I refuse to believe that the Bundesbank is staffed by idiot-savants. So, how should we interpret its quaint proposal that Eurozone member-states facing default some time in the future should resort to a one-off (wealth and income) tax?
One interpretation is of the idiot-savants variety. For example, Karl Whelan tweeted: “Bundesbank one-off wealth tax proposal an excellent idea for those who feel no fiscal crisis is really complete without a good bank run.”
My interpretation, based on a radical reluctance to believe that Germany’s Central Bank is populated by fools, is quite different. Their proposals possess both rhyme and reason. Alas, one has to dig deep to discover them.
Last April I was stunned to read Mr Jens Weidemann’s deposition at the German Constitutional Court (December 2013). In that document the head of the Bundesbank aimed his slings and arrows at the ECB’s ‘presumptuous’ attempts to save the euro (Draghi’s “we will do whatever it takes” June 2012 pronouncement, as well as the OMT announcement that followed a couple of months later). Given that Mr Draghi was facing, in the summer of 2012, the starkest of choices (intervene to save the euro, in the fairly minimalist manner that he did, or let the currency of which his organisation is the sole custodian collapse), what was Mr Weidemann up to when disputing, at the lofty setting of his nation’s Constitutional Court, Mr Draghi’s, and the ECB’s, basic right (and obligation) to try to save the Eurozone?
My answer (in this post) was:
“A close reading of the Bundesbank’s constitutional court deposition leaves us with only two possible interpretations. One is that Mr Weidmann does not ‘get it’; that he cannot see that a Greek exit in 2012, or an Italian exit in 2014, would spell the end of the Eurozone; that he cannot see that Mr Draghi’s OMT announcement played a crucial role in stopping the disintegration of the common currency last year; that he has no appreciation of the catastrophe facing good, solid Spanish and Italian enterprises due to the broken down interest rate transmission mechanism. The other is my interpretation: Mr Weidman can see only too well that the above hold unequivocally but is tabling this deposition at the constitutional course knowingly and as part of a strategy that leads the euro to a death by a thousand, almost silent, cuts.”
The most recent Bundesbank proposal would, if adopted, (and as Karl Whelan succinctly implied in his tweet) create conditions of a slow-burning capital flight from the Periphery that, at moments of heightened fiscal stress, would quickly turn into an exodus. I have no doubt that the Bundesbank’s higher echelons understand this. But this is precisely why they are proposing the one-off tax: because the Bundesbank’s long term aim has always been a smaller Eurozone, preferably unshackled by any member-state west of the Rhine and south of the Alps.