If French president Nicolas Sarkozy gets his wish to "Level the Playing Field" on sovereign bonds, a decade-long European recession is on its way.
Reflections on the Un-Level Playing FieldFrench President Nicolas Sarkozy made it clear in a speech in Toulon last week that he wanted the private sector to be given a more-level playing field when it came to the threat of having to bear losses on their investments.
He said Greece, where there have been drawn-out negotiations between the government and the private sector over how much of a hit banks and insurance companies should take under a debt restructuring, should be a unique case.
"It must be clear that what has been done for Greece, in a very particular context, will not happen again, that no other state in the euro zone will be put into default," he said.
"It must be absolutely clear that in future no saver will lose a cent on the reimbursement of a loan to a euro zone country."
Super Mario has a five-point plan to "Save Italy".For there to be no more losses, we will need still more austerity measures in France, Spain, Portugal, Italy, Greece, and Germany.
- Raise more than 10 billion euros from a new property tax
- Impose a new tax on luxury items like yachts
- Raise value added tax
- Crack down on tax evasion
- Increase the pension age
The above package was dubbed the "Save Italy" package by Prime Minister Mario Monti. Supposedly it will boost growth.
While I agree pension reform is much needed, there is not a single thing in the package to boost growth. Italy is in recession. Raising taxes in a recession is the last thing you want to do, yet four of Monti's five ideas raise taxes.
This proposal may temporarily placate the bond market, but Italy is headed for one "super recession" if Mario's mix of idiotic tax hikes passes. Instead, Italy needs to cut wasteful government spending and lower taxes.
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