECB's upcoming bank health checks could help to address current problems in the banking sector.
A successful test could also help to wean banks in the eurozone periphery countries off ECB funding, the Bundesbank said. (Reuters)