From Volume 36, Issue 43 of EIR Online, Published Nov. 6, 2009

Global Economic News

Paris Officials Prosecute Five Banks for Speculation

Oct. 26 (EIRNS)—"The banks misled us," stated Claude Bartolone, Socialist president of the Seine-Saint-Denis department, one of the most populated in the Paris region, who just announced he is taking five big banks to court, for having saddled his department with 97% of toxic loans. The banks under accusation are DEXIA, formerly a Franco-Belgian bank taken over by France since the beginning of the crash, which has been lending to the local governments in France for many years; the savings Banques Populaires/Caisses d'Épargne; Crédit Agricole; Société Générale; and Depfa bank.

"When I was elected, in the Spring 2008, to my job, I asked for a financial audit of the department," stated Bartolone. "He revealed something unheard of: We are totally dependent on structured products, the majority of which are toxic. 97% of the department's debt is based on risky loans." Asked why the department allowed this to happen, Bartolone indicated that it was the banks with which the local governments had been working since years "which changed." To attract clients, they came up with very low interest rates, 1.50% during the first year. "So at a certain point, rather than cutting back certain expenses, we had the tendency to say, well, we'll see.... Those loans are like soft drugs. At this point their higher cost, relative to classical loans, is valued at EU200 million. Those banks misled us."

To the question of what the consequences will be for the citizens of the departments, Bartolone said that the risk zone will only start in 2010, but "the great unknown is what will happen in the next 17 years to come. Impossible to know how the debt will evolve. Many loans are, for instance, pegged to the crossed evolutions of the rates of the euro vis-á-vis the dollar or of the euro vis-á-vis the Swiss franc."

Of the 36,000 French local governments, 1,300 have been swindled by the banks. In Rouen, capital of Normandy, the city officials are renegotiating with the banks, some of which have accepted. However, the city might have no other way to get money, than to increase local taxes by 8% next year.

Populist Tax Cuts Slice into German Cities' Revenues

Oct. 27 (EIRNS)—Various German states, including those run by CDU governors and the Union of Municipalities, are strongly protesting against the new, populism-driven German government plans for tax cuts in the range of EU25 billion annually, because it will further destroy their own, already shrinking tax base:

Thuringia's designated presiding minister (governor) Lieberknecht (CDU) announced that he will eventually block the tax and health policy of the new coalition; Peter Müller, CDU governor of the Saarland, has threatened to veto the tax plans in the German Bundesrat (the upper house). On Oct. 26, Berlin and Bremen threatened to block the plans, and to possibly even sue the Federal government in the Constitutional Court.

CDU finance minister of Baden-Württemberg Stächele criticized the new plans. According to him, the result of these tax cuts will be up to EU1.7 billion added deficit just for his state, which has to struggle with the collapsing auto industry. His state and its municipalities would enter a "new, additional debt spiral," he said. The SPD finance minister of Rhineland Palatinate Kühl also opposes the plan: "The plans of black-yellow will destroy the budget of the states for years to come," he said. He estimates the losses through measures already decided upon and the new measures to be in the range of EU1.2 billion for his state. He said that the measures will hit the socially weaker part of the population and the states. The state of Hesse, with CDU minister president Roland Koch, fears a EU1 billion drop in tax revenues.

Also, the managing director of the Union of Cities and Municipalities, Gerd Landsberg, said that the planned tax cuts will "take away the air to breathe." Cities and municipalities which were already expecting a drop in tax revenues in the range of EU10 billion for 2009, would have to manage another EU3.6 billion less in tax income, if the plans are realized, so that they cannot fulfill their mandated tasks. The corporate tax cut caused by the government's populist mantra "promote growth by reducing corporate taxes," is hitting muncipalities—for which the corporate taxes are the main source of income—especially hard.

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