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The US and tax havens like Ireland

There is a growing campaign in the US backed by US President Obama to restrict the increasing use of tax havens like Ireland by US TNC’s. The campaign is gathering traction as the administration seeks popular issues ahead of the next elections. This issue may also feature in the ongoing TTIP negotiations between the US

Stop the TTIP!!!!

Stop the TTIP – People’s Movement Read the above pamphlet to get a good understanding of how an EU-US trade and investment treaty threatens democracy, would attack workers’ rights, erode social standards and environmental regulations, dilute food safety rules, undermine regulations on the use of toxic chemicals, rubbish digital privacy laws, and strangle developing economies.

State and Finance in Financialised Capitalism

Costas Lapavitsas: Reversing privatisation and re-establishing public ownership over key areas of the economy would directly reduce the room for financialisation. It would also provide a broader basis for public investment and the systematic creation of employment. The structural problems within the UK and other mature economies were brought to the surface during and after

How capitalists learned to stop worrying and love the crisis

This is a great article on how capitalists have taken advantage of the crisis they helped create to make more money at our expense while also prolonging and deepening stagnation in the system. But more important than money is the power that they are accumulating throughout this crisis which maintains their position of dominance at all levels of

Steve Keen on Secular Stagnation

 The crisis of 2007/08 has generated many anomalies for conventional economic theory, not the least that it happened in the first place. Though mainstream economic thought has many channels, the common belief before this crisis was that either crises cannot occur (Edward C. Prescott, 1999), or that the odds of such events had either been

The US and tax havens like Ireland

There is a growing campaign in the US backed by US President Obama to restrict the increasing use of tax havens like Ireland by US TNC’s. The campaign is gathering traction as the administration seeks popular issues ahead of the next elections. This issue may also feature in the ongoing TTIP negotiations between the US and EU.

Below is a recent article from the NYT that give a sense of the issue.

http://www.nytimes.com/2014/08/06/business/Action-in-washington-on-corporate-inversions.html?_r=0

White House Weighs Actions to Deter Overseas Tax Flight

WASHINGTON — The Obama administration is weighing plans to circumvent Congress and act on its own to curtail tax benefits for United States companies that relocate overseas to lower their tax bills, seeking to stanch a recent wave of so-called corporate inversions, Treasury Secretary Jacob J. Lew said on Tuesday.

Treasury Department officials are rushing to assemble an array of options that would essentially wipe out the economic incentive for the deals, Mr. Lew said. No final decision has been made.

“The question is, Can we do enough that it will materially change the economics of inversions so that companies will make different decisions?” Mr. Lew said in an interview. “The things we are looking at look to me like they could very materially change the economics of inversions.”

 

 

The action comes in the face of a recent increase in United States companies reaching deals to reorganize overseas, creating an explosive political issue that Mr. Obama has called a lack of “economic patriotism.” Investment banks have been counseling companies to pursue such transactions because of the potential tax benefits. Two large United States pharmaceutical companies — the drug giant AbbVie, based in Illinois, and the generic manufacturer Mylan, based in Pennsylvania — agreed to such deals last month. The Walgreen Company, owner of the drugstore chain, considered using an inversion but was unable to follow through.

“Time is of the essence,” Mr. Lew said. “We are looking at a very long list of possible ways to address the issue.”

It would be the latest move by the Obama administration to use its authority to act where Congress will not. A provision in the president’s budget would have effectively banned inversions, and Democratic lawmakers have introduced legislation to halt or suspend them. Still, while some Republicans say they want to address the issue, there has been little bipartisan agreement on how to do so.

While Mr. Lew said legislation was the “best solution” to addressing the issue, the recent flood of inversions has persuaded Mr. Obama’s team that a quicker response may be necessary. A Bloomberg analysis estimated American companies are parking as much as $2 trillion in cash overseas.

“If Congress doesn’t act, we can’t wait for months or years to go by and just watch companies make decisions as if nothing will change,” Mr. Lew said. Josh Earnest, the White House press secretary, told reporters on Tuesday that Congress should “take action on this quickly,” sidestepping questions on whether the administration would act unilaterally if Congress did not.

Mr. Lew said his “goal is actually to change what’s happening out there.”

“Putting companies on notice is, I think, part of it,” he said.

Tuesday morning, a group of Democratic senators called on President Obama to act on his own authority. “The coming flood of corporate inversions justifies immediate executive action,” they said in a letter, spearheaded by Senator Richard J. Durbin of Illinois, the No. 2 Democrat, and signed by Elizabeth Warren of Massachusetts and Jack Reed of Rhode Island.

