Tuesday, 25 June 2013

If Germany wants to steal our money, let them try.

On Sunday, Stuart Parr blogged here about the German plan to enact Cypriot style bank raids on the savers of Europe. To which I say: well, good. I’m all for it. And no, I haven’t lost my marbles.  
Let’s get one thing straight: taking money from citizens is what governments – all governments – do. Unable to create wealth, and with most people fairly unwilling to simply hand cash over if it can be at all avoided, they are forced instead to find ingenious ways to extract it from their citizens. 
Colbert famously once said “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”. Indeed, from a certain perspective it’s clear that the only factor separating a successful government from an unsuccessful one is the extent to which they have mastered this skill. 
So far our government seems to be doing a remarkably good job on this front, for make no mistake, it has been busily helping itself to our savings as surely as the Cypriot government dipped into their citizens' pots. Our leaders have just been far more sneaky about it. How have they done it? In two ways:
Firstly, inflation. The 2% inflation target has been routinely ignored for over three years now. Instead, in 2005 the consumer price index (CPI) inflation rate ranged up as far as 5.2%, whilst the RPI has been even higher, all whilst banks were paying out only 1-2% interest on savings. The effect has been to erode in real terms the value of the money in those accounts. Essentially, anyone with money in a British savings account has been fleeced as surely as the Cypriots have. But has there been rioting in the streets or a run on the banks? Nope.
The second way is through quantitative easing. Let me hand over to Louise Cooper writing in The Spectator(£) for this one:  “QE … uses digitally created money to ‘buy’ government IOU notes, or Gilts, thereby reducing the interest rate at which government borrows. The Treasury, nowadays, lends this money to banks (so-called ‘Funding for Lending’) and they, in turn, can depend less on borrowing from their customers. This means they offer derisory levels of interest, as anyone who is applying for a cash ISA will attest.”
Of course the situation is even worse than that. This government has made quite a song and dance about taking the lowest waged out of taxation (by which they mean income taxation – these people still pay plenty of other taxes). But the extra £700 in people’s pockets has been more than wiped out by the huge cost of inflation caused by QE, estimated to be as much as £779 a year for the poorest 10%. That’s before we even mention the £400 a year extra on VAT, or the consequences of wages also dropping in real terms. 
By contrast, the Cypriots made a rather poor fist of stealing their citizens savings. As I commented at the time, they’ve overplayed their hand and given the game away. People were lining up down the roads to guard their savings from being imperilled. In fact, it’s something of a miracle that the move didn’t spark a run on the banks across the Eurozone – and indeed if Germany continues to press in this manner, it just might. Which is exactly why I’m in favour of it. Transparency is bad for governments but good for democracy.
So savings grabs may be good for governments in the very short term if it allows them to meet the terms of a bailout, but in the long run they can only serve to fatally undermine the system. The goose is hissing loudly. It’s the measures such as our government has been employing that are really insidious, as they produce no protest, just a slow long descent into poverty. So go ahead Germany, make my day. Let the citizens of Europe know that the EU is hellbent on stealing their money. They’ll remember the lesson when they get to the referendum ballot box.