“Lesen Sie es von meinen Lippen ab, keine neuen Steuern.”
(translation: Read my lips, no new taxes.)
Okay, maybe German Chancellor Angela Merkel didn’t actually say that – but that was the gist of her message when she made a play for a second term. And it worked.
With Germany suffering through its own economic woes, taxes were a big issue in the current elections. Merkel’s opposition dug in their heels over a scheme to raise taxes on the top wage earners (hmm…. where have we heard that before?). As a result, the SPD (the party of Steinmeier, Merkel’s challenger) suffered its biggest loss since World War II.
Merkel, on the other hand, promised across-the-board tax cuts of 15 billion euros ($22 billion), claiming that she wants to be the “Chancellor for all Germans.” She also claimed that she would cut the lowest tax rate from 14% to 12% – it is 10% in the US – and raise the threshold to qualify for the top tax rate to 60,000 euros (roughly $87,774) from 40,000 euros ($58,516) – the top rate in the US hits at $372,950 for singles. Those strategies helped her win for her party, the Christian Democratic Union, together with their sister party in Bavaria, the Christian Social Union.
Of course, “win” is relative. Voter turn out was a record low and Merkel’s own party saw its worst “victory” in post-war voting. Many blame a bleak economy for the turnout.
As in the US, critics are calling Merkel’s plans for tax cuts dangerous, noting that Germany plans to double their foreign debt next year to record levels. Nonetheless, Merkel and her party believe that the cuts will spur the economy forward.
She will face at least one challenge: consensus. She owes part of her victory to the Free Democrat party, currently led by Guido Westerwelle. Westerwelle wants even more severe tax cuts than Merkel has promised. Taxes could prove to be something of a sticking point for the two moving forward. Heinrich Oberreuter, a political science professor at the University of Passau, has predicted that taxes will be “the Achilles’ heel of the Free Democrats and the (new) coalition as a whole,” claiming that tax cuts just aren’t possible in the current economic climate.
I guess we’ll see… In the meantime, the euro is expected to jump today on the news.
Germany, like the US, has been highly critical of countries considered to be tax havens. Mostly, those are countries outside of Europe with financial and banking secrecy laws meant to woo (mostly) westerners with the lure of escaping taxation. There are a few notable exceptions within Europe: Luxembourg, Liechtenstein and Switzerland.
All three are small, wealthy countries which lean heavily upon their allies. Luxembourg, in particular, has no navy, no air force and approximately 800 citizens in its army. It looks to its neighboring allies for military protection, as well as for sources of income. Heavily dependent on finance, it follows the US as the second largest investment fund center in the world and is the most important private banking center among countries that have converted to the Euro.
So while the three claim to not care what other countries think about their banking secrecy laws – and the source of their wealth – they clearly do, with both Switzerland and Liechtenstein taking steps to appease their friends and neighbors with promises of a more transparent banking process.
But Luxembourg won’t go quietly. The tiny country is now fighting a very public war of words with Germany. On Sunday, Luxembourg’s prime minister complained about recent comments made by Germany’s Finance Minister Peer Steinbrueck. Steinbrueck has been extremely critical of Switzerland, Luxembourg and Liechtenstein, down to outright accusing them of aiding tax evasion. Steinbrueck has actually encouraged others to crack down on those countries engaging in such behavior, with his party chair going so far as to say that “in the old times one would have sent in troops” to combat tax havens.
Luxembourg Prime Minister Jean-Claude Juncker was not laughing. “We don’t find that funny,” he was quoted by Der Spiegel. “We suffered under German occupation. Thank God we no longer resolve our problems with soldiers.” He continued, “We don’t talk that way about the Germans. And the Germans have no right to talk that way about Luxembourgers.”
German Chancellor Angela Merkel made what almost sounds like an apology (almost) when she said, “If there has been irritation, I as head of government will do everything I can so that it is dispelled quickly.”
Merkel, however, also made it clear that she welcomed changes in banking secrecy laws as promised by her neighboring countries. It is not certain when those changes will occur as Luxembourg, Liechtenstein and Switzerland have made no secret of the fact that they feel bullied into accommodating the wishes of their allies. Not surprising, since the three countries are somewhat stalwarts of tradition. Luxembourg’s motto perhaps sums this up best: “Mir wëlle bleiwe wat mir sinn” or “We want to remain what we are.”