If Treasury pursued unilateral action, there could be at least some retroactive effect because new limits would be placed on the transactions of inverted companies. Inversions could still go through, but depending on when new rules were issued, the tax strategies that made the mergers seem lucrative might be severely limited.

Mr. Lew said last month that he did not think he had power to act alone to stop the practice, but administration officials say they believe they have many more options to limit the kinds of transactions inverted companies typically use.

“They want to do it,” Senator Charles E. Schumer, Democrat of New York, said in an interview last week. “The president really dislikes the inversions, and if they feel they have a strong legal ability to do it, they will.”

With the size and pace of deals accelerating, policy makers have intensified their efforts to find ways of countering the practice, spurred in part by the fact that Walgreen had discussed it as part of a buyout of the British chain Alliance Boots.

Walgreen’s consideration of an inversion “tipped the scales to show that this is a slippery slope of inversion deals continuing and increasing in size and number,” said Nell Geiser, the associate director of retail initiatives at Change to Win, the organized labor-backed consumer advocacy group. She said the company would have faced “extreme consumer backlash” if it had made the move overseas.

It’s also a politically opportune time for the president to focus on the issue, as he works to contrast his economic vision with that of Republicans in advance of the midterm congressional elections.

The president highlighted the issue in a recent speech in Los Angeles in which he questioned the patriotism of companies that inverted for tax purposes.

“I don’t care if it’s legal. It’s wrong,” the president said. “You shouldn’t get to call yourself an American company only when you want a handout from the American taxpayers.”

Just days after the president’s speech, Stephen E. Shay, a former Obama administration Treasury Department official who now teaches at Harvard Law School, suggested in an article in the trade journal Tax Notes that it was within Mr. Obama’s power to act alone.

“I’m really concerned that we are losing a significant portion of our corporate tax base that you’re not going to get back,” Mr. Shay said.

His article referred to a section of the tax code that allows the Treasury secretary to issue rules for determining whether a given financial instrument should be treated as debt or equity. The idea would be to limit the degree to which a foreign parent company could load up a United States subsidiary with debt, which can be deducted for tax purposes, and require that any excess be designated as equity, which is not eligible for deductions.

Mr. Shay also proposed other administrative moves to reduce the use of offshore earnings without paying United States tax.

“They have the authority to go after those two incentives to do the deals under existing law,” Mr. Shay said of Mr. Obama’s team.

A person involved in the deals told Mr. Shay that without those two prospective benefits, 75 percent of the inversions underway would not occur.

 

Stop the TTIP!!!!

Stop the TTIP – People’s Movement

Read the above pamphlet to get a good understanding of how an EU-US trade and investment treaty threatens democracy, would attack workers’ rights, erode social standards and environmental regulations, dilute food safety rules, undermine regulations on the use of toxic chemicals, rubbish digital privacy laws, and strangle developing economies.

And check out the website http://www.people.ie/english1.html

State and Finance in Financialised Capitalism

Costas Lapavitsas: Reversing privatisation and re-establishing public ownership over key areas of the economy would directly reduce the room for financialisation. It would also provide a broader basis for public investment and the systematic creation of employment.

The structural problems within the UK and other mature economies were brought to the surface during and after the crisis of 2007-9. This paper argues that these problems are inherent to contemporary mature capitalism and have to do, primarily, with financialisation. The exceptional rise of finance in terms of size and penetration across society, the economy and the policy process, is apparent to all. The rise of finance is a sign of a fundamental transformation of mature capitalism within commercial and industrial enterprises, but also banks and perhaps most strikingly, within households.

The period of financialisation, lasting from the 1970s to the present day, has also wrought profound changes to the social structure of contemporary capitalism. It has been a period of extraordinary income inequality, wiping out all of the gains that came in the period following the Second World War. This paper notes that the ability of the rich to extract enormous incomes has been associated with the financial system. Inequality is a characteristic feature of financialisation.

Financialisation has been marked by the ideology of neoliberalism, promoted by universities, think-tanks and a variety of other institutions. Neoliberal ideology ostensibly treats state intervention in the economy with extreme suspicion, but the reality has been very different. The financialisation of mature economies would have been inconceivable without the facilitating and enabling role of the state.

