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.