December 15, 2014
By: Kelly Diamond, Publisher
This is the story about two bailout countries in the EU: Spain and Ireland. Their respective bailouts were not structured the same, but they were very close in timing and amounts offered. I don’t want to call this an experiment because it has no real controls. However, we can learn a few lessons from these countries and how they each go about addressing their economic woes.
As you may already know, Ireland was the not-so-proud recipient of a 90 Billion Euro bailout in 2010. Its recovery is not fun nor is it very comfortable, but it is a recovery nonetheless. It has undertaken some serious austerity measures. Well, we call them austerity measures, but it’s really the Irish government scaling back on government salaries and its involvement in social welfare… a place in which it never belonged to begin with.
When a business goes bankrupt, one of two things happened. Either there wasn’t enough demand for the good/service at the price point offered, OR there was a serious mismanagement of money behind the scenes. In the case of Ireland, it was the latter because there is still a tremendously high demand for Ireland globally. Specifically for its very competitive tax regime. And by “competitive” I mean LOW. For an English speaking country in the EU, there is no question that it has one of the lowest corporate tax rates in its class, bar none. I wrote a short piece on this recently called “The Double Irish”. Sadly, the same EU that forced Ireland to take their bailout money is the same EU that is condemning its low taxes, despite the obvious economic advantages it affords Ireland.
What Ireland is experiencing is a high volume of tiny corporate tax contributors. More important than that, however, is that those corporations are offering jobs to the Irish. So while the corporate tax might be low, the country benefits from its citizens being employed by said corporations.
Last December, Ireland was the first of the five EU bail out countries to exit the EU bailout program. While they have a tumultuous road ahead, such is the nature of recovery. Ireland’s unemployment rate is forecasted to top around 10% next year. To put that into perspective, the U.S. usually becomes unhinged around 8%.
Ironically, while the EU condemns the “Double Irish” loophole, they also like to hail Ireland as an indication that things are taking a positive turn for the EU economy. Really? The WHOLE EU is now recovering because of Ireland? Okay. Then how do they explain Greece, Cyprus, and Portugal? Portugal is staring down the barrel of another EU intervention, and we’re supposed to believe that the EU is stabilizing?
Spain accepted larger sum of about 100 Billion Euro in 2012, but in the form of a loan. It only wound up borrowing something like 45.4 Billion Euro. (I say “only” but just in contrast to the amount initially approved by the bailout. It’s still a ridiculous amount of money!) Indeed, Spain is the second country to exit the EU bailout program.
Spain’s unemployment rate is currently at 26%. So what does it do?
Well, its local municipalities have lost so much money to solar power, they are taxing people for basically using the sun. I wrote about this very thing over a year ago when local governments in the U.S. decided to tax rain collection: “For Your Own Good Tax”. Yes, people are struggling during some really difficult economic times. Yes, people found a more economic resource for energy. And yes, they relied less on the state utilities. And yes, the state suffered a great enough loss, that the penalties could get as high as 30 million Euro if you are caught collecting photons.
Second, they are looking to dip into people’s pensions and the Social Security equivalent. Our own Gordon Haave wrote about this earlier this year.
But you will never believe what Spain is taxing now. Take a moment to make a few guesses… Go on… I’ll wait…
That’s right! LINKS!
“The Spanish government passed a new copyright law in October that imposes fees for online content aggregators such as Google News in an effort to protect the country’s print media industry. The law comes into effect in January.”
“Known popularly as the “Google Tax”, the law requires services that post links and excerpts of news articles to pay a fee to the Association of Editors of Spanish Dailies. It will also affect other news aggregators including Yahoo News. Authorities will have the power to fine websites up to €600,000 ($748,000) for linking to pirated content.”
Basically, the actual printers in Spain are suffering a loss to online news. Just as the candle industry would attack the light bulb, or the horse-and-buggy industry would point the finger of blame at the automobile, so too will the print industry of Spain force something as cheap and efficient as the internet to compensate for the losses incurred by the antiquated newspaper industry.
So what is Google going to do in response to this? Pull out of Spain, of course.
“This new legislation requires every Spanish publication to charge services like Google News for showing even the smallest snippet from their publications, whether they want to or not. As Google News itself makes no money (we do not show any advertising on the site) this new approach is simply not sustainable,” wrote Richard Gingras, head of Google News.
Germany tried this little stunt in October as well. It lasted TWO whole weeks before the publisher of the top-selling newspaper company in Germany backed off. His traffic plummeted.
“Google delivers more than half a billion clicks to German news sites per month. The search company has paid more than one billion euros in online advertising fees to German media publishers in the last three years.”
Seems this publisher isn’t angry enough to put his money where his mouth is. And nor will Spain for any sustained period of time. They can plug their ears and cover their eyes to what happened in Germany, but inevitably they too will realize that they cannot afford this assault on Google.
“Google was driving more than 10bn clicks to publisher websites every month and its Adsense product, which delivers ads to websites, paid out over $9bn to publishers last year, up from $7bn the year before.”
So there you have it. While Ireland is trying to find ways to compete, Spain is sentencing competition to several lashings.
I think we all know which model will triumph. But we will continue to monitor the goings of this region, and share what we find.