It’s been another tough week for Spain. The southern European country, struggling with recession and an unemployment rate of 24 percent, has been inching closer to joining Greece, Ireland and Portugal in requesting an emergency EU / IMF loan. Spanish Prime Minister Mariano Rajoy, who took office just four months ago when the crisis looked set to completely overwhelm the eurozone, warned that if the country doesn’t keep cutting its deficit then it won’t be able to meet its commitments to the EU. Yet investors are getting worried by Madrid’s slow progress, and economists believe that Spanish banks will soon be forced to turn to the eurozone’s bailout fund, the European Financial Stability Facility (EFSF).

The European Commission flatly denies any plans are afoot for a Spanish bailout or for a recapitalization of Spanish banks (whilst also stressing that the fund would – hypothetically – nonetheless have the legal and financial capacity to provide assistance should it ever became necessary). Could we about to see another EU member-state receiving bail-out money?

We had a comment sent in by Marcel that was highly critical of the idea of stronger European economies supporting their struggling neighbours. He left a comment saying: “My country, [the Netherlands], has pension fund assets totalling 130% of GDP. For the rest of the Eurozone on average this is 20-25%. Can you see why fiscal union would be a catastrophe for us? I don’t think you’ll find more than 1% [would] be willing to ‘share’ around, and those are the ones who can afford it. [Among] the lower middle class and lower incomes, who did not profit from the euro at all, you will find no such ‘European’ solidarity. It simply does not exist.

Debating Europe recently spoke to Portuguese Socialist MEP Ana Maria Gomes about the situation in Spain, her own country and the wider eurozone. We took Marcel’s comment to her and asked her how she would respond.

The Netherlands might have this level of pension funds that Marcel mentioned, but the Netherlands also has one of the lowest systems of corporate taxation in Europe. Did you know that out of the twenty companies that are listed in the Portuguese stock exchange, nineteen don’t have their headquarers in Portugal? Of these twenty, sixteen have their headquarters in the Netherlands? This is a system for legal tax evasion. These companies don’t have to declare, by having their holding companies based in the Netherlands, the income they make internationally, from China to Angola. So, you have institutionalised a system of tax havens which leads to fiscal competition in the most unfair way. A tax jungle.

This is one of the things preventing countries like mine from reducing our deficits; the tax evasion amounts to 78% of the money that we need to balance our budget. This is benefiting other member-states, namely the Netherlands, and not being used for investment in the Portuguese economy, so the system is quite perverse as it is now. Fiscal harmonisation is an essential element to get us out of the crisis.

Of course, we also need solidarity. We will not survive if we allow the continued divergenece between the German economy and the Portuguese economy to go on. This requires real solidarity between the members. So, without moving in that direction we are not going to sustain the EU, and the countries that are benefiting most from the single market will also be affected. Some, like Portugal, may already be paying a very tough price. Others, including the Netherlands, sooner or later if they don’t defend the solidarity that is inehrent to the EU, they will also be hit, and we will all be in the same situation.

We also had a comment sent in from Renata that was highly critical of the European Central Bank (ECB). She argued that: “The ECB cannot [continue to] give funds to banks and private financial institutions without fixing disbursement conditions to be applied to sub-lenders, such as maximum [interest rates].” How would you respond to Renata?

Isn’t it outrageous that we have this system that Renata describes? The ECB can finance banks at 1% and then the banks go and take that money and finance governments at 5 or 6%, and if the banks even go and finance SMEs at all then they do it at a much higher rate. And that same ECB is not allowed to finance governments that are trying to balance their budgets at a reasonable rate? This system is perverse.

Let me tell you, I was on the radio recently and I told them that the situation is getting so desperate that I would pray for a bail-out for Spain. Not because I have anything against Spain. Not because I don’t know that what happens in Spain will have tremendous implications for my country as well. But because I fear this is the only way for the neo-liberals to understand how the crisis is affecting the whole economy. Perhaps, by having a big economy like Spain under speculative attack, they will finally recognise that this recipe of bail-outs and austerity measures served in Portugal, Greece and Ireland is not working.

