Austria would fight to maintain bank secrecy, declared uppity Finance Minster Maria Fekter. She is worried. After squashing Cyprus, gutting its offshore financial and money laundering center, and destroying its main resource, the EU has now trained its big guns on Austria and Luxembourg.
The big guns: German Finance Minister Wolfgang Schäuble and, for a change, French President François Hollande, who is spiraling into utter unpopularity at home, and whose budget minister had been sacked after being accused of committing “tax fraud laundering” via bank accounts abroad. Other countries have jumped on the band wagon. Even the UK is willing to negotiate. It’s getting serious. They want automatic transfer of bank data of foreign clients to their respective governments.
Germany has already singled out Luxembourg, a small country with an outsized, murky banking sector that has long been accused of “tax dumping.” It’s in a similar category as Cyprus used to be. As part of the bailout, Germany had insisted that Cyprus – in Chancellor Angela Merkel’s words –”change its business model.” Which scared Luxembourg. At the time, its Foreign Minister Jean Asselborn struck back and accused Germany of “striving for hegemony.” Germany did not have “the right to decide on the business model for other countries” and “to choke” them “under the cover of technical financial issues.”
He was brushed off in Germany, even by the opposition. “No business model can be tolerated in a market economy that circumvents fair competition,” retorted Joachim Poss, deputy leader of the opposition SPD. “Of course Luxembourg belongs to the group of problem countries.” Two weeks later, Luxembourg buckled.
But Austria, which isn’t nearly as dependent on its financial sector, remains recalcitrant. Germans love that place. They go there by car or train with a bunch of euros in their luggage for a couple of days of skiing, hiking, or browsing through the glory of Vienna, and when they have a few minutes, they stop by their bank. Austrian banks adhere to bank-secrecy rules. Deposits are not disclosed to German authorities. It works wonderfully, the combination of vacation and money laundering.
For most people in southern Germany, the nearest bank branch in Austria is only a few hours away. From Munich, for example, it’s about an hour to Achenkirch. I know several Germans who move their untaxed cash revenues out of harm’s way in this manner. One of them is the owner of a casual restaurant, mostly a cash business to this day. He declares enough of his cash revenues to justify his purchases, pay his people, cover his expenses, pay himself the minimum salary that makes sense, and show a small profit. He keeps the remainder, about a third of his revenues, as spending cash for his household. And every few months, he – with or without family – spends a day or two in Austria, but only when the weather is nice. This is vacation, after all.
Finance Minister Fekter doesn’t want to strangle this capital stream, and the income it generates for Austrian banks and the tourism industry. She said it’s smarter to go after the source, namely the tax dodgers when they’re in their own country, instead of creating a “data cemetery” – whatever she meant by that evocative term. And if the US is applying pressure, she said, the EU should return the favor and push the US to crack open states with their own secrecy laws, such as Nevada, where foreigners can hide behind nominee shell corporations.
But Fekter’s hard line contradicted her boss, Chancellor Werner Faymann, who’d said perhaps still in panic after the shock of Cyprus that Austria would be open to discussing an automatic data exchange.
Germany and Austria are joined at the hip, economically. They rarely disagree on monetary issues. For decades, the shilling had been pegged to the Deutsche mark. But bank secrecy has become a serious point of contention. And Fekter might well lose that fight.
My friends with untaxed nest eggs in Austria are already scrambling to find a safer place – while they still can. Because the EU, as Cyprus has shown, is serious about destroying tax havens and money-laundering centers – and it has ever more power and centralized decision-making to do so with horrendous force at the worst possible moment. Russian depositors in Cypriot banks can sing a song about that.
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.