The Economics of the German VAT Hike

I am very happy to be back here at AFOE, if not only, for a brief one-stop guest post about the economics of the German VAT hike and more specifically how market commentators and analists might just be reading the German economy somewhat falsely at the moment in the sense that they are not taking into account the implications of the sustained and evolving process of ageing in the German society. Indeed as Edward noted just a few days ago here at AFOE we might actually be talking about a clash of paradigms or at least a clash between two ways of looking at and interpreting the economic data coming out of Germany and indeed of the entire Eurozone. There are consequently many venues on which this diagreement is fielded and an important one of these is the German economy and more specifically the significance of the VAT hike and below the fold I will give my view on this topic.
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UK Housing Boom Over?

This is the first really concrete piece of news we’ve had on the UK housing situation. George Wimpey Plc, Britain’s second-biggest homebuilder by revenue have just announced that full-year pretax profit probably fell for the first time in a decade:

U.K. sales slipped 1 percent to 12,100 homes, with the average selling price dropping 4 percent, more than analysts had expected. Pretax profit was as much as 22 percent below 2004’s record level and at the lower end of estimates, Chief Executive Officer Peter Johnson said in an interview today.

Prospective buyers shunned purchases as Britain’s benchmark interest rate reached 4.75 percent last year, making mortgage payments more expensive. A quarter-point cut by the Bank of England on Aug. 4 has yet to revive prices. Wimpey last reported a decline in annual pretax profit in 1995. The second-half figure also fell, Johnson said today.

Flattened By The Flat Tax?

Following Alex, more opinion polls seem to be showing that Merkel will struggle to get a majority in partnerhip with the FDP. At the same time voices are being raised within the CDU suggesting that the principal responsibility for this debacle lies with the Professor from Heidelberg.

Some indication of why flat tax ideas might impact so negatively on German voters is offered by the Financial Times this morning in a leader commenting on similar proposals from within the UK Conservative Party:
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Bermuda triangle to swallow EU savings tax directive?

Well, not quite the Bermuda triangle – but the Cayman Islands might do just that.

In what is likely going to become a case study regarding the complexities of European multilevel governance, pooled sovereignty, and the complex relations of institutional Europe and the world, it seems a legal challenge brought forth by the government of the Cayman Islands, a British dependency, and thus an EU associated territory, could at least severely delay the EU savings tax directive‘s implementation – after a mere 13 years of negotiations to come up with a common solution to taxing capital gains without tampering too much with the capital’s mobility and important privacy issues.

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Work Freedom Day

European countries never do very well in the gimmicky league tables or comparative indices of nations that thinktanks love to devise in order to meet the bills. You know the sort of thing ? the World Competitiveness Ratings or the Index of Economic Freedom. I thought it was time to come up with one that plays to Europe’s strengths.

What strengths, you may ask? Well the combination of gloomy back-to-work September, and a recent report from the International Labor Organisation, Key Indicators of the Labour Market, reminded me of something the continent has in its favour ? short working hours and long holidays. And so to boost European?s international self-confidence during these difficult economic times, I would like to propose a new measure of how much time we have to spend at work, Work Freedom Day.
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