Euro Arson Could Be Halted by Tax Trio

Roberto Perotti and Luigi Zingales provide an additional perspective on last week’s deal in this Bloomberg article.

14 replies on “Euro Arson Could Be Halted by Tax Trio”

Excellent proposals well worthy of consideration and implementation.
Roberto Perotti. The opposite of LBS. An Italian worth listening to.

There is no reason why Europe should continue to protect the arsonists who caused this crisis.

Why did nobody listen to these people?

@ CP

well they got 500bn of them last night (seriously), so try should be ok for the moment…

More dangerous drivel from the Chicago school – these guys just never give up.
Europe does not need more tax least of all on a goverments money(what a absurd concept) , it needs the rule of law.
And to base it all on a counterfeit currency !!!!!!!!!! Newton must be orbiting his grave.
When you here false morality such as “reward the good banks and punish the bad ones.” you know this is another demonic concoction.
How do we rid ourselfs of this pox ?

I really like their 3 part plan, the idea of a risk adjusted tax on debt makes a lot of sense to me. The tax could be applied at source (similar to dividend withholding tax). Using CDS spread as a risk metric isn’t ideal, though so long as there isn’t market rigging or feedback loops, it probably is as good as we can get. Overall a vastly preferable design to the currenrt fudge


Yes I read that.

Apologies to every one for going off topic but thank you to Ceteris for giving me the opportunity to get in here on this.

If I am calculating this right :then out of the the 24 BN stress test the state is forking out 14.7bn.
11BN to AIB (out of 14.8 Bn stress requirement)
3.7BN to ILP ( out of 4.8Bn after the sale of life division)
0 to BoI (after weekend deal/or is the state putting in 1.8bn?)
14.7bn (or an extra 1.8Bn to BOI)

So is the the state pumping in 14.7BN or 16.5Bn out of 24BN stress test after initially calculating an extreme case scenario of 35 BN last November?

I realise this is a huge amount but compared to 35BN 14.7BN or 16.5 BN this must be relatively good (less bad) news.


Again apologies for going off topic (but remaining topical)

Re NAMA : I also read today that NAMA has 8000 residential properties on its books in the state and a further 4000 ouside the state. Again this seems to be wildly at odds with the claims that there are between 60000 and 200000 houses unsold new houses in Ireland. If NAMA has 8000 residential properties on itś booksthen where are the 52000 to 192000 unsold new houses?

This is making me wonder whether calculations about housing figures are sourced in the same calculations which used to claim (until the census figures were published) that 500 000 people had “emigrated”.

On topic

After quickly reading the article I find it difficult to see that any of these arguments getting far beyond proposal/opinion stage. Apart from referring to “the idea of Europe” the article does not mention the “European Project”.

IMHO European unity at the moment is so fragile and national emotions at an all time high that even talk of a European taxes may upset the entire apple cart.

The US is currently finding it difficult to agree on a current debt problem even though it has one government, one economy, one currency a shared history one language and two political parties.

Europe (just the “union” part) has 27 Governments, 27 Economies, 11 currencies, diverse histories ,about 30 languages and at least 190 political parties.


After quickly reading the article I find it difficult to see that any of these arguments getting far beyond proposal/opinion stage.

Would it be any more complex that an EU tax called VAT. Or EU customs tariffs. Or EU contributions by various EU governments?
Or in expenditure terms from the several EU regional schemes. Or most of all the CAP?

Why is it when the financial sector is the target of the tax, it suddenly becomes impossible?

If you buy a bond in your own currency the yield you demand reflects your assessment of inflation, interest rates and the risk of default.

If you apply a tax say annually, based on the larger the default risk, the higher the tax, then effectively you are decreasing the coupons received by investors. They can by and large invest in other things. So the price of the highest yielding sov bonds will decrease to keep the new effective yield competitively high.

Once you announce such a tax, a loss occurs for holders. If they have underestimated default risk and are lobbying to have taxpayers in other countries stuffed with the risk they didn’t budget for, then what is wrong with that?

If (not suggested in the article) the idea were extended to new issues of sovereign bonds and the buyers now correctly estimate default risk, then the countries financing in this way will effectively end up paying the tax – since the buyers will bid fair value less the value of the tax likely to be levied on the bonds. Part of the interest the borrowing country paid each tear would simply go on paying the tax.

There is no reason why Europe should continue to protect the arsonists who caused this crisis.

I would compare the financiers to joyriders; who also happen to have made a bet on the car being burnt out at the end of the trip.

Who do they mean by ‘the arsonists who caused this crisis’? Is it the usual suspects, banks and investors that is. I think I have also seen the architects of the half-baked Euro project hiding behind the barn with a canister of petrol.

Dom K. , the euro architects were just the naive, trusting locals who left their doors unlocked at night, who couldn’t even imagine that those nice, well dressed young market men would burn other peoples homes for fun and profit.

I am much surprised with this vision of yours of the Euro architects being like Hansel and Gretel screwed by the evil witch having naively licked chocolate of her hut walls. The EU seems perfectly capable and willing to regulate ad nauseaum everything from curvature of bannanas to car emissions etc, so it is hard for me to belive they were simply caught with their pants around the ankles about probably most imporant issue the EU has delath with.

The obfuscation of risk, which facilitated borrowing of the known loose cannons unhindered by reflection of the real risks in the interest rates (until it was too late), seemed to have suited everyone for political reasons. I believe that the famous saying of Chuck Prince ‘the music is still playing and we are dancing’ appllied not only to banks.

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