What Will You Do When the Money Goes?

So runs the title of a song by band Milburn. Well if you're a Greek then go back to the money you used before you got yourselves into the mess you're in now. It'll hurt for a bit, but ultimately the pain will subside then fade. And if nobody knows what I'm on about at this point then please feel free to return to your cave in Tahiti and return your fingers to your ears and close your eyes. All better? Good. 

Now, to the main thread of the first part. Yes, first -- I'm going back to the old format. Got a fair bit to say this week. Might even throw in a third, I'll see how I feel. It's all a bit linked now I come to think of it. OK, the third makes up for missing a second bit out a fortnight ago. So -- launch. 

Now I've finished doing my impression of a writer on The Bridge, you're all coming with me on a tour of Greece. See the ruins, soup kitchens and elderly people rooting through dustbins. Yes, I know, and it's a fundamental reality for some now. Pensions aren't stretching as far, nor are salaries as we hear stories of parents giving their children up to an overburdened state. Welcome to Greece 2012; please don't expect much to be functioning at the moment. Disillusionment runs rife, as do rumours as to which party's going to get the plurality and whether or not Greece will still be in the single currency or not in four weeks. The Olympics seem to have been kicked off in good style by a run on the banks as well. The sad fact is that none of this is sustainable for much longer. Germany, swamping Europe as it does with its economic might (take note, would-be dictators. And indeed dead ones), might be able to buy Greece outright but the German taxpayers wouldn't stomach it. A recent BBC interview conducted the day of Francois Hollande's arrival in Berlin for his first summit with Herr Angela, showed the disdain some Germans have for their Greek neighbours and indeed their worries about what will happen should the Euro collapse. But they need not fear. Germany's economy is growing and doing well; they can send a clear message to the Bundestag about what should happen with their money. 

What should happen is that Greece be allowed to quietly slink out of the currency and then the continent be re-structured, as has been suggested before. A strong North (Finland, Germany, France, Belgium, Netherlands, Luxembourg and Austria) and a more manageable South (Portugal, Spain, Italy, Cyprus, Ireland, Estonia, Slovakia, Slovenia and Malta). Now, of course, there are two glaring anomalies there -- yes, Ireland and Estonia are with the South, despite being far to the north. That's a matter of geography, not economics. While there are fewer countries in the North, they are nonetheless the larger and more stable economies (Estonia could have some good potential, so we could soon move them North). They would be best suited to working out economic and currency difficulties because they have the necessary capital. I'm no economist myself, but I do recognise common sense when I see it and this is a possible as good ideas go. 

So what of the Greeks? Well, the drachma could be re-introduced and pegged both to the Turkish lira and the Euro. The former is the more preferable, as Turkey is close to Greece and their economy is also doing rather well. It would be weak at first, but nursed on both lira and Euro, it could grow to being sustainable in a few years' time. Certainly a weak drachma would encourage tourism, particularly from the eurozone as well as from Britain and the US. However, there are two things that could necessarily scupper such a plan. The first being that Greco-Turkish relations can be a little fiery from time to time and pegging drachma to lira could result in a heavy backlash. The second is that if Greece is permitted to leave the Euro, what would then be wrong with Germany saying "we're tired of supporting Portugal and Spain too. We might just encourage them to leave". In my view I see nothing wrong there because that's another two currencies to compete against the Euro and make it work harder. A third aspect is that the Greeks don't seem to want to leave the single currency, but don't want to obey its rules. It's just so hard to come up with sensible policies in an area where one size only fits Germany. 

Speaking of sensible policies (and returning home now), I read something that piqued my interest and seems to have been picked up in a few publications. The proposal out today from the TaxPayers' Alliance and Institute of Directors suggests that, while cuts would still need to happen until 2020, growth would be stimulated by 8.4% over 15 years. Doesn't sound like much, I know, but consider what would be needed for this to happen; scrapping air passenger duty, abolition of national insurance, abolition of stamp duty on shares, the abolition of corporation and capital gains taxes to replace them with the 30% rate and include rent in that as well. Council funding would be cut, but local authorities would then be able to raise revenue through local income and sales taxes. Personal rates would only be 30% as well, with a personal allowance of £10,000. 

While the deficit would increase by £49.1 bn in the first year, annual borrowing by 2017 would fall by £35 bn. However this would be offset a little by people having more money in their pockets to spend on things they know they want. Sales taxes might rise to help cover the cost, but in large parts of Scandinavia this has been the case for a long time. As Tim Worstall pointed out (see links below), Sweden has no inheritance tax, gift tax or wealth tax and all the countries (who, if they had the Euro, would be in the North) enjoy relative prosperity, despite having low personal and corporate taxes. Even though they have socialised healthcare, there is no such thing as a Swedish or Danish NHS; it all comes from the local tax pot. Amazing.

Returning to the Olympics and now leaving the world of finance. The Olympic torch finally reached British soil on Monday to start its tour, which now only has 65 days to run. If republicans all want to escape the Jubilee, then can I please escape the blasted Olympics (that cave in Tahiti I mentioned earlier would do nicely)? I don't mean to be unpatriotic, in fact any of my friends reading this (to whom I haven't already given my opinion on the stupid thing) would probably be shocked at my lack of enthusiasm. Not that my deep-seated antipathy towards sport has anything to do with it. Not in the slightest, I am perfectly comfortable admitting that I don't much care for sport at all. Never have done. It's just all the hype and how clearly anyone who doesn't like the Olympics must be some kind of lunatic. I just fail to see why there is so much enthusiasm for a thing which is only going to cause us so much embarrassment. We're not going to win, people, we might come a decent third or fourth but that's it. It's a waste of effort and money for something which is only going to be here briefly and will do little by way of legacy.

http://blogs.telegraph.co.uk/finance/timworstall/100016459/lets-give-polly-toynbee-the-britain-she-wants/