In 2007 the IMF published a novel paper by Ahmed Zorome seeking to find a new way to define what he calls offshore financial centres and what I would call a tax haven of secrecy jurisdiction. What he suggested was that the ratio of net financial services exports to GDP might indicate this. He calculated a mean and then the standard deviation from it, with those at one and two standard deviations being highlighted in this table:
He concluded all with exports of more than a standard deviation from the mean were offshore centres: Cyprus figured in the list. Some places were of course, off the scale.
Some of these places have now failed. Others, like the UK, are having very bad recessions. More, like the UK's jurisdictions, Hong Kong and the Netherlands Antilles (now in constituent parts) survive because of the implicit guarantee of a powerful state. Singapore survives because of the unusual nature of its state. Switzerland is being broken open. Malta looks to be an issue waiting to happen.
What is interesting is the consideration of where the contingent risk lies dormant, and how it might be exposed. Because have no doubt, as many of these places already know, being such a centre is now a recipe for financial woe.
And for those who ask, no I can't wholly explain the Icelandic data, except that the over-extended banks did not export as such; they over extended their direct investment base, which is different from exporting financial services and may be why the bail out pattern it followed cannot be replicated.
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Apparently America and the UK and New Zealand too.
It’s an interesting chart, but I suspect it needs people to drill down further into the national listings – the US has a significant “internal export” business built on Delaware, Nevada and Wyoming entities, and I believe the same is true in Madeira. As you say, all the while the UK stands guarantor to Jersey, Guernsey, IOM etc the financial communities there will have nothing to worry about.
Most people might not worry about the latter – but given the fragile situation in Portugal, something small might be enough to topple things.
I think that guarantee from the UK cannot be relied on forever….
The FATCA challenge suggests patience is running out
“As you say, all the while the UK stands guarantor to Jersey, Guernsey, IOM etc the financial communities there will have nothing to worry about.”
Which is why we should stop standing as guarantor ASAP. HopefullyRichard, you’re correct in what you say above re FATCA.
‘Switzerland is bein broken’
3% unemployment, a budget surplus, low taxes, negligible public debt, GDP growth a full 2% above the European average and in line with the US.
I think many would love to live in such a ‘broken’ country.In fact 300,000 EU citizens have moved to Switzerland in the last 5 years, so that the foreign-born share of the population is now almost 25% of the total.
It’s banking secrecy is being broken
Ed Conway’s comments are interesting!
http://www.edmundconway.com/2013/03/cyprus-good-news-for-the-fight-against-tax-avoidance/
A very interesting graph, Richard. I note that the UK and Ireland are practically on a par to Cyprus and this was produced in 2007 before the Cameron govt. I wonder what the graph would look like now.