The full paper can be read at http://www.researchonmoneyandfinance.org/images/uncategorized/Lapavitsas_state_finance.pdf

How capitalists learned to stop worrying and love the crisis

This is a great article on how capitalists have taken advantage of the crisis they helped create to make more money at our expense while also prolonging and deepening stagnation in the system. But more important than money is the power that they are accumulating throughout this crisis which maintains their position of dominance at all levels of society.

The ultimate goal of modern capitalists – and perhaps of all capitalists since the very beginning of their system – is not utility, but power. They are driven not to maximize hedonic pleasure, but to ‘beat the average’. This aim is not a subjective preference. It is a rigid rule, dictated and enforced by the conflictual nature of the capitalist mode of power. Capitalism pits capitalists against other groups in society, as well as against each other

Read the full paper at http://www.paecon.net/PAEReview/issue66/BichlerNitzan66.pdf

 

 

 

Steve Keen on Secular Stagnation

 The crisis of 2007/08 has generated many anomalies for conventional economic theory, not the least that it happened in the first place. Though mainstream economic thought has many channels, the common belief before this crisis was that either crises cannot occur (Edward C. Prescott, 1999), or that the odds of such events had either been reduced (Ben Bernanke, 2002) or eliminated (Robert E. Lucas, Jr., 2003) courtesy of the scientific understanding of the economy that mainstream theory had developed.

Read the full article at http://www.paecon.net/PAEReview/issue66/Keen66.pdf

Argentina’s default: finance decides, the population abides

By Ronan Burtenshaw

Taken from http://concreteradicality.wordpress.com/2014/07/31/argentinas-default-finance-decides-the-population-abides/

Today a vulture fund based in the Cayman Islands representing a tiny, super-wealthy élite has thrown an economy serving 43 million people into chaos.

In 2001, with the country in crisis, NML fund bought bonds from Argentina. Their strategy was to acquire defaulted sovereign debt issues at a very low price, only to later demand the totality of the payment via a judicial process. Their mark-up today would be 1,608%.

In the period since, between 2005 and 2010, over 92% of bondholders with this debt restructured. But the vulture funds held out. As Argentine Economy Minister Axel Kicillof said, “the vulture funds don’t negotiate: that’s what makes them vultures.”

The case went to the US Supreme Court, with Argentina arguing that a pari passu clause meant that they could not advantage certain bondholders over others. Unsurprisingly, because it is a den of financial interests, the US Supreme Court ruled in favour of NML and ordered Argentina to repay the full $1.3billion. This created a precedent that opened Argentina up to a further $15billion in debt repayments, which would have wiped out most of the state’s dollar reserves.

As the European Nordic and Green Left statement this week said, “The recent decision of the Supreme Court of the US not only creates difficulties – or perhaps makes it impossible – for Argentina to continue servicing its restructured debt, it also strikes at the stability of the international financial system in as much as it constitutes a precedent that can hinder other sovereign debt restructuring processes in the future. Because, if during a voluntary negotiation such as the one Argentina carried out, in which more than 92% of its creditors agreed to swap their defaulted debt (for new bonds with a considerable haircut), any creditor can demand and charge the total owed on that debt, what are the incentives to enter into a similar restructuring in the future?”

This forms part of an international régime, from the US to Europe and beyond, where the interests of private finance are placed above all others in the economic sphere. The refusal to create any sensible mechanisms for resolution or negotiation at an international level – let alone a collective action clause that might force holdout minorities to accept widely negotiated terms – is a symptom of the dictatorship of the markets over our societies. As was the case when Ireland was warned that “a bomb would go off in Dublin” if senior Anglo-Irish bondholders were not repaid. We are living in an era of gunboat democracy – where finance decides and the population abides.

There may soon be a challenge to this régime in Greece, where Syriza are favourites to win the next general election and promise to fight for a renegotiation of the EU-IMF memorandum and a restructuring of sovereign debt. There had been hope that the risk of contagion from a Greek unilateral default would force European Union policymakers into accepting a deal – but this Argentine situation is a bad omen. International financial interests, with the connivance of complicit states and transnational bodies, have threatened an entire region with a lost decade. They have done this for the sake of a principle, that the interests of private finance must come first. And for a sum of $1.3billion. Greece’s sovereign debt is around $480billion.

After the US Supreme Court’s decision Argentine President Cristina Kirchner made a speech discussing the state’s history with debts imposed by international finance and enforced by the west – it could be translated to most Latin American states. She said that debt had been “without a doubt the most powerful trap we had been in keeping us from growth, the development of Argentina, it created poverty, backwardness, homelessness, a lack of infrastructural development, investment in education, in science.” She detailed the cycles of debt crises which have plagued the country since the 1970s, finishing each with an explanation of how it led to the next and the words, “but that wasn’t the end”.

