Europe – update (1)

This is the first in a series of update posts tracking the developments predicted in my “Europe” essay:

Today I will dissect the contents of the policy statement by the French PM Jean-Marc Ayrault, charting France’s way forward:

He confirmed those earning more than 1m euros (£800,000) would be taxed at 75%.

It was predicted in my post – the “rich” will cop it big time and this is just the beginning. Monsieur Ayrault’s boss, Monsieur Hollande, has even stated with surprising frankness that he does not “like the rich”. This is an amazing admission for a politician but entirely consistent with the Marxist viewpoint.

Mr Ayrault also said gay couples would be allowed to get married and to adopt children from next year – an election pledge made by President Hollande.

This policy proposal fits neatly in the left-wing agenda but has no direct economic implications.

Mr Ayrault added the proportion of nuclear power in the production of electricity would be reduced from 75% to 50% by 2025.

Another bullet point in any Green/Red political manifesto. If carried through, it will further decrease the competitiveness of the French industry by replacing the cheap and reliable power supply with wind farms. More bad news for the economy.

He promised people on lower incomes would be spared the brunt of budget cuts and tax increases.

This is not a surprise and was predicted in my post. The French Left are looking after their electorate.

He also said his government would go ahead with plans to hire thousands more teachers and police, as well as creating 150,000 state-aided jobs.

Another must-do for a socialist government. Grow the state sector to ensure a reliable, disciplined and obedient electoral base. Chip away at the right-wing electorate by subsidising parts of the private sector. Like in the socialist motto: “Tax it. If it still moves – regulate it. If it stopped moving – subsidise it”.

He also said he would not be introducing austerity measures, and that a number of summits – on social issues, the environment, education – would be held in the next few weeks.

The  A-word is not in the leftist vocabulary. Summits are a great, all-expenses-paid way to appear to be doing something useful while collecting extra remuneration.

Mr Ayrault revised France’s economic growth forecasts. He said GDP was likely to grow 0.3% this year, down from 0.5%, and 1.2% in 2013 instead of a previously expected 1.7%.

While France is taking a sharp turn to the left the economy nose dives. This will lead to higher taxes, tighter regulation, more control etc. You get the picture.

“The state pays nearly 50bn euros to its creditors annually,” Mr Ayrault said, adding that the debt burden was threatening the welfare system and public services.

He got it back to front. It is the welfare system and public services that have put France in debt. I also sense a hint of the “it is the lenders’ fault” mentality mentioned in my previous post.

A public investment bank would be created before the end of this year to help industrial innovation.

This is another socialist myth – supporting innovation through a centrally controlled bank. Innovation thrives on de-regulation and low taxes – the exact opposite of what is being proposed. If central banks were better at driving innovation in the economy than private capital the internet would have been invented in North Korea.

Mr Ayrault blamed the country’s economic situation on the previous centre-right government of ex-President Nicolas Sarkozy.

It is a bit rich of him since France has had chronic budget deficits since 1970s. The previous government is as guilty as any which had ruled France before them in the last 40 years.

Now some comments by the BBC News commentator David Chazan:

France needs to find a colossal 43bn euros this year and next, which suggests that severe cuts will also have to be made.

Socialist governments are good at delivering comforting rhetoric but the economical realities have not changed – France is bankrupt, along with most of the West. There is no money to pay for all the great-sounding promises.

Economists are pointing out that it is not certain that the 75% income tax on the super-rich will bring more money into the state’s coffers. It is feared that there could be an exodus of high earners. Tax increases may keep France on track to meet the deficit targets in the short term, but the new government may well find itself with no choice but to make deeper structural reforms further down the line.

This is almost verbatim what I wrote in my “Europe” post. There is already evidence that the wealthy are fleeing Greece and buying property in London. The France’s “rich” will follow suit. Punitive taxes on high earners are ultimately counter productive and will strip France off its social elite. This is exactly what happened in Russia after the Bolshevik Revolution, with lamentable results.

Europe – update (2)


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