Spain is facing a run on banks and should be asking for an emergency bailout soon. The $109 billion they borrowed failed to have the hoped-for effect and the money is almost gone. They will be coming back to the trough, followed by Italy and Greece.
Andrea Merkel continues to push for austerity – a sane voice of fiscal responsibility in a sea of reckless spenders.
In the mix of all this is the heavily bureaucratic French government which is now headed by a socialist, Francois Hollande, who believes in taxing the rich into oblivion.
Like a true socialist, Hollande worked hard for two months in his new position as the French Prime Minister, and then went on a very public vacation with his girlfriend. She’s a bit chubby and when a French paper published bikini photos of her, she sued and won $2500. It wasn’t their finest hour if they were hoping to set an example.
Hollande was rewarded on his return with new poll numbers showing his approval rating had fallen below 49%. The French people, 72% of them, believe he hasn’t been active enough in dealing with the economy and unemployment. It took Sarkozy 6 months to get below 50%.
The even-further-left-than-Hollande’s-party party is launching attacks. The media is turning against him.
The French have reason to worry:
- Unemployment is at 10% and growing as large companies shed jobs and reduce work schedules
- Three million French people are on the dole
- The Bank of France is contracting
- The economy is at a standstill with three quarters of zero growth (next year’s growth estimate of 1.2% is probably optimistic)
- Violence in cities in the North and South is erupting among the disaffected youth, gangs, and gypsies
- Fighting over nuclear power looms. Unlike our socialists, France’s socialists prefer nuclear power as the main source of their electricity but environmentalists don’t
Hollande’s platform of class warfare and tax the rich into poverty might need to be walked back. His 2012 budget taxed the wealthiest (those making a €1 million and up) at a rate of 75%. There is talk of it being reduced to 67% – wow! Hollande might exempt sportsmen and artists, choosing winners and losers in true socialist fashion.
Britain tried a similar form of taxation of the wealthy and the revenues went down by $48 billion in two years as the wealthy quickly became creative in hiding their money or sending it elsewhere.
Inheritance taxes will increase to 75%. No more passing down that family farm.
Banks and big businesses are also going to be hit hard, which should be bad for business. New levies will be placed on bank profits, dividends, and bonuses, with oil companies being singled out for special treatment.
The financial sector will get killed. There will be taxes on shares bought in over 100 French companies and similar taxation for high-frequency trading. Great idea – should really be a boon for growing the business sector.
Need we wonder why large companies are shedding jobs and the Bank of France is contracting?
New regulations will ban high-level executives from making more than 20 times the salary of the company’s lowest-paid employees. That could mean cuts of 68% or more. Some will end up paying 90.5% in taxes.
Hollande plans to use the money he stole from the rich to kickstart the economy (that is referred to euphemistically as a pro-growth measure).
As one would expect, they’re going to run out of rich peoples’ money. Hollande will have to dig into the wallets of the middle class. People making over $185,000 will be taxed 45%.
France has a large government sector and they could cut unsustainable healthcare costs and retirement benefits. They could also cut payroll taxes on employers, but it is not something the socialist Hollande will do. He will cut services.
There is no other way Hollande will reach a budget deficit of 3% in five years. France’s debt is a searing 90% of their GDP. [The U.S. debt-to-GDP ratio is 101% give-or-take, making the U.S. worse off.]
Hollande’s much ballyhooed cuts to government spending, which will come from cuts to services, will only take care of 30% of the 30 billion euros in savings Hollande needs to balance the budget within five years. Since his planned cuts won’t do it, he has to tax.
Unlike Barack Obama, with whom he shares the socialist vision, he will likely not raise the corporate tax on large firms to 35% from 33% while cutting it to 15% for small businesses. [The U.S. will have the highest corporate tax rate in the world, making us very uncompetitive in the world market.]
If Hollande does not reach the promised deficit goal, borrowing costs could go up and investor confidence will go down.
If any of this socialist vision looks familiar to you, you might want to consider it carefully before you hit the polls in November.