Germany tentatively has a government after months of negotiation between Angela Merkel’s coalition which fell short of a majority, and a team from the Social Democrats, SPD, which played up the fact that it is the only possible partner for the Christian Dems and their Bavarian allies. The Greens said ‘nein’ and the ex-Communists are not ‘salonfaehig’ (socially acceptable.)
Playing a strong hand, the SPD now will get its members to vote on the program it hammered out with Merkel’s reps. It includes lots of socialism. There will be a national minimum wage, something Germany has never had, which will hurt those who are not worth paying it, mostly in East Germany. There will be rent controls (German cities do not have coops or condominiums but merely rental apartments), which will discourage new housing construction. Pensions will be raised. Infrastructure spending will increase. Germany will not take on more Euro debt from its southern neighbors.
The Euroland markets are in an optimistic mood today on the deal. By and large the German ‘grand coalition’ platform includes no tax increases despite a euros 20 bn spending spree. With one exception.
The exception is a nasty bombshell for us. The vexed Tobin tax on financial transactions is back, forced into the platform by the SPD. This tax has to be extra-territorial, or else all trading in German stocks, bonds, currencies, derivatives, investment assets, and financial instruments will move out of the country imposing it. The idea of a punitive fee on trading to finance bank bailouts has been kicking around the Euro-zone for 3 years, vigorously opposed by US and British market players like depositary banks, brokerages, and even some Euroland issuing companies.
The proposed tax applies if any of the participants in a financial instrument trade come from the taxing country: the company whose stocks or bonds are traded, the seller, the buyer, or the intermediary bank or broker. The originator of the financial transaction tax, France, has now backed off on the advise of its Finance Ministry. The European Union has accepted that a broadly applicable FTT will hurt markets and may be illegal.
