Sarko the Euro-populist

In what is no doubt part of his resurrection bid, French president Nicolas Sarkozy has proposed a  vague-sounding cap on VAT/TVA as applied to fuel.  He has a point.  VAT is an accelerator of underlying price increases, since the amount applies as a percentage of the net price and not is a fixed monetary amount (like fuel duty).  Thus any increase in the net fuel price gets 21% (in Ireland, for example) added on to it.    On the other hand, he’s also dragging in the EU, since the commission would have to approve a modification of VAT as applied to fuel.  So pending that, all he has is a proposal to “redistribute” the VAT windfall as selective subsidies or transfers.  One wonders to what extent such proposals will generate “me too” proposals in other countries — especially in the UK, where Gordon Brown will surely balk at yet another revenue drain as he deals with a summer of discontent. 

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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