Am I being dense?

France has threatened to walk out of the G20 summit in London if agreement is not reached on the important issues.  Bravo!

But wait.  What does France want agreement on?

"I am absolutely determined, and President Sarkozy has said it loud and clear, that we actually eradicate non-cooperative centres and tax havens," [finance minister Christine Lagarde] said.

"I know that Chancellor Merkel is very much on that line, I know that Gordon Brown has said that old tax havens have nothing to do with this new world.

"Well, we need to deliver on that and we need to be extremely united and strong."

Now can someone explain to me what offshore tax havens and financial centers have to do with our current mess?

I suppose some would say this is a tactic to divert attention from all the other important issues on which there will definitely not be an agreement on.  If they can at least agree to put the blame on offshore havens who, after all, will not be sitting around the table, France and the others can walk away claiming victory.  Will the media really be taken in?

Comments

[Luis Enrique]

I can't figure out how to do proper links on this site any more .... anyway, The Pope blames tax havens http://www.guardian.co.uk/world/2008/dec/07/pope-benedict-vatican-tax-havens-credit-crunch

As does the UK left wing http://www.guardian.co.uk/business/dan-roberts-on-business-blog/2009/mar/17/tax-banking-crisis

and http://www.compassonline.org.uk/news/item.asp?n=3374

[David]

It's always easy to blame others.

Though I think it's hilarious that the UK wants to lead the fight against tax havens. Channel Islands, anyone?

[Tom]

France has been receiving advice from Rob Emanuael. Never let a crisis go to waste. France is using this crisis to push its position on tax havens knowing full well that its policy prescription have absolutely nothing to do with solving the recession.

[Skeptical Smith]

Even Brasil's Squid talks about tax havens with no comprehension about what these mean.

Some helpful words on the benefict of those complainers: maybe the fact that some trades are feasible only because of the low costs due to tax haven origin and those may cause some imbalances on the forex markets and balance of payments. But in this case, the chinese behaviour is something that one might be more worried. Why does a country, any, holds more than US$ 2 Tri in FX reserves?

Anyway, tax havens have absolutely nothing to do with securitization & etc. By the way, although Spain laws prohibit this kind of operation (MBS, ABS...), their banks are also in deep trouble.

[raivo pommer.]

Raivo Pommer-eesti-www.google.ee-
[email protected]

WOLKSWAGEN INDIEN-billiger arbeiter

Mitten in der tiefsten Automobilkrise eröffnet die Volkswagen AG ein großes Werk in Indien. Mit 580 Millionen Euro ist es die bislang größte Einzelinvestition eines deutschen Unternehmens auf dem Subkontinent. Wie sehr die Krise aber die Welt umspannt, zeigte sich bei der Feier am Standort Pune, 150 Kilometer östlich der Wirtschaftsmetropole Bombay (Mumbai): Der VW-Vorstandsvorsitzende Martin Winterkorn sagte im letzten Moment seine Teilnahme ab, da er in Berlin mit Kanzlerin Angela Merkel über die Lage der Branche sprach.

Pune wird das zweite Werk des Volkswagen-Konzerns in Indien. Denn die Marke Skoda besitzt schon eine Fertigung in Aurangabad. Dort sollen auch künftig angelieferte Bausätze zusammengebaut werden. In Aurangabad werden vier Skoda-Modelle, Audi A4 und A6, Passat und Jetta gebaut. Die Kapazität liegt bei rund 30.000 Einheiten im Jahr. Im Außenbezirk Chakan vor Pune aber ist eine Vollproduktion entstanden. „Wir haben hier alle Komponenten: Presswerk, Karosseriebau, Lackierstraße und Montage“, sagt Jörg Müller, Präsident von Volkswagen India Pvt Ltd.

[Michael]

Tax havens give wealthy folks leverage.

[Dylan Grice]

Really Mr. Rodrik ... once again, I'm amazed at the systematic irrationality of otherwise smart economists ... do you really expect politicians (and French ones at that!) to eschew the tried and tested strategy of marginalise, scapegoat and then criminalise any constituency it wants, whenever it wants? Since when did reason trump populism?! ;-)

DG

[JLS]

It's impossible to fight financial deregulation without fighting tax heaven.

[Alan B]

I'm quoting myself here, or at least quoting myself quoting someone else, but the best metaphor for this that I have heard:

'One finance official characterises this attitude as akin to that of a pugilist in a bar brawl. “You wait until a fight breaks out and then take a swing at the guy you have always wanted to hit,” the official says. “Whether or not he had anything to do with starting the fight is not the point.”'

http://www.ft.com/cms/s/0/cddc22d4-1005-11de-a8ae-0000779fd2ac,dwp_uuid=2f146ad2-f122-11dd-8790-0000779fd2ac.html

[Barrett]

What's the connection with the crisis? I think the simple answer is that the recession is shrinking the world's tax base, and going after tax havens is a simple way to free up some spare change.