What do YOU think? Would a Spanish bail-out finally convince “neo-liberals” that austerity isn’t working? Or would the contagion spread to Italy and other countries, threatening the stability of the eurozone? Do we need fiscal harmonisation in Europe to help close “institutionalised tax havens”? Or is tax competition between member-states a healthy way to ensure a sustainable economy? Let us know your comments and thoughts in the form below, and we’ll take them to policy-makers and experts for their reactions.

Images Credits: CC / Flickr – bagelmouse

26 comments Post a commentcomment

  1. avatar
    Karel Van Isacker

    Fiscal harmony is indeed needed. What we get now are the northern countries paying loads of taxes, the southern ones next to none (as many evade taxes there as well, see Greece), while some tax havens like Ireland continue to exist. While the Eu wants a unity, it has forgotten the main element: fiscal unity as people should be equally contributing.

  2. avatar
    Nikolai Holmov

    Whether Spain will need a bail out or not will not solve the EU internal issues or force them to be faced with the degree of like-mindedness required.

    For all the talk over the past few years what has actually been done to legally and finally put the structural deficiencies right within the Eurozone and within the EU itself?

    The EU isn’t working anymore. It is in a bureaucratic malaise of functionary technocrats with absolutely no imagination or creativity. There are no big ideas, no characters with the charisma and presence to invigorate or lead.

    The Eurozone is as broken today as it was in 2008 and nothing has changed. The EU is as dysfunctional today as it was in 2008 and nothing has changed.

    There are no visionaries, there is no imagination, no leadership. There are grey, dull, boring technocrats attempting to maintain the status quo only.

    Even the 2008 – present on-going crisis hasn’t brought the EU back to life despite needing emergency resuscitation. It is still in a comma.

    If Spain needs a bail out it will get one because it is anticipated and the EU body has lost all sense of feeling. It is numb, lifeless and on technocratic life-support but without the soul it used to have when there were people of imagination within it.

    Who gets excited about anything Herman VR or Barosso or Baroness Ashton have to say? The EU population? – No. EU Member States? – No (Unless it is completely contradictory to their individual positions). The rest of the world? No, the rest of the world will listen to Merkel, Cameron, Sarkozy etc individually and bilaterally.

    In needs people of imagination and character to survive – simple. If it has those, it wouldn’t matter is Spain need a bail out or not as the rest of the globe would have confidence in the EU that is currently doesn’t have.

  3. avatar

    The problem is not the tax in the Netherlands, it was no problem in the past so why is it a problem now suddenly? There is to much emotion along side the problems we have, like north against south what is this the American civil war?? We are in a monetary union and we are all getting screwed by the same problems caused by the banks. The financial sector in Europe is getting pounded severe, and reforms in the banking sector are going veeeery slow. There are still to much greedy folks running the show. Because lets get one thing straight Europe may be in problems, but the banks still hand out these crazy bonusses like they’re used to do. This crisis is put on the sholders of the common worker. So to answer your question, yes we should help Spain because there is no other solution, therefore a better question is who’s going to pay for the mess in Spain?

  4. avatar
    Steve Patriarca

    This is question is conceptually confused (“silly” if one wants the venacular tongue). Does anyone know a so called neo-Liberal who would support the return to the “Gold Standard” and fixed evchange rates across most of Europe? For that is the effect of the Eurozone. It is not the Austrian School which has got us into this mess (partly because the Austrian School is very unpopular in the EU including Austria!) It is the Stalinist regime in Brussels, of unelected Apparatchiks and ideologues such as the crypto Marxist Jacques Delors. It is the Delors School which brought this about and I do not think he would describe himself as a neo liberal. What Greece needs now – as does all the Eurozone – is a retrurn to competitiveness and to the possiblity of a market economy..which it can’t have in the Euro. Maybe we need to continue the reasoning a little further – do we need to destroy the Euro, or to have competing currencies? Suppose someone set up a new currency in Greece which would operate in the local economy. It already exists widely in the Mediterranean countries – it is called exchange and barter and it is a way to avoid taxation. The failed experiment of the Euro would in other times have led to Eurocrats being beheaded… we need not go so far. But let us replace them with men and women who understand economics..and let us find a way to restore national – or at least regional currencies – and some economic viablity to countries virtually destroyed by the Delors Plan.