The states of peripheral Europe are now in a similar cycle. As Oscar Guardiola-Rivera remarked in 2011, Europe has colonised itself. These same processes of debt penury, austerity, financial crisis and forced under-development that Europe once imposed on Latin America and South-East Asia have, since 2008, returned closer to the core – to Greece, to Italy, to Spain, to Portugal, to Ireland.

There are examples in states like Ecuador of how to break free from this cycle, but it requires negotiation. By forcing a default international finance is now delivering a message to Latin America through Argentina: sovereignty will not be allowed. With the Greek situation lurking around the corner, the states of the European periphery should take note.

Insights into FDI in Ireland

The most recent IDA Annual Report 2013 provides a number of valuable insights into the nature of FDI in Ireland. Where is it from, in what sectors is it, how much tax does these companies contribute, how much does the State subsidies each job, how much do the companies contribute to the national economy and much more. Some highlight stats below but the report is worth checking out.

 

The Recovery? Latest CSO Stats Q1 2014

The CSO’s latest figures show GDP is up 2.7% for the first quarter in 2014, compared to the last quarter of 2013, while GNP is up a mere 0.5%. GNP, the more accurate reflection of the Irish economy, shows the continued stagnation that reflects personal expenditure being down 0.1% and capital investment down a whopping 8.1% and Government expenditure down 2.1%.

But the bigger news is that the CSO from June on will include illegal black market activity, like drugs money, in GDP figures. This follows changes elsewhere in Europe as countries desperately seek to create the impression of a recovery and meet their EU imposed targets.

Is this really the recovery working people need? And do the State think they can con their way into meaningful growth? Of more importance, however, is that while GDO slowly picks up reflecting the profits of MNC’s and capital transfers in and out of the country, GNP remains poor.

 

The economic philosophy behind the euro

In 1979 Margaret Thatcher was the first European prime minister to introduce the neo-liberal agenda. She was soon followed by Ronald Reagan in the United States, and the European Union formally adopted the neo-liberal ideology in the Maastricht Treaty in 1992.
The agenda emphasised the free-market monetarist policies espoused by right-wing think-tanks such as the Libertas in Ireland, the Cato Institute in America, the Adam Smith Institute in Britain, and the Copenhagen Institute in Denmark. These are all funded by millionaires to promote the interests of rich people. The Republican Party in the United States and the Tea Party (where the Taoiseach attended a fund-raising function during his visit for St Patrick’s Day) also support these policies.
Milton Friedman implemented these policies in Chile when the dictator Pinochet was in power, arguing that inflation is always linked with excessive monetary policies. To offset this he advocated cutting public expenditure and privatising public utilities.
These policies became known as the Washington Consensus in 1990, from the multilateral agencies based in Washington. Robert Gwynne, cited by Peadar Kirby in his book Introduction to Latin America(2003), described these objectives as follows:

. . . trade liberalisation and easier foreign direct investment . . . Reduce direct government intervention in the economy through privatisation, introducing fiscal discipline, balanced budgets, and tax reform . . . Increase the significance of the market in the allocation of resources and make the private sector the main instrument of economic growth through deregulation, secure property rights and financial liberalisation.
      The agenda advocates free trade, and the euro is an extension of free trade. But free trade, or the euro, gives access for transnationals from the larger states to the markets of the smaller states. For example, Lidl and Aldi are grabbing a growing share of the Irish grocery market, and they are doing the same throughout the euro area.
The underlying assumption of this economic ideology (an assertion that is more like a mantra than reality) is that the public sector is inefficient and the private sector (the market sector) is more efficient. It is argued by the proponents of these policies that the state sector should be reduced. Yet the state-controlled French railway system SNCF is far more efficient than the privatised British railway system.
With the reduction in the role of the state, more of the economy would be controlled by monopoly capital. Nowadays most branches of the economy are controlled by a small number of firms (oligopolies), which make excess profits for their rich shareholders by charging high prices. These firms do not compete on price, because it would reduce their profits and consumers would be the winner: they use advertising and other non-price competition to gain a larger share of the market. They act, to all intents and purposes, as monopolies.
This ideology was written into the Maastricht Treaty in the form of the “fiscal rules”:
1. The excessive government deficit (excess of government spending over revenue) should not exceed 3 per cent of gross domestic product (GDP).
2. Government debt should not exceed 60 per cent of GDP.
These rules were reinforced by a change in the German constitution that made it compulsory to balance the state budget. Germany got the other countries that use the euro to adopt the Fiscal Stability Treaty. Under these new rules
(1) the deficit has to be reduced to 0.5 per cent of structural GDP (i.e., the budget must be balanced);
(2) if the ratio of debt to GDP exceeds 60 per cent it must be reduced to 60 per cent over twenty years.
These rules were set up to protect the interests of investors who buy government bonds. These people are shareholders in banks that hold bonds—very wealthy people and hedge funds that manage the funds of wealthy people. The last thing the neo-liberals want is for a government in the euro zone to default.
Mario Draghi, president of the European Central Bank, formerly worked as an economist for Goldman Sachs. This is a bank that looks after the interests of wealthy people. Draghi is independent of national governments but is not independent of the ideology of his former employer.
Over time, these rules will reduce taxes and the role of government. The rich pay less tax so they will be better off, while the less well off, who use government services, will be worse off. This will cause a transfer from the poor to the rich.

