Europe Versus The Fat Cats.(Business)(Germany and capitalism)

Byline: Stefan Theil

A German cloak-and-dagger operation to catch tax evaders is turning into an anti-capitalist movement.

ELITES WITHOUT MORALS--HOW THE RICH UNDERMINE OUR SOCIETY, screamed the German weekly Stern on the cover last week. IS SUPERCAPITALISM DESTROYING DEMOCRACY? asked Manager Magazine, a business monthly, underneath the picture of a giant locust. STATE ENEMY: TAX DODGER, declared Der Spiegel next to the photo of a prominent German CEO.

Germans have been riveted by the spectacle of the biggest crackdown on tax evasion in their country's history. It all began in 2006, with a constitutionally controversial cloak-and-dagger operation, in which the country's foreign intelligence agency, the BND, gave [euro]4.2 million, plus a new name and passport, to an employee of a secretive Liechtenstein bank in exchange for a CD containing the names, accounts and financial correspondence of 1,400 wealthy foreign clients. Two weeks ago, German investigators finally struck, conducting 120 raids based on the information, and received more than 160 confessions for a total of [euro]29 million in recovered taxes--with the figures rising daily. The targets have included some of Germany's most prominent executives, including Deutsche Post CEO Klaus Zumwinkel. Tax authorities in Finland and Norway are now chasing their own wealthy nationals listed on the CD. About a dozen other countries, including France, Britain and the United States, have launched their own separate investigations. Only Denmark has refused to prosecute based on the Germans' "stolen goods."

Yet judging by those headlines, the "Liechtenstein Affair" is about much more than evaded taxes. Almost overnight, the case has turned into a national uproar against "the rich" and the very nature of the economic system. "The elites are destroying our system" with their "excesses," railed German Finance Minister Peer Steinbruck after the first arrests last week. The reaction is another symbol of a growing unease--in Germany, but elsewhere, too--not only about how Europe is faring in the age of globalization, but also about what's believed to be an unjust rise in the incomes of the rich as a result. Add nervousness over rising inflation and a slowing growth from a U.S. downturn, and the result is a brew of political discontent.

If Germany is the epicenter, the backlash isn't confined to it. In France, the Societe Generale banking scandal has upped the level of unease with financial capitalism. Jerome Kerviel, the rogue derivatives trader who cost SocGen [euro]4.9 billion in January, was widely viewed not as a criminal, but as a victim or at least a cog in the wheel of l'hypercapitalisme that most French abhor. In Britain, years of simmering anger over what a recent study found to be the highest income gap since the 1940s, along with the increasingly conspicuous consumption among super-wealthy expatriates in and around an ever-more-expensive London, are now erupting out loud. The Treasury has launched a crowd-pleasing crackdown on "nondomestics"--about 120,000 foreign entrepreneurs and investors who live in Britain but are exempt from paying taxes on their earnings abroad. Fears of an exodus of wealthy residents--who have pumped their money into the City's economy--are most likely exaggerated. The story may be different, however, if the crackdown signals a larger shift away from the era of economic laissez-faire bracketed by Margaret Thatcher and Tony Blair. The swing in the mood has reached bookstores, where a new anti-rich ...