1. The unpalatable fact remains that Europe may not have the capacity to rescue everybody that now seems to need rescuing without imperiling the financial health and ratings of stronger countries such as France and Germany. (Satyajit Das via, Abnormal Returns).
2. European Union officials are expected to tell banks to boost their tier-one capital ratios to more than 9 per cent this week, which the European Banking Authority estimates will require at least €108-billion ($150.8-billion Canadian) of new funds. In addition to the higher ratios, EU leaders also want the banks to accept losses of more than 50 per cent on Greek debt they hold. (Globe and Mail).
I’ve been extremely busy the past few weeks and likely will be into November such that posting from me will be sparse, but I did want to put up a brief post on the continuing economic equivalent of the Merkozy pantomime in which an entire continent is bashing its head against a wall. The above two quotes highlight the necessity for any potential solution to be able to both fund European sovereign write-offs and European bank recapitalizations, without killing the golden German goose.
Again, I do believe that a European-wide tax in the form of a value-added tax will do the trick. It provides the source of funds needed to clean up the mess. Politically, it won`t seem like only Germans are paying for everything. It gives credence to the Euro as more than a theoretical construct. It will not imperial the balance sheets of the German and French governments.
What a European Value Added Tax accomplishes is shifting the tax burden onto an already overtaxed populace and any new tax has its negative side effects. But, increasingly, it seems like Europeans will have to lump it, whether or not they like it.