Posted Aug 22, 2013 by Martin Armstrong
The solution we have been working on is rapidly becoming the only way out. The amount of debt keeps growing and there is just no way to resolve this mess. Either we go into a massive default wiping out all pensions, or we keep raising taxes and destroying the economy wiping out the youth and destroying job creation. It is time we get rid of the corruption and the lawyers perpetuating this mess.
Below is a translation of the German report on the fact that about 50% of all European municipalities are broke, will be raising taxes, and their debts keep going as the economy fails to keep pace.
Almost every other municipality has posted a budget deficit in 2012. For the current year, the Institute of Economics, Ernst & Young expects in a recent message to the fact that 59 percent have higher expenditures than revenue. Overall, the debt of all municipalities is 135 billion euros.
Many communities can not repay their debts on their own. Ernst & Young estimates that the shortfall will be allocated in the near future to the taxpayer:
“Given the desperate financial situation of many municipalities comes another wave of power cuts and tax increases on the citizens: three-quarters of local authorities want to increase 2013/2014 taxes and fees. And 37 percent plan to reduce or discontinue services, such as street lighting in the area or in child and eldercare. ”
For the study, 300 German municipalities were interviewed. In addition, the budgets of municipalities was analyzed with at least 20,000 inhabitants.
There is a gap between the low and the heavily indebted local governments. Thus, the municipalities were having a per capita debt of less than 1,000 euros easily improve their situation. Such communities whose per capita debt is over € 2,000, get more and more into debt.
The growing social and personal spending rose by three to four percent in the past year. Investments for the clammy municipalities have less money (-11%). The disability and the provision in old age has been the federal government finance and relieve the municipalities. An assumption of the costs for the integration subsidy for persons with disabilities is also planned.
Sustained federal support is not for the municipalities. According to the Treasurer, the share of municipalities that can not submit a balanced budget will rise from 40 to 53 percent within three years. These communities have also increasingly the federal bailout of the states as well. In return for such grants, the local authorities to undertake consolidation measures.
“End of the road”
For fiscal consolidation and the increase in fees for daycare helps to be increased in 30 percent of all municipalities. The property tax should be raised to 28 percent of all municipalities.
“The fees screw is tightened further, the citizens have to adjust to a new wave of tax and fee increases – after it already in the past few years across the board increases were,” said Hans-Peter Busson, a partner at Ernst & Young.
It is assumed that the youth and senior citizens fall by twelve percent. The street lighting is limited to ten percent. Seven percent of the indoor and outdoor poolsare closed. The possibilities are limited: “In many administrations, there is hardly voluntary benefits that reduced, or charges which may be further increased – as has now reached the end of the story,” Busson said.
The “time bomb” ticking
The debt ceiling to force the states to cut off the municipalities of additional resources. This will strengthen the financial problems yet. “In fact, many German municipalities are already bankrupt,” Busson said. “The debts are a time bomb of the moment no one knows how they can be mitigated.”
One potential solution looks Busson in privatization and the sale of real estate. In addition, the consolidation of smaller municipalities should not be taboo.
To profound structural changes is no way around.