The fiscal deficits, 2009–15

Following the worldwide recession that occurred in 2008, caused by the failure of an American bank, Lehman Brothers, all twelve countries that we are analysing had a fiscal deficit in 2009.
The roots of the collapse of this bank go back to 1985, when Margaret Thatcher deregulated the banking system. The chancellor of the exchequer (minister for finance), Nigel Lawson, who introduced deregulation (the “big bang”), put forward the view that this was the cause of the crash in 2008.
The EU followed suit and deregulated the banks as part of the Single European Act in 1987, and the United States deregulated in early 2000s. The American deregulation was to lead to a massive expansion of mortgage credit, which was used to finance speculative house-buying and “sub-prime” (more risky) lending. This ended in a housing bubble that collapsed and caused the great recession. A similar bubble happened in Ireland and Spain.
We divide the countries into three groups, but this time the debtor-countries are taken first.

Fiscal deficits, 2009 and 2015 (forecast)

In a recession such as the one that began in 2008, output falls; then spending, incomes and employment fall. As a consequence, unemployment increases, so government spending on the unemployed increases, and tax revenue decreases. This increases the fiscal deficit.
Before the Maastricht Treaty (1992), European governments would increase their spending and cut taxes. The tax cuts would increase take-home pay, and this would increase consumer spending, so leading to increased output (growth) and lower unemployment. This would counteract some of the effects of the deficit; but it would lead to an increase in the deficit.
The neo-liberals at the heart of the IMF, the EU Commission, the European Central Bank and Germany are horrified by this, as it might put the funds of lenders (rich people) in danger. Mario Draghi, in an interview with the Wall Street Journal (24 February 2012), “warned beleaguered euro-zone countries that there is no escape from tough austerity measures and that the Continent’s traditional social contract is obsolete.” The social contract means full-time jobs, which he wants to be replaced with part-time, temporary and contract jobs. This is the agenda of Merkel and of ISME and IBEC.
In table 1 the deficits of the debtor-countries are shown.

Table 1: Debtor-countries

Fiscal deficit as percentage of GDP, 2009 Forecast fiscal deficit as percentage of GDP, 2015 Change as percentage of GDP
Italy –5.5% –2.5% 3%
Spain* –11.1% –6.6% 4.5%
Greece† –15.7% –1.1% 14.6%
Portugal† –10.2% –2.5% 7.7%
Ireland†(1) –13.7% –3% 10.7%
Average population weights, 2012 –9% –3.8% 5.2%
*The EU Commission has given Spain an extension to 2016 to meet its deficit target.
†Programme (1) Includes interest (about €2.7 billion) on the €64 billion bank debt foisted on Ireland by the Troika.
      The EU Commission forced these governments to reduce their deficit towards 3 per cent of GDP (output) by 2015, causing austerity. Ireland, Portugal and Greece were put into “bail-out” schemes, and the Troika (ECB, EU Commission and IMF) took over their budgets and cut the deficit year by year to reach 3 per cent. The other countries operated under country-specific recommendations made by the EU Commission.
The achievement of the 3 per cent ratio took precedence over any services provided by governments. This forced them to increase taxes. Expenditure on health, education and social welfare was cut. This reduced spending in the economies, reduced growth, and increased unemployment.
In Ireland’s case, tax increases and cuts in expenditure of $31 billion were taken out of the economy in budget cuts between July 2008 and 2014. The cuts in expenditure hit low and middle-income earners most, and the increases in taxes were regressive, again hitting those on low and middle incomes. The rich got away unscathed.
Each of the countries had a massive increase in unemployment and a substantial fall in their standard of living. All this was to keep the “markets”—the seriously rich people—happy.

