This afternoon at 16:30 CET the President of France, François Hollande, will hold a press conference where he intends to unveil a new programme for the economy. It is to be framed as a more business friendly approach, a partnership between the state and enterprise. One has lost count how many times that mantra has been trotted by global politicians; rarely has such an agenda sown seeds for success.
Of course, this afternoon many journalists will be in attendance, however, the questions they will really wish to ask will be more suited to the gossip columns as against the financial pages.
Here I wish to consider the economy as against the salacious tittle-tattle of the tabloids.
Regular readers will know that I am radically pro the free market and oppose all forms of socialism. In that light ever since the French elections of 2012…May for President and June for the National Assembly Spotlight has railed against the sheer folly of the agenda being proposed by the incoming administration and government.
Growth in 2013 may be recorded at 0.2% rising to 0.8% at best this year. The latest PMI reading was just 47…i.e. contraction, the level of Debt:GDP 92.7% and unemployment at 11%. Throughout 2012 and H1 2013 the President assured the rest of the Eurozone that the nation would achieve the target budget deficit of -3.0% by the end of last year. Instead it is -3.5% and France had to beg an extension until 2015 from its European peers.
There has been no incentive for creative entrepreneurs to set up a business when they are threatened with a tax of 68% on any profits they may make if their venture were sold to another company. Business are bullied as left wing dogma has repeatedly failed to recognise that both French and international corporations have to compete on a global stage and therefore cost control is an essential tool of the trade. Holding key management hostage (Goodyear) when a plant is threatened with closure does nothing to attract new incoming capital.
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If one indexed the DAX and the CAC 40 at the end of 2011 as starting on level terms i.e. 1:1, then the fatigue of France is shown in that at the end of last week the DAX:CAC ratio had risen to 2.23:1…there is little more that needs to be said.
If the President, this afternoon marks a shift away from his socialist, anti-business agenda then surely the markets must recognise it as the acceptance that the manifesto that he ran for office on has crumbled and is to be judged a failure. Why now, when in his 20th month in Élysée Palace has it dawned on him that socialism is a fine idea until one has to ask who will pay. Clearly it is the French people that paying for this "Grande folie".
However, the posturing policies look set to continue as one mooted proposal is a "Responsibility Pact". Under this initiative, corporations will qualify for tax rate reductions provided they promise to hire more workers.
The cut in taxes would lift corporate profitability as the cost burden would be reduced, however, the first step in re-energising industry is for the existing spare capacity to set to work. Rather than hiring more workers immediately, the existing workforce needs to raise its productivity. In short, whilst trapped inside the fixed rate fetter of the Euro, France has to undertake an internal devaluation. Then, and only then can more workers be hired. The addition of new personnel has to be targeted at achieving an economic goal…not fulfilling a political pipe dream. Only through efficient free enterprise will the level of French unemployment start to fall. If the dead hand of the state is not rolled back, unemployment will simply keep rising.
It is not our care to be drawn into commenting on the President's private life. After all, the highest office in the French Republic appears to have "une affaire de coeur" as part of the history. What we look for is, as a politician will President Hollande prove up to the task of delivering an economic recovery in the Eurozone's second largest economic power. We hope the answer is yes…however the sad truth we actually think he is not. Any deviation from the well-trodden left wing path that has been followed since May/June 2012 will bring about a backlash from politicians that are even further left in their view. They have supported the President thus far and any appearance of selling out on workers' rights in favour of corporate profits will be attacked by the unions.
President Hollande still has, in theory, 40 months in which to make something of his Presidency. Sadly we anticipate that the policy script issued this afternoon will be light-weight and blown off course when the protest of the left becomes vocal and takes to the street. Within one year from now we believe that it will become clear that within the Eurozone, France is not the second best it is simply the least worst.
Stephen Pope
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