Germany’s Bundesbank said the imposition of a one-time capital levy on private assets could be an option for countries facing extraordinary financial stress.
“In the exceptional case of a country’s looming insolvency a one-time capital levy could be more successful than the other relevant options,” the Bundesbank said in its monthly report published today. “As long as the levy is tied to assets that have been accumulated in the past, and is credibly seen as a one-off, the people subject to the levy could only avoid it in the short term with difficulty.”
The central bank’s comments come three months after the International Monetary Fund suggested that “the sharp deterioration of the public finances in many countries has revived interest in a capital levy.” The Washington-based organization’s comments made front-page news in European newspapers, prompting the IMF to clarify that it “emphatically does not recommend” the measure.
While such a one-time tax may be preferable to bail-outs of indebted European countries, it isn’t risk-free and should only be applied as a last resort, the Bundesbank said.
A capital levy “should only be used in absolutely exceptional circumstances,” the Frankfurt-based central bank said. “All in all, the imposition of a one-time net capital levy comes with significant risks and the preconditions for a successful implementation can’t be met easily.”