Table 2: France

Deficit as percentage of GDP, 2009 Forecast deficit as percentage of GDP, 2015 Change as percentage of GDP
–7.5% –3%* 4.5%
*Revised according to information from EU Commission, March 2014.
      France will have reduced its deficit by 4½ per cent of GDP by 2015. It will have to reduce government spending or increase taxes. Its deficit will have fallen nearly as much as the debtor-countries: 4.5 per cent, compared with 5.2 per cent between 2009 and 2015. This has a major effect (reduction) on growth and on unemployment (increase) over the period.

Creditor-countries

Half the creditor-countries—the Netherlands, Belgium, and Austria—had a deficit of more than 3 per cent in 2009; the rest were at or below 3 per cent. (Germany was at 3.1 per cent.) Yet the governments in most of these countries introduced “austerity” under the neo-liberal agenda of the EU Commission. The average drop in the deficit would be 2.6 per cent of GDP if the forecasts are correct. These governments, especially Germany, either cut spending or increased taxes when there was no need to do so; and Germany went so far as to amend its constitution to make it compulsory that it balance the state budget.

Table 3: Creditor-countries

Deficit as percentage of GDP, 2009 Forecast deficit as percentage of GDP, 2015 Change
Germany –3.1% –0.2% 2.9%
Netherlands –5.1% –3% 2.1%
Belgium –5.6% –2.5% 3.1%
Austria –4.1% –1.5% 2.6%
Finland –2.5% –2% 0.5%
Luxembourg –0.7% –2.7% –2%
Average population weights, 2012 –3.6% –1% 2.6%
      The debtor-countries suffered twice as much austerity as the creditor-countries, because 5.2 per cent on average is being taken out of their economies, compared with 2.6 per cent in the creditor-countries. So Draghi intended that his medicine was mainly for the peripheral (debtor) countries; but it also affected the core (creditor) countries, because they had right-wing governments.

Growth in the euro area

The twelve countries of the euro area had two periods of recession between 2008 and 2013. The first was caused by the collapse of Lehman Brothers in 2008, when output in these countries fell by 4.4 per cent (Eurostat calculation).
A second recession occurred in 2012 with a fall of 0.7 per cent and in 2013 with a fall of 0.4 per cent. This was caused by the policy of reducing the deficit to 3 per cent of GDP adopted by the Troika in the programme countries and by the country-specific recommendations coming from the EU Commission. The Commission showed at this point that the only thing that was important was adherence to the Maastricht rules. Growth in GDP and employment are no longer a priority. Now 2 per cent inflation is at the top of the agenda.
These policies caused a double-dip recession in the euro countries in 2012 and 2013. Altogether, GDP in the area fell by 1.9 per cent between 2008 and 3013.

Growth, debtor-countries

The debtor-countries experienced a fall in output in most of the years between 2008 and 2013. Italy had a drop in output in four of the six years. Spain’s and Portugal’s experiences were similar.
Greece experienced a fall in each of the years, and Ireland experienced a fall in three years. Between 2008 and 2013 output fell by 8.6 per cent in Italy, 3.7 per cent in Spain, 23.2 per cent in Greece, 7.2 per cent in Portugal, and 9.2 per cent in Ireland.
The decrease of 23.4 per cent in Greece between 2008 and 2013 was the highest in living memory in western Europe. The average fall in this period for the debtor-countries, 8 per cent, was more than four times the average fall for the twelve countries of the euro area (1.9 per cent), as calculated by Eurostat. In the same period the economies of the creditor-countries grew by 2.7 per cent.
Each of these countries, except Ireland, suffered a double-dip recession in 2012 and 2013. (See note with table.)

Table 4: Annual change in output (GDP), debtor-countries

2008 2009 2010 2011 2012 2013 2008–2013
Italy –1.2% –5.5% 1.7% 0.5% –2.5% –1.8% –8.6%
Spain 2.9% –3.5% –0.2% 0.1% –1.6% –1.3% –3.7%
Greece –0.2% –3.1% –4.9% –7.1% –6.4% –4.0% –23.2%
Portugal 0 –2.9% 1.9% –1.3% –3.2% –1.8% –7.2%
Ireland* –5.5% –5.4% –1.1% 2.2% 0.2% 0.3% –9.2%
Average population weights, 2012 0.6% –4.4% 0.4% –0.4% –5.5% –1.7% –8.0%
Falls in GDP are highlighted.
*Growth in Ireland is measured in terms of gross domestic product (GDP), which includes the profits of transnational corporations. The size of GDP goes up and down as profits are moved into and through Ireland for tax purposes. This makes the GDP figures unreliable as a measure of Ireland’s output.

