Global Storm May Swamp Safe Harbors


Igor Greenwald Image Igor Greenwald Chief Investment Strategist, MLP Profits

The better foreign markets may be vulnerable to more bad news out of Europe and China, writes senior editor Igor Greenwald.

Overseas news now comes in two flavors: bad and worse.

In Europe, the public spending cuts piled atop private-sector recession are proving predictably destructive. Spain finally unveiled the latest plan for bloodletting, as previewed here last week, and its fourth austerity package in seven months looks even more draconian than feared.

It will slice spending and raise taxes by 5.6% of the GDP over the next two-and-a-half years. The value-added sales tax will rise from 18% to 21%. A tax break for home buyers, public employee salaries, and unemployment benefits are on the chopping block as well.

As The Economist notes, it’s possible the measures won’t shrink the budget deficit at all, as the worsening economic downturn depresses tax collections. And if the aim is, as The Economist supposes, to win compassion from the stony Germans, the violent protests in Madrid suggest that Spaniards are quickly losing patience with that “strategy.”

Italy’s sales tax was already at 21%, and won’t rise to 23% for another year under the back-loaded cuts recently passed by Mario Monti’s government.