Vasko Kohlmayer
American Thinker
3/16/2010
Discussing the unfolding euro crisis in the Financial Times, George Soros noted that a “fully fledged currency requires both a central bank and a Treasury.”
As most people know, the European Monetary Union — also known as the euro area or the Eurozone — has a central bank which administers the currency. Called the European Central Bank, it was established in 1998 by the Treaty of Amsterdam and is currently headquartered in Frankfurt, Germany. There is, however, no European Treasury, a fact which George Soros bemoans. He sees this as a serious flaw that can ultimately bring down the whole system: “When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a Treasury can deal with problems of solvency.”
Soros is referring to the type of crisis that hit in 2008, when credit became scarce and many banks and financial institutions were in danger of going under because they became insolvent. In this kind of situation, central banks can tackle the credit side of the problem by slashing interest rates. This is precisely what was done by the American Federal Reserve, the European Central Bank, and other central banks across the world, several of which lowered interest rates to near-zero levels. But laws of most countries prohibit central banks from directly bailing out insolvent institutions. This is to prevent the unbridled printing of money by these currency-issuing entities. Because of this, most governments normally administer cash injections via their Treasuries, which, in turn, obtain the requisite funds through a combination of taxes and borrowing.
Since the euro area lacks a Treasury, the bailouts had to be done by national governments of the Eurozone’s members. Observes Soros, “The crash of 2008 revealed the flaw in its [the euro’s] construction when members had to rescue their banking systems independently.”
The logical solution, Soros suggests, is a European Treasury with the power to tax populations across the Eurozone in order to raise money for bailouts and other contingencies. Europeans, however, need not to be frightened by the prospect of having another tax agency breathing down their necks. Soros is quick to reassure that “the Treasury need not be used to tax citizens on an everyday basis but it needs to be available in times of crisis.”
Soros’s words conceal a terrible trap. Almost all taxes start out small and affect only a limited portion of the population. Then they grow and grow. The U.S. income tax is a case in point. When it was implemented in 1913, the top rate was 7 percent on income above $500,000 (more than 10 million in today’s dollars). By 1918, the top marginal rate was a whopping 77 percent. Franklin Delano Roosevelt hiked the rate up to 90 percent during the Great Depression. During World War II, he issued an executive order to tax all income over $25,000 at the rate of 100 percent. This order was repealed, but the top rate still remained at 90 percent.
Needless to say, a European Treasury tax would be another painful scourge for the battered European people. Soros’s sugary assurance should send a chill down their collective spine. Once under the authority of a tax-wielding Treasury, the Europeans would not only be taxed “on an everyday basis,” but they would be taxed often, hard, and high.
The article continues at the American Thinker.
