In all of the bailed out nations of the euro zone, sovereign default is the worry as this can create a cascading knock-on effect like the failure of Creditanstalt in 1931 that ushered in the banking crisis of the Great Depression. We see this from the default in Greece, which led to bank insolvency in Cyprus and now threatens to bankrupt the sovereign as well. These kinds of cascades of bankruptcy is what Europe is desperately trying to avoid.
The question then is what to do about it. The natural logic of this euro crisis – in which great private wealth still exists in many of the bailout countries – is then toward wealth confiscation. Ambrose Evans-Pritchard has the goods on a German plan for just this:
Senior advisers to Chancellor Angela Merkel are pushing for better-off households to pay towards the cost of any future bail-outs for the weaker members of the single currency.
The proposals, from members of Germany’s council of economic experts, raise the prospect of taxes being imposed on property in a country like Spain if its government was forced to seek a bail-out.The council, known as the “Five Wise Men”, is often used to test new policies that are later adopted officially.
The German suggestion is the latest sign that Berlin is intent on imposing even tougher rules on weaker southern euro members in exchange for using its economic might to support their finances.
This is pure madness, of course.
And note, I think this is where Japan is headed ultimately as well.
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Things are not getting better in Europe yet; they are still getting worse.
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Wealth confiscation in Europe and Japan originally appeared on Credit Writedowns
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