Monday, 7 July 2014
France - the Euro Killer?
France has predicted growth of 1% this year and 1.7% next year - but according to the international experts this is quite a heroic estimate. In June many of the key manufacturing and business indicators put France on warning for a mild recessionary event in the second half of this year.
French Unemployment is above 10% and the population is growing fast - faster than the UK. Also it is for the same reasons as the UK - immigrant mothers and record levels of immigration are both boosting the population. Not so long ago (up to WWII and until the 1960's) France had a much smaller population than England. Now that has changed and it is no coincidence that UK and the FN are both rising int he polls rapidly on both sides of the channel.
France too has a leftist Government that is the most unpopular of all time - a great accolade for President Hollande. With Government spending at 57% of GDP there is little for private business to do in France. To pay for this, taxes have gone up from 44% of GDP to 47% of GDP in the past three years.
To do this France has relied on huge increases in social taxes, in effect, employment taxes. A business colleague of mine opines that in his business, on euro spent on salary requires 9 euros to be spent on employment and corporate taxes. Not only this, but French tribunals find in favour of 'unfair dismissals' at a rate of 75% success for employees who then get 6 months pay. The net result is no one is ever sacked and instead there are huge bribes paid to make people leave on mutual terms and not submit unfair dismissal claims - typically 3 months pay, natch.
Together with this micro-economic mess, France has played for years in the world of state subsidies and ownership - to great effect historically too. TGV's plough the country, the farmers are paid from EU funds. There is a rosy glow from the past, however manufacturing is in decline and has been for a while and all French companies look to build up there foreign units where possible to avoid French labour laws and tax laws.
At the next elections is is hard to see what will happen. The Left will be defeated, but whether by the traditional right or the Front National is harder to see at the moment. France is the sick man of Europe currently and its saving grace is its low budget deficit, much lower recent times than the UK's, which to date has prevented any kind of run on its bonds. However, with sclerotic growth and no reform, France is headed in only one direction.