    • avatar
      Rui Duarte

      I am very suspicious of visionaries that see marxists everywhere. Anders Breivik saw marxists everywhere. Do You see them too?

      I see no marxists in Brussels, so let’s try to keep this debate lucid; would you?!

  5. avatar
    Steve Patriarca

    a further thought, I think the British position has been largely misunderstood as a piece of Little Britain nationalism. The Prime Minister makes it sound like that but economists are more measured. Currencies do not need to be nationalistic. The Euro as currently conceived must go and will go eventually it is just a matter of time and how much misery the Eurocrats will impose before they admit it or before there is sufficient citizen revolt to remove the EPP/Socialist unholy alliance. But it does not have to go completely, there are a smnall number of countries with economies sufficiently in synch to operate a single currency.. it will be challenging for them because it will be initially an overvalued currency and they will find it cheaper to import from Greece or Spain… but that is what markets do.

  6. avatar
    Steve Patriarca

    “the stability of the eurozone”..that is what I mean by “silly”…who can possibly write such a phrase has he or she had his or her head in the sand for the past two years? –

  7. avatar
    Vicente Silva Tavares

    Europe needs to apply reciprocal customs tariffs to give an opportunity to the European industry. Europe needs to have plans for economic developpment. Yes, it should have a fiscal harmonisation. What’s the point if big companies put headoffices in Holland just to run off paying taxes?

  8. avatar
    Steve Patriarca

    I live in a high tax state – we have excellent public health care, good public transport, good road and rail infrastructure, adequate public education subsidised arts – how can anyone say the same levels of tax should apply in a country which has none of these things? It is not just economically illiterate it is a moral evil. These Eurofanatics have to be resisted on moral grounds as well as practical ones as what they are doing to Greece is an evil.

  9. avatar
    Rui Duarte

    Bailouts are neither the problem nor the solution: bailouts, or the need for bailouts, are just a symptom of a liquidity crisis caused by monetarist fundamentalism. «The problem» is being daily originated in the European Central Bank and the solution, adequate financing of the euro-zone economy (yes, all of it), must come from the European Central Bank.

    Bailouts are no substitute for the the European Central Bank and will only be sucessfull to the extend the ECB takes some part in it.

    The need for emergy bailouts exposes the fragility of the architecture of the EURO as a financial arrangement. A definitive solution to the european liquidity crisis must involve a thorough overhaul of european financial architecture, inlcuding banking and finance regulation and a new mandate for the European Central Bank.

    «Liquidity crisis» is how we should properly call what is happening in the EURO zone; and not «debt crisis» or «sovereign debt crisis». Although all countries in the euro zone must correct their imbalances, with greater urgence for those who have deficits, those imbalances are not the direct cause of the BAD economic performance of the euro zone. Nor is it a cause of «the crisis».

    «Debt» is not the cause Germany is «growing» at a zero rate (which is already bad) and many countries at a «negative economic growth» rate. The direct cause of this catastrophic economic performance is «inadequate financing of the economy» through an inoperative and partisan central bank and severely disfunctional financial institutions and architecture.

  10. avatar
    Vania Silva

    if they put out the euro wee are beter without crisis the euro come peopel close shoping from food etc….. alot of problems with that money

  11. avatar
    Christos Mouzeviris

    First of all, many kudos to MEP Ms Gomez for her reply to Marcel… Brilliant.. The rich northern European countries need to tell those things to their citizens and stop “scapegoating” other countries in need..

    Second I want to agree that austerity is not working out…for the people… but there is a plan.. and the plan is to redesign and restructure European economies and make them more competitive against China.. Social Europe will be no more in the future, because simply we can not afford it anymore (that was one of the outcomes of the Economic Ideas Forum in Dublin yesterday which I attended).. So even though I personally do not agree with austerity as it does not create real growth (in my opinion) I think that eventually one by one all countries will fall into it and we will have cutting of salaries and social security benefits across the EU… starting from the weaker states… So brace yourselves for more Europeans….!!