[Moussa]

At least that would great news for the African people. The dictators and corrupt would have to reinvest the stolen public money in Africa...
I know that is not the point. But I don't see the point of Prez Sarko.

[raivo pommer.]

Raivo Pommer-estonia-www.google.ee
[email protected]

Weltbank warnte

Der Präsident der Weltbank, Robert Zoellick, warnte vor einem dramatischen Rückgang des Welthandels in diesem Jahr. Der globale Handel in Gütern und Dienstleistungen werde angesichts der ersten Rezession der Weltwirtschaft seit dem Zweiten Weltkrieg um 6 Prozent schrumpfen. Das würde den stärkste Einbruch des Welthandels in den vergangenen 80 Jahren bedeuten. Zoellick kündigte ein neues Liquiditätsprogramm der Weltbank zur Unterstützung des Welthandels über insgesamt 50 Milliarden Dollar an. Er mahnte, auf dem Londoner Gipfel auch über Hilfen für die armen Länder zu reden. Zoellick kritisierte Amerika und China, die globale Ungleichgewichte zementierten, die auf Dauer unhaltbar seien. In den Vereinigten Staaten werde der Konsum angekurbelt und in China investiert. Zoellick sagte mit Blick auf den chinesischen Vorschlag, eine neue globale Reservewährung zu schaffen: „Der Dollar wird die wichtigste Reservewährung der Welt bleiben, und ein starker Dollar ist wichtig, um die Welt aus dieser Krise zu ziehen.“ Mit der Zeit werde es jedoch Diskussionen über die Rolle des Dollar geben.

[Ryan]

I get the impression that Sarkozy has taken home a different message from the crisis. One of Sarkozy's earliest comments was a rather strong renunciation of conventional capitalism. He was suggesting it needed a major overhaul - moreso than was being suggested by others I heard.

Perhaps tax havens aren't the largest issue here, but it's hard to argue that they have any social value. It doesn't make the job of a balancing budgets, or saving up surpluses any easier. Maybe he's throwing the demand in there symbolically, as a kind of proof of good faith.

I think for him this is about much more than fixing the explicit and obvious causes of the crisis.

[John Powers]

"will someone please explain to me..." Well, I'm not economist, part of the great unwashed, so no explaining, just for what it's worth.

I wondered whether you were serious in asking the question? In my layman's view the issue concerns the lack of power governments have over large corporations and the need for regulation. But how to regulate when governments are so powerless? You think that breaking banks up is bosh, and you maybe right about that. But how else to go? Marcy Wheeler blogged "They're not tax havens.. They're secrecy havens" http://tinyurl.com/dekw8a
The issue is not simply tax avoidance but avoidance of regulation.

Off shore banking was examined in depth during the Asian Financial crisis. Special Data Dissemination Standards were one reform that to a layman's eye had to do with this problem. In any case the issue of tax havens is certainly an issue development economists examine--and found a significant problem. So I'm just puzzled by your remark. It seems wise acre and not sincere.

[raivo pommer.]

Raivo Pommer-eesti.www.google.ee

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Millionenrente Us

Der auf Druck der US-Regierung geschasste Wagoner erhält zwar keine Abfindung, er hat aber in beinahe 32 Jahren bei General Motors Pensionsansprüche von 22,1 Millionen Dollar erworben. Dazu kommen weitere ausstehende Zahlungen, so dass Wagoner mit etwa 23 Millionen Dollar aussteigt.

Im Bochumer Opel-Werk wird den Angaben zufolge derzeit ein Sparbeitrag der Belegschaft in Höhe von rund 14 Millionen Euro diskutiert.

Hierfür müssten die Mitarbeiter auf ihre Tariferhöhung vom Februar in Höhe von 2,1 Prozent verzichten. "Rick Wagoner war Teil des Problems bei GM. Dass Fehlentscheidungen nun vergoldet werden sollen, ist niemandem zu vermitteln", sagte der Bochumer Opel-Betriebsratschef Rainer Einenkel. Er verwies auf "Wagoners verfehlte Modellpolitik".

[AP]

http://www.taxjustice.net/cms/front_content.php?idcat=136

A summary of possible links between tax havens and current crisis.

[Chris]

I don't think it's anything as complicated as that. What tax havens have do to with the crisis is the last of our president's worries - I believe it's just a matter of getting the spotlight on France and making it look like we have respectable weight in these discussions.

[raivo pommer.]

