Eurozone must end this phoney war

Allister Heath
EUROPE is in a phoney war. The establishment is still in a denial about the inevitability of a Greek default; the markets don’t believe the politicians. The result is ever higher yields on Club Med debt, growing fears, extreme volatility in the pricing of banks’ securities, tensions in the money markets and a constant and destructive war of words. This chaos, and the dramatically lower share prices of many financial stocks demonstrates the uselessness and idiocy of the short-selling ban in parts of the Eurozone. It achieved absolutely nothing at all. The Eurozone needs to learn that grand gestures and propaganda don’t work. It should listen instead to the former president of the Argentinean central bank, Mario Blejer, who took over in the then devastated country in 2001 after its $95bn default. He thinks Greece, if it ever wants to salvage its economy, “should default and default big. You can’t jump over a chasm in two steps.” Argentina’s GDP collapsed by 10.9 per cent in 2002 before bouncing dramatically back.

A Greek default will be cataclysmic – but attempting to delay the inevitable threatens an even greater catastrophe.

First it was Warren Buffett, then it was a dozen French billionaires: one occasionally hears wealthy people saying they would like to pay more tax to help the public finances. Generally speaking, they express these feelings loudly; and then, rather than offering to donate more of their own money, proceed to call for higher tax rates, in practice invariably of the kind which would hit people with hugely less wealth seeking to build a better lives for themselves and their families. In the end, nothing actually happens: the billionaires bask in glory – but they don’t actually put their hands in their pockets. It’s costless moral posturing.

But a rather touching blueprint exists for those who genuinely want (rather than merely pretend) to hand over more of their own (rather than everybody else’s) wealth to the taxman. When he was financial secretary to the Treasury nine decades ago, Stanley Baldwin, who was later to become a Tory Prime Minister, was so worried by the crippling size of the national debt as a result of the first world war that he decided that to take matters in own hands. Astonishingly by modern standards, that didn’t mean using his powerful position to introduce new taxes.

Rather, he penned an anonymous letter to The Times in 1919, calling on the rich to voluntarily help the public finances. He calculated that his own wealth was £580,000 – an even greater sum of money in those days than it is today – and worked out that he could live comfortably with around a quarter less. So Baldwin quietly bought £150,000 in war-loan stock-certificates (gilts were actual paper in those days) which he then tore up, transforming his investment into a gift to the Treasury. Crucially, he did all of this anonymously; it took years before it emerged that the initials F.S.T. with which his letter was signed actually stood for financial secretary to the treasury. It was an astonishing, selfless act; in those days, politicians from a privileged background truly saw themselves as public servants making a sacrifice to advance the national interest for patriotic reasons.

Any billionaire or in fact anybody else who feels like following in Baldwin’s footsteps should feel free to put their hand in their own pockets.
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