Tuesday, November 15, 2005

I don’t think that we’ll have to worry

About the EU as a dominant economic power anytime soon, especially now that Germany appears ready to attempt to tax their way to prosperity. Let’s see –

Higher marginal rates on upper incomes. Likely result, less work and investment from the relatively wealthy, or the pursuit of tax avoidance strategies. May lead to ‘brain drain’ to more economically liberal countries. Also, not likely to raise as much revenue as projected, as people alter their behavior.

Higher VAT and removal of lower / middle class incentives on saving and home ownership. Likely result: less consumer spending. Potential drops in residential real estate prices, likely leading to further erosion of consumer confidence. Slowing of consumption and residential real estate will also likely lead to lower than expected revenues.

And just to top things off, no reform in any of the key labor laws, rendering the German economy as inflexible as ever.

BBC provides a more optimistic summary here. Though as Germany’s economy sinks, it’s ability to be a major player in the world declines. The Guardian’s Luke Harding also has an interesting response and summary, noting that:

“On Saturday, Ms Merkel defended her strategy. Her budget would bring Germany back within the EU's strict growth and stability pact by 2007, she said; within a decade Germany would again be among the top three nations in Europe”
Spending 10 years to get to say “We’re Number 3!!!” seems a less than rousing call to arms. And it only #3 in Europe…