France

The French economy experienced only two years of falls in GDP and grew by 1.6 per cent over the period 2008–13. France’s experience was more like that of the creditor-countries, but there was slow growth in the years in which it had growth.

Table 5: Annual change in output (GDP), France

2008 2009 2010 2011 2012 2013 2008–2013
–0.1% –3.1% 1.7% 2.0% 0.7% 0.5% 1.6%

Creditor-countries

The creditor-countries only experienced on average a fall in GDP in one year,:2009. Germany and Austria had a fall only in 2009. Belgium and Luxembourg had a fall in two years: 2009 and 2012. The Netherlands and Finland had a fall in three years: 2009, 2012, and 2013.
In the debtor-countries GDP fell in more years than in the creditor-countries. Germany’s GDP grew by 4.1 per cent between 2009 and 2012 on the back of massive trade surpluses. This growth was greater than all the other countries in the euro area. These surpluses and exports give rise to increased output and lower unemployment in Germany; but they cause lower growth and higher unemployment in the countries that import from Germany.

Growth in output (percentage of GDP), creditor-countries

Table 6: Annual change in output (GDP), creditor-countries
2008 2009 2010 2011 2012 2013 2008–2013
Germany 0.9% –5.1% 4% 3.3% 0.7% 0.5% 4.1%
Netherlands 1.8% –3.7% 1.5% 0.9% –1.2% –1.0% –1.8%
Belgium 1.0% –2.8% 2.3% 1.8% –0.1% 0.1% 2.2%
Austria 1.4% –3.8% 1.8% 2.8% 0.9% 0.4% 3.4%
Finland 0.3% –8.5% 3.4% 2.7% –0.8% –0.6% –3.9%
Luxembourg –0.7% –5.5% 3.1% 1.9% –0.2% 1.9% 0.3%
Average population weights, 2012 1.0% –4.8% 3.3% 2.8% 0.3% 0.2% 2.7%
Average growth for debtor-countries 0.6% –4.4% 0.4% –0.4% –5.5% –1.7% –8.0%

Unemployment rate, debtor-countries

In table 7 the unemployment rates of the debtor-countries are shown. The average unemployment rate increased from 7.2 per cent to 18.9 per cent between 2007 and 2013.
While in 2007 all the countries were close to the average, by 2013 there were massive variations between the countries. Spain and Greece have more than a quarter of their work force unemployed. Italy’s and Portugal’s rates doubled, to 12.2 per cent and 17.4 per cent, respectively. Ireland’s rate trebled, despite the fact that about 100,000 people have emigrated since the crisis, and the Government has more than six schemes, including Job Bridge, for getting people off the dole and so reducing unemployment figures artificially.
But the real sufferers in this crisis are young people, as a consequence of the policies adopted by the Troika in Ireland, Portugal and Greece and those adopted by the EU Commission in Italy and Spain. In 2012 nearly half of all young people in the EU (45 per cent) were unemployed. Of these, Spain and Greece had over 50 per cent, Italy and Portugal had over 35 per cent, and Ireland had nearly 30 per cent.

Table 7: Unemployment rate, debtor-countries

2007 2013 Youth unemployment rate,
fourth quarter 2012*
Italy 6.1% 12.2% 36.9%
Spain 8.3% 26.6% 55.2%
Greece 8.3% 27.0% 57.9%
Portugal 8.9% 17.4% 38.4%
Ireland* 4.7% 13.3% 29.4%
Average rate population weights, 2012 7.2% 18.9% 44.9%
*Source: Eurostat.

France

Unemployment in France rose from 8.4 per cent in 2007 to 11 per cent in 2013, but youth unemployment in 2012 rose to 26.4 per cent in 2012. This increase in youth unemployment is a damning indictment of EU policies.

Table 8: unemployment rate, France

2007 2013 Youth unemployment rate,
fourth quarter 2012
8.4% 11% 26.4%

Creditor-countries

Average unemployment in the creditor-countries actually fell over the period. Average youth unemployment was 10 per cent; in Germany it was 7.9 per cent, and only Belgium, at 22 per cent, exceeded 20 per cent.

