France willfully setting itself up for failure

posted at 12:01 pm on July 5, 2012 by Erika Johnsen

France’s socialists recently gained a sizable majority of their parliament, as well as electing the ultimate champagne socialist to the presidency. I’m enjoying following the French beat, not because I take any perverse pleasure in watching countries suffer and stagnate beneath the myriad opportunity costs and petulant ineptitudes of socialism — but rather because the way this is all going to play out is just so utterly, laughably, painfully predictable. It’s not going to work out according to your sanguine, reality-negligent plans, I can promise you that much, France:

France’s new Socialist government announced tax rises worth 7.2 billion euros on Wednesday, including heavy one-off levies on wealthy households and big corporations, to plug a revenue shortfall this year caused by flagging economic growth. …

An extraordinary levy of 2.3 billion euros ($2.90 billion) on wealthy households and 1.1 billion euros in one-off taxes on large banks and energy firms were central parts of an amended 2012 budget presented to parliament. …

The budget followed a grim assessment of public finances on Monday by the state auditor, which warned that 6-10 billion euros of deficit cuts were needed in 2012 and a hefty 33 billion in 2013 for France to avoid a surge in public debt dragging it into the centre of the euro crisis.

One of the highest state spending levels in the world has raised France’s debt by 800 billion euros in the last 10 years to 1.8 trillion – equivalent to 90 percent of GDP, the level at which economists say debt starts to hinder economic growth.

It infuriates me that Europeans are busily denouncing the “failed” “conservative” policies of recent leadership, and the mere word “austerity” is treated like the plague — you haven’t had conservative leaders, and you certainly haven’t had austerity. You’ve had slightly-less-progressive governments making very tiny budget cuts and shuffling money around. Quit pretending like you’ve actually made any real efforts at encouraging economic growth rather than appeasing your populace with the promise of more free stuff. Punishing the wealthy isn’t a real long-term solution, it’s a populist ploy that’s going to amount to a drop in the bucket.

Honestly, France — start taxing the heck out of your country’s financial movers and shakers, and what do you think is going to happen?

More than the 75 per cent rate, it is a move to higher wealth and inheritance taxes that worries him – and what he perceives as a cultural hostility to the rich. “The anti-wealth rhetoric is just not encouraging. I’d rather be in a country where I don’t have to deal with that,” he says.

It is not just expatriates who are concerned. Henri de Castries, head of Axa, the insurer, is one of France’s most respected business leaders. “I’ve listened to Mr Hollande. He wants to see more growth and lower employment. He wants to see business prospering. We want to see that, too,” he says. “The question is how to achieve these goals? There is no example, in modern economic history, of a country that has succeeded in reducing its deficits by bringing taxes to a confiscatory level. On the contrary, it leads to a decline in activity, and an increase in the deficits.” …

The leader of Europe’s second-biggest economy – the only leading EU state headed by a socialist – has made waves across the continent with his determination to shift the focus of the battle against the eurozone’s crippling sovereign debt crisis from German-led austerity to promoting growth.

There’s a very good reason that these countries are so eager to “go global.” As Margaret Thatcher once famously said, “The problem with socialism is that eventually you run out of other people’s money.” Well, countries like Spain, Italy, and France have reached that point when they’ve run out of their own money — so now they want to “go global” so they can keep living their unsustainable, comfy lifestyles without having to reform. The eurozone affords them a larger pool from which they can take and subsequently burn through money. Eventually, however, that’ll run out, too — how long can this madness go on?


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