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LONDON (InsideBitcoins) — The map of Europe has not always been dominated by Germany. Prior to 1871, the country didn’t even exist; before then the German speaking people lived in a disparate group of principalities and duchies, the ‘Holy Roman Empire,’ a state dominated by Austria and still later by Prussia. Since that time, the German Question, as it was usually referred to, plagued the minds of the political intelligentsia. Its central location, its size and its population base mixed with the seemingly unstoppable work ethic of its people and produced a country that was better placed to inherit the mantel of European hegemony than any other since the fall of the Roman Empire.
That other European countries refused to accept this fait acompli as it unfolded before their eyes is of course one of history’s great tragedies. Two wars were fought for control of Europe and three solutions to the German question attempted.
The third time’s the charm
The first, to denude Germany of the resources it needed to compete on an equal footing with its neighbors, led to an economic stagnation that affected all corners of the globe. The second, to split the country in two came to an abrupt halt at the conclusion of the Cold War.
And the third? The third was to create the EU, a super state where German influence could be curtailed by the combined will of other member states. And thus the European civil war that began in 1914 ended finally in 1993, when in Maastricht the boldest political experiment of our times was born. The European Union, detractors aside, has been something of a runaway success ever since.
No European can fail to recognize that Germany remains both the senior partner and the Union’s most vocal champion. Two other partners, France and the UK have economies of similar scale though both have to contend with a nationalist sentiment that remains unfathomably hostile to the European experiment. However, whereas France and Germany maintain geopolitical goals so similar that they can effectively speak with one voice, the UK relies disproportionately on the financial sector for its income and Britain’s eagerness to embrace the Fintech of the future has led to a number of high profile clashes with Germany in recent years. Bitcoin, ever the scapegoat, has been caught in the crosshairs on more than one occasion.
Deutschland and digital currency
The official German position as regards cryptocurrency might seem somewhat intractable to the casual observer; bitcoin is a commodity or voucher, that is to say, it’s subject to VAT. Trying to unravel why this is the case is slightly more complex.
In the UK for example, bitcoin is VAT exempt despite the fact that both Britain and Germany are both working from the same crib sheet, the EU VAT directive, or more specifically Article 135. According to 135, all activities listed as a commercial instrument are considered to be VAT free. From the UK’s perspective, bitcoin is a commercial instrument, from Germany’s it is not. Which brings us back to the question of why.
One major difference between the two countries is that in Germany regional currencies exist side by side with the Euro. Bavaria for example has its own currency, the Chiemgauer which operates on both a physical and digital basis. With an exchange rate indexed to the Euro, the currency, which can only be used within Bavaria itself, sits well within the legal framework of the Federal Republic.
German law states that trading in goods and service requires a 19% VAT charge be applied however, this charge does not apply to the trading of legal tender. Which is a good thing really, since nobody would touch the Chiemgauer with a barge pole if they had to pay the government 19% of its value every time they wanted to convert it back to Euro.
No master and no borders
And herein might lay the clue to Germany’s reluctance to embrace bitcoin. It’s a potential threat. Not to the Euro of course; the days of bitcoin challenging the might of the world’s most important currency union, if they ever come at all, are decades away. The regional currencies are however looking exceedingly vulnerable. The Chiemgauer is allowed to exist because it provides a way of feeding money back into regional development; remittance using regional currencies, to use just one example, is possible only by converting it into more familiar fiat like the Euro. Bitcoin, operating in an area that it effectively created for itself, has no master and knows no borders.
Not that this fundamental disagreement has had that much of an impact on German enthusiasm for the currency. For one thing, the German position, along with the UK position for that matter, is subject to clarification by the EU parliament, the progenitor of the VAT directive in the first place. Consideration might take months or years but sooner or later a decision will be made that defines bitcoin’s taxable status across the whole EU. The safe money, for those who are wondering, is on it being pronounced tax exempt. In the meantime, the VAT charge on German bitcoin has no effect on private citizens buying, selling and trading bitcoin. And bitcoin-friendly businesses, though not so fortunate nonetheless thrive in Germany.
A growing factor in Europe’s most powerful economy
As visitors to the upcoming Inside Bitcoins conference in Berlin will soon find out, there will be no shortage of places to choose from for those wishing to kick back and spend a few satoshis after a hard days shop talk. The nation’s capital sports 50 merchants, placing it fourth in terms of European capitals, behind Amsterdam, London and Madrid. Products on offer range from video game shops, the by now obligatory café bars and restaurants and other boutique-style experiences too numerous to mention.
Bitcoin, less well received by German financial authorities than perhaps it has been elsewhere, is still growing strong in Europe’s most powerful economy.
Ian Jackson is an Inside Bitcoins correspondent based in the U.K.
Inside Bitcoins conferences are produced by MecklerMedia, the publisher of InsideBitcoins.com.