Raivo Pommer-eesti.www.google.ee
[email protected]

Erste kleinere US-Banken geben Finanzhilfen zurück

Knapp ein halbes Jahr nach dem Start des US-Hilfsprogramms für die Finanzbranche haben vier kleinere Banken als erste Institute mit der Rückzahlung der Kapitalspritzen begonnen. Auch mehrere große Häuser wie die Bank of America, J.P. Morgan Chase und Goldman Sachs dringen auf eine möglichst rasche Rückgabe der Gelder.

Die Banken wollen den Staatseinfluss reduzieren und sich die künftig steigenden Zinsen für das Kapital sparen. Anzeichen einer breiteren Erholung der Branche sehen Experten in dem Schritt noch nicht. Die vier Regionalbanken, die am Dienstag mit der Erstattung begannen, zahlten nach eigenen Angaben zusammen insgesamt 338 Millionen Dollar (254 Mio Euro) zurück.

[raivo pommer-eesti]

Raivo Pommer-eesti-www.google.ee
[email protected]

MIGRANTEN

Die Regierung hatte den Arbeitsmarkt in den 1990er Jahren für Nachfahren japanischer Auswanderer aus Südamerika geöffnet, um während einer Boomphase billige Arbeitskräfte zu bekommen. Die meisten der Südamerikaner in Japan, gut 300.000, kommen aus Brasilien. In dem südamerikanischen Land lebt mit rund 1,5 Millionen Menschen auch die größte Gruppe ethnischer Japaner außerhalb Japans.

Nun will die Regierung offenbar Druck vom Arbeitsmarkt nehmen, doch das Angebot an die Zuwanderer hat einen Haken: Wer die Ausreisehilfe annimmt, kann in Japan kein Visum der gleichen Kategorie mehr bekommen. Eine Rückkehr auf den japanischen Arbeitsmarkt wäre damit de facto ausgeschlossen. Beobachter rechnen daher nicht mit großer Nachfrage, zumal auch Südamerika unter der Weltwirtschaftskrise leidet.

Einen ähnlichen Versuch hat es im vergangenen Herbst bereits in Spanien gegeben. Dort hat die Regierung legalen Migranten versprochen, das gesamte ihnen zustehende Arbeitslosengeld in zwei Tranchen auszuzahlen, wenn sie das Land verlassen. Doch das Programm geriet zum Flop für die Regierung des Sozialisten José Luis Zapatero. Nur ein Bruchteil der Berechtigten nahm das Angebot an.

[Youri_Kemp]

Hi Prof Rodrik,

Tax havens have nothing to do with the mess.

It was a convenient stab at offshore countries, because the time was right and the American president, was a willing believer in their ills.

Best,

Youri

[Laurent GUERBY]

"I suppose some would say this is a tactic to divert attention from all the other important issues on which there will definitely not be an agreement on."

While I don't like Sarkozy, I see on this blog you advocate massive FISCAL spending to get out of the current mess created by the financial world.

Now when you talk about FISCAL spending, you talk about future TAXES.

When you talk about future TAXES, you have to ask yourself who will be the TAXPAYERS.

TAX HAVENS are where rich TAXPAYERS hide their money and so let other people pay the bill.

So going after TAX HAVENS is the absolute minimum our government can do in those time of FISCAL SPENDING.

No wonder economists like you screwed the world.

I hope you will apologize for this.

Sincerely.

[Nicholas Shaxson]

You asked for an explanation of the role tax havens played in the crisis. Well, here are some for starters. The tax havens did not "cause" the crisis, but they contributed powerfully to it. First, they offered what has been called a "get out of regulation free" card to businesses that abuse them. Banks made especial use of this - anecdotally, both the recent GAO report and Tax Research data showed banks to be by far the greatest users of tax havens. Off balance sheet financing was possible without tax havens, but tax havens hugely facilitated this stuff. Second, unhealthy competition on tax and regulation between tax havens, and between them and other jurisdictions, eviscerated and degraded regulations especially in supposedly "onshore" jurisdictions that may have helped staunch the crisis. Third, tax incentives, typically but not always through tax havens, played a major role in accelerating the build-up in debt and leverage across the global financial system. Fourth, “satellite” tax havens like some Caribbean islands or Britain’s Crown Dependencies are often conduits for illicit and other financial flows, often from developing countries into the wealthy financial centres like London, New York, and these contributed to large-scale macroeconomic imbalances. The entire mainstream economics profession has neglected to measure these vast flows. (see if you can find estimates that include serious estimates of the biggest factor: transfer mispricing. Go on. Take a look) Fifth, one of the most important features of the crisis is that the financial system became frozen as a result of mutual mistrust and impenetrable complexity making it impossible for partners to understand the financial positions of their partners. The secrecy jurisdictions, by giving companies incentives to festoon their financial affairs across multiple jurisdictions, and by covering these affairs in a veil of secrecy, have played a major part in this. Sixth, they provided the ideal situation for all manner of fraudulent business models - such as those offered by Bernie Madoff - to proliferate, adding to the mayhem.

