Wednesday, 1 October 2014
France and UK future united?
Either way, France is making excuses about its budget deficit and its inability to hit the 3% or lower target demanded by Euro membership. France is due to miss by 1% every year until 2017. Oh for the UK to be in this position, our budget deficit is 6.5% and none of the UK politicians are making any real noises about how to reduce this beyond saying cuts are coming after the election!
That France has higher public net debt to start with makes things more difficult. But the truth is that France has tax rates that overall are not too dis-similar to the UK, only about 2% points higher on balance. However, with its vast public sector, powerful unions and left-wing Government, no one is in a position to force real change; or even to want it.
This same situation will likely appear in the UK after the next election. A Labour government led by Ed Milliband will have no appetite for real austerity. Taxes can only be raised a little given their historically high point has already been reached - there are severe diminishing returns for pumping up taxes from here.
Reforming or cutting services will not be on the ideological agenda so instead they will hope that economic growth outstrips the debt growth. However, this is unlikely to happen as the high point for growth in the current cycle is around now in all likelihood, not in 2015/16 when instead you would expect a slight slowdown or, if unlucky, recession.
Also in France, President Hollande is very unpopular, with the right wing Marie Le Pen seen as the main challenger - this surely gives hope to UKIP too in the UK that given the above set of circumstances it can replace the Tories as the party of opposition in time for 2020 when a sad Labour Government will be beaten out of sight in the election - having delivered a dog's dinner of hollow promises for its 5 year term.