Cameron Rebukes Euro Leaders at Davos, Calls Financial Transaction Tax "Quite Simply Madness" ; Mathematical Impossibilities

Bickering in Davos at the World Economic Forum has taken center stage as U.K. Prime Minister Cameron rebukes euro leaders over crisis

David Cameron has delivered a firm rebuke to Germany at the World Economic Forum, calling on Berlin to contribute significantly more resources and guarantees to help solve the eurozone crisis.

The British prime minister stressed on Thursday that although progress had been made, particularly with the European Central Bank’s funding of the European banking system, policymakers were still far from finding a solution to the underlying problems of the crisis. He criticised eurozone leaders for being distracted by other issues, such as the introduction of a financial transaction tax – an initiative he described as “quite simply madness”.

His speech in Davos reflected British officials’ long-standing and deep frustration with Germany’s leadership of the single currency area and called for a much stronger firewall to prevent contagion within the eurozone, common European sovereign debt and for powerful countries committing to reduce their trade surpluses as much as the struggling countries seek to minimise their deficits.

The sentiments chimed with many British and US delegates at the WEF who have criticised Germany for seeking to persuade other countries to “become more German” without the corollary that Germany must “become less German” by importing more and allowing its trade surpluses to shrink.

Tobin Tax

Cameron is correct regarding the financial transaction tax, commonly known as a "Tobin Tax" named after Nobel Laureate economist James Tobin who originally proposed the idea for currency transactions only. Now they want to tax everything.

Mathematical Impossibilities

The sentiment expressed by Germany that other nations need to become "more like Germany" as in "export more" sounds good when you hear it, but it is a mathematical impossibility.

Not every nation can be an exporter. If one country has a balance-of-trade trade surplus, another country must have a trade deficit.

Thus, the only way for other countries to become more like Germany is for Germany to become less like Germany.

The same holds true for the trade relationship between the US and China.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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