It is important to understand that the City of London and the U.S. (Delaware, Wall Street etc) have major offshore characteristics (see, for example, the Jason Sharman study recently cited in The Economist) and this is where I believe your misunderstanding may be (I guess from the tone of your question that you have an opinion on this): you fall into the trap woven by people like Avinash Persaud saying that the tax havens are only the small vulnerable jurisdictions like Barbados, ignoring e.g. London's offshore characteristics, then saying QED. You'll have to do a lot better than that.
Not only that, but by draining reputable jurisdictions of the tax dollars of their wealthiest citizens and corporations, and by fostering massive capital flight out of developing countries, they have made it so much harder for victims of the crisis to pay to clean up the mess.

I have an idea: why don't you study the tax haven / offshore phenomenon? I mean really study it - spend a few months full time, say, at the very least. They lie at the heart of the global economy, after all: for example, half of all world trade is routed, at least on paper, through tax havens. Then you might be in a better position to pass judgement.

[don]

Alan B, Barret and Ryan make good comments. U.S. recalcitrance in dealing with the issue under Bush was outrageous.

[raivo pommer-eesti.]

raivo pommer-www.google.ee
[email protected]

Japan 150 Milliard

Der japanische Ministerpräsident Taro Aso hat heute ein neues Konjunkturpaket im Umfang von 150 Milliarden Dollar vorgestellt.

In der Landeswährung sind das 15 Billionen Yen, in Franken 174 Milliarden. Zwei frühere Konjunkturpakete hatten einen Umfang von zusammen 12 Billionen Yen. Finanziert werden sollen die staatlichen Stützungsmassnahmen mit der Ausgabe neuer Anleihen.

Es gehe darum, den Lebensstandard der Bevölkerung zu sichern und weiteres Wachstum zu unterstützen, sagte Aso in einer Fernsehansprache. Die neuen Ausgaben haben ein Volumen von etwa drei Prozent des Bruttoinlandsprodukts. Die japanische Staatsverschuldung beträgt zurzeit 170 Prozent des Bruttoinlandsprodukts und ist damit so hoch wie in keinem anderen Industriestaat.

[raivo pommer-eesti.]

raivo pommer-www.google.ee
[email protected]

WALL-STREET

Für das Opel-Mutterunternehmen General Motors (GM) wird eine Flucht in die Insolvenz immer wahrscheinlicher. Das berichetet die US-Zeitung «Wall Street Journal« am Freitag.

Demnach halten die Mitglieder der von Präsident Barack Obama einberufenen Auto-Kommission eine Insolvenz-Lösung zunehmend für den besseren Weg. Diese Ansicht habe sich in der Task-Force «glasklar» durchgesetzt. Allerdings lasse man dem maroden Autobauer weiterhin die Möglichkeit einer Sanierung außerhalb der Gerichte offen.

Zugleich erhöhe die Regierung den Druck auf die Gläubiger von GM, weitere Zugeständnisse zu machen. Nach bisherigen Vorstellungen von GM sollten 90 Prozent der Unternehmensanteile an die Gläubiger gehen. Dies werde mittlerweile als zu großzügig angesehen. Die neuen Vorstellungen sollten in der kommenden Woche präsentiert werden. Sie dürften auf massiven Widerstand der Gläubiger treffen, urteilte das Blatt.

[raivo pommer-eesti.]

raivo pommer-www.google.ee
[email protected]

PARIS CRISIS

Paris, the most-visited city in the world, is getting clobbered by a sharp downturn in global travel. International passenger arrivals at the city's two airports were down 8.1 percent year-on-year in February, and hotel occupancy rates dropped 10 percent. Even visits to the Eiffel Tower have fallen 7 percent from last year. (Overall, the US Commerce Dept. figures visits by Americans to Europe tumbled 7 percent last year.)

That's putting a big dent in the city's $13.2 billion-a-year hotel and restaurant business, which, along with other tourism-related activities, employs 12.1 percent of the city's population. "It's a catastrophe," says Bertrand LeCourt, president of l'Hôtellerie Familiale, a hotel owners' association.

Empty Rooms and Tables

It's not just sightseers who are staying away. Business travel held up relatively well during 2008, because many conventions and trade shows were planned well in advance. But now it's slumping, too. "February really scared us," said Gérard Cros, owner of the Sport Hotel, a 95-year-old establishment near the Bois de Vincennes that caters to business travelers. Occupancy at the hotel in February was down 10 percent from a year earlier, Cros says.

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Off shore banking was examined in depth during the Asian Financial crisis. Special Data Dissemination Standards were one reform that to a layman's eye had to do with this problem. In any case the issue of tax havens is certainly an issue development economists examine--and found a significant problem. So I'm just puzzled by your remark. It seems wise acre and not sincere.

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