Table 9: Unemployment rate, creditor-countries

Unemployment rate, 2007 Unemployment rate, 2013 Youth un­employ­ment rate, fourth quarter 2012
Germany 8.7% 5.4% 7.9%
Netherlands 3.6% 7.0% 9.8%
Belgium 7.5% 8.6% 22.0%
Austria 4.4% 5.1% 8.7%
Finland 6.9% 8.2% 19.3%
Luxembourg 4.2% 5.7% 18.5%

 

Table 10: Average rates of unemployment (using 2012 weights)

Creditor-countries 7.5% 6.0% 10.0%
Euro-area average weights (Eurostat) 7.6% 12.3% 27.2%
Debtor-countries 7.2% 18.9% 44.9%

Summary of unemployment data

Unemployment rates were around 7½ per cent in the twelve countries of the euro zone in 2007, but there was a massive divergence by 2012 and 2013. The average total unemployment rate in the debtor-countries was three times the rate in the creditor-countries in 2013, while youth unemployment in the debtor-countries was more than four times the rate in the creditor-countries. This is a scandal.

Conclusion

This article shows that ordinary people in the peripheral countries had to endure massive hardship in recent years. In Ireland there were cuts to government services, such as education, health, and social welfare, and increased taxes, such as the universal social charge, property tax, and water tax. Workers’ wages were cut throughout the periphery.
Output fell and unemployment rose dramatically, especially for young people. At this point the EU Commission is offering a “youth guarantee” of training, whereas it was responsible for destroying millions of jobs in Europe since 2007.
The crisis in 2008 was a crisis of financial capital, which occurred because of the deregulation of banks in Britain in 1985, followed by the deregulation of banks in Europe under the Single European Act and then in the United States in the early 2000s. Deregulation meant that retail banks became casino banks, and this led to the crash.
The EU was partly responsible for the crisis in 2008. It imposed “austerity” after 2008, and ordinary people have had to bear the burden of its mistakes.
And the crisis is not over in Ireland, as the Government still has to reduce the deficit by approximately €4 billion between 2016 and 2018. So austerity will continue until then.
[KC]

http://www.communistpartyofireland.ie/sv/14-euro.html

Ireland, Tax and Development

Driving the getaway is a report by a number of NGO’s on Ireland, taxation and development. Below is an extract and the full report in pdf.

Taxation is about far more than revenue-raising: it concerns power and impacts taxpayer behaviour. It is pivotal in enhancing accountability and participation in young states through the bargaining process between a government and its citizens. Very significantly, it often has unexpected consequences, and the tax system of one country can easily have an impact on economic or social behaviour in another. Since business is now international, it is important that taxes are designed not only with a domestic agenda in mind, but with a view to their consequences internationally, particularly for vulnerable economies in the global South.

The ability to collect tax is particularly important for Southern countries, for which it represents a far more sustainable solution to poverty than international aid. But Southern countries face particular challenges in this area. On a domestic level, there is the problem of how to tax a vast informal economy with little financial infrastructure. Southern taxing authorities struggle to collect revenue in the face of post-colonial attitudes resulting in poor tax compliance, relative tax complexity and poor taxpayer education, major gaps in their capacity, shifting tax structures often driven by IMF or World Bank lending, trade liberalisation, corruption and a deficient rule of law.

On an international level, tax challenges for Southern countries include capital flight, a lack of relative power in negotiations around foreign direct investment (FDI), tax competition, transfer pricing abuse by multinational firms, secrecy in some tax haven jurisdictions, and isolation through a thin network of tax treaties.

Mozambique was chosen for particular examination in Section 5 of this report because it is an Irish Aid priority country. The country has been through IMF-led tax reform, and illustrates many of the classic problems encountered by the taxing authorities of Southern countries. Suggested solutions to some of Mozambique’s difficulties may be taken from the experience of other African countries.

Ireland may pose an inadvertent threat to the tax capacity of Southern countries if its tax system is used by multinational firms as part of capital flight, or international tax evasion schemes. Ireland has attracted considerable foreign direct investment (FDI) through tax competition using a low rate of corporation tax, a wide network of double tax treaties and incentives for intellectual property to encourage multinational firms to locate in the country. Although Ireland has recently introduced new rules to counter transfer pricing abuse, these have significant weaknesses. There is a clear risk that without closing these gaps, our tax system can become a vehicle for complex tax avoidance schemes used by multinational firms to reduce their global tax liability. This is neither in the interests of countries which lose revenue to these firms, or in the interest of Ireland as a legitimate destination for FDI.

Read the full report, Driving the getaway