The Equalizer

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By The Equalizer - Tue 12th Jun 2012

 

It has taken approximately 48 hours for me to calm down and be peeled from the ceiling after hearing the news that Spain has officially asked for a bailout from the b-euro-cratic zone (Eurozone)

However, my fury is not with the situation (so much) which Spain is in financially, or even the cash it is about to receive, but more with the lack of reform the government of Spain has exerted in it's own backyard. A real opportunity existed, whereby the government could have reformed the banking sector once and for all!

The problem of bad debt and excessive property stock plaguing the balance sheets of banks could have been eradicated almost immediately whilst at the same time boosting tax receipts into government coffers, capitalising on black money and restoring economic growth within Spain.

I'm not an economist, but my A-Level economics allows me to understand what is going on and make an educated comment on what could and should happen to make things work again. So how would I do it...

1. FORCE ALL banks in Spain to pay interest on monies held in current accounts

Almost ALL banks in Spain DO NOT currently pay interest on money in a bank account unless you invest in a product with some time period attached. No, banks have depositors money which is effectively a loan so the bank can make more money. Banks charge interest on loans and mortgages so should be paying interest on money given to it from it's customers.

2. Eliminate annual bank charges

Usually, if you have a debit card, not a credit card, but a debit card, you will be charged annually somewhere in the region of €40 for the privilege. No, this must end. It's disgusting and downright disrespectful. Banks make money every time you use the card. They charge retailers a percentage of the bill. It's free in the UK and should be in Spain.

3. FORCE ALL banks to get rid of their bad debt property stocks immediately by reducing the prices so they sell

It doesn't take a genius to work out if you reduce the price of something valuable it will sell quicker than if you don't – The banks want to hang onto these properties and get market value, which they won't , but at the same time cry open handed to the government for bailout cash! No, you have property stock which you can sell if you weren't so greedy. Take a loss by selling cheaply. It'll improve your cash flow and you can recoup these smaller losses other ways. Yes, I agree that flooding the market with cheap property could crash the property market... But the property market has already crashed. Yes it might devalue current property prices and bring about negative equity... But negative equity is already here for millions and very few people are buying property at the moment anyway! Get investment into the country, foreign nationals are great for this, and for the love of god Spain! Be grateful that they come with money!

4. Tax Breaks for property purchases upto €100,000

If the banks sold off their property stock cheaply and the government introduced temporary tax break measures for purchases up to €100k the stock could be bought up quickly. Additionally, buyers would still be required to declare where the money came from, however, no one would be chased for back taxes up to €100k.

5. Black Money amnesty up to €1m

A real opportunity whereby money people have received in black and not declared can pay into a Spanish bank account and only pay up to 12% tax. Generally speaking, most people want to do the right thing given the choice of not and an offer like this would motivate them into action.

6. Simplify Tax

For far too long successive governments have increased tax rates to counter the effects of black money but failed to understand why black money is rife and instead spend millions chasing people for back taxes. It's simple. Tax is far too complicated in Spain and far too expensive for employers. To coin a phrase 'Tax needn't be taxing!' – Simplify tax so everyone understands how it works and what should be paid, then more people would pay it! Da! Not rocket science! Oh, and introduce the UK equivalent of PAYE! Simple!

7. Do not bailout banks

Banks always know that the Spanish government has their backs. NO, this is wrong. If a bank fails, so be it, let it fail. They are a business and like any other business which goes bust, there is no government bailout. I would guarantee depositors money up to a certain amount so it encouraged savers to spread their money around different banks. If a bank failed, sell of it's assets of customer debts/loans/mortgages to cover the costs of guaranteeing savers. Shareholders would therefore be the only losers. Sorry, but as shareholders you have a say in how a company is run. You therefore cannot complain when it all goes wrong.

8. Prosecute Bank Executives

The executive board of ANY company which has shareholders and subsequently fails is answerable to a court and where foul play or risky conduct is found to be the root of it's failure, then prosecutions are inevitable. But not for banks. No, this must change. No company or person is above the law. If you break it, you should expect the consequences.

These are simple steps with far reaching benefits for the banking sector, government and wider public. Yes they might be uncomfortable for some financial institutions and in some cases controversial, but it can't be any more controversial than the Spanish government taking a bailout! Something I find fills me with suspicion.

Why borrow money to save something that doesn't work? Why burden generations to come with debt which can never be repaid? Why pump money into something which will never come back to the public and result in reduced taxes?

I'll let you answer these questions, but it's fairly obvious that there is something dodgy going on behind the scenes.

Bankia for example won't receive a penny directly from the government from this bailout. Instead, it will go to it's parent company BFA who will then decide how the cash is distributed... Hang on, I thought Bankia will have been nationalised with a bailout. So how come BFA remain the parent company!

Let's see which bankers hit the news in the coming months with their massive bonuses.