  12. avatar

    The €urozone can only stay together if the southern members raise the productivity of their workforce and the creativity of their economy in general. What the northern members can do is to encourage their companies to invest in the south. The current policy of bailouts, ecb flooding the banks with money, or eurobonds and transfer union will only weaken the whole of the EU in the long run.

  13. avatar
    Christos Mouzeviris

    Karel you do not understand the situation in Greece or Ireland… First of all it was the rich that were tax evading in Greece not the ordinary citizens..It is unfair to say that all Greeks are tax evading. That is a bubble gum that your media pushed upon you to influence your country’s public opinion against those states in need… As for Ireland, yes it is unfair to be a tax haven in the EU, but Europe offers Ireland no alternatives yet.. If Ireland, being a small country seizes to be a tax haven and agrees to harmonize its tax system with the rest of Europe, then it will lose its competitiveness and all foreign businesses will leave the country… Then its economy will totally collapse.Is that what you want? If Ireland satisfies European demands on this issues, what will Europe do to compensate the Irish? Will European companies come and fill the gap? Will German factories come and be established in Ireland to give jobs to the Irish, jobs that they lost because they agreed to the French and German demands? Think about it…

  14. avatar
    Salvatore Emanuele Schimmenti

    I just hope that a president of any European nation, make the smart move to generate a crisis that leads to the end of europe and the euro.
    I will not make sacrifices for you, but only for the Italians. Monti is sold to Merkel, does not represent me as chairman of the board!
    And teach my children to be alone and to hate the Italians in Europe as millions seem to hate her right now! Down with the euro and Europe!

  15. avatar
    Jacqueline Marie Demy Mayo

    Do not consider Spain out of the ball game yet….Rajoy has only been president for a little more than 3 months and has had to clean out the CRAP left by the socialists…group of crooks if you ask me…they raped and pillaged Spain, and left her broken….butspain is a fruitful, strong country when faced with adversity….only a matter of time. As for the Eurozone itself??? Dont you think it is about time that europe stands as one in the world order…or are you always going to rely on the United States to bail you all out everytime there is a conflict….sooner or later the U.S. will get tired of haing American blood spilled on european soil for something we should hae taken care of… is time to stop sucking on the PACIFIER!!!!!

  16. avatar
    Hervé Loizelet

    “Rajoy has only been president … has had to clean out the CRAP left by the socialists…group of crooks if you ask me” Jacqueline, I do not think only a group a person can destroy a country economy by themselves. We must think about the real reason of the situations. I do not support the left or right party decisions. But why the european countries have debts ? Where all this money ended ? Why countries spent money they did not have ?

  17. avatar
    Steve Patriarca

    indeed..and of course Europe needs to be united and this is why we need to restore national currencies or at least a number of currencies relevant to the economic needs of the people – the Euro has divided Europe horribly – it has undermined democratic institutions – it is destoying livelihoods and lives…until we can be rid of the Euro Europe cannot be regenerated.

  18. avatar
    David Fuzzey

    No,nothing will convince them…yes it will spread…an bring down the euro and hopefully the eu too.

  19. avatar
    Eusebio Manuel Vestias Pecurto

    Quando apareceu o Euro os cidadãos iam ao banco a comprar os cartões de credito quando um cidadão ia ao banco a pedir um emprestimo para montar uma pequena empresa para criar postos de trabalho a banca negava esse empréstimo eu volto a culpa é aos governos anteriores porque nunca controlaram o sistema finaceiro dos seus paises

  20. avatar
    Steve Patriarca

    well if we bring down the EU that would be a castrophe but one wonders if the suporters of the Euro are secret Eurosceptics conspiring to create such a ridiculous and evil ideology as to discredit the whole European project. No one has done more to discredit the EU than those who supported the Euro.

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