Writing in the Daily Telegraph, Ambrose Evans Pritchard singles out France as the next candidate for the knacker’s yard. He has a point:
[Hollande’s] tragically-misguided budget offers no strategic plan to reverse — or even to stop — thirty years of slow national decline. He offers no worthwhile measures to slim the Leviathan state, now a Nordic-sized 55pc of GDP, without Nordic labour flexibility or Nordic free markets.
He does not tell us how he will stem the slide in France’s share of eurozone exports over the last decade, down from 17pc to 13pc, or what he will do about the disastrous swing in France’s trade balance from a surplus of 2.5pc of GDP to a deficit of 2.4pc since 1999.
He proposes nothing credible to restore France’s viability within EMU, or to stop public debt spiralling beyond 90pc of GDP. Instead he has served up the most drastic retrenchment in forty years, at the worst possible time, and in the worst possible way. And markets are supposed to applaud?
The budget will tighten discretionary fiscal policy by 2pc of GDP next year into the teeth of deepening depression, without offsetting monetary stimulus or exchange rate relief.
“Depression” goes too far, but as for the rest:
Mr Hollande thinks his budget will safeguard jobs. The fiscal burden will fall on the rich with a top tax rate of 75pc, and on industry. Barclays Capital says three quarters of the total will come by raising revenue, with the taxes “front-loaded” while spending cuts are “back-loaded”. The ratio of taxes to gross wages will rise to an all-time high of 46.3pc. (Finance ministry estimates).
Harvard Professor Alberto Alesina says this flies in the face of all we have learned about austerity. “The accumulated evidence from over 40 years across the OECD speaks loud and clear: spending cuts are less recessionary than tax increases,” he said.
France above all screams out for a blast of tax-cutting Thatcherism and pension reform. The International Monetary Fund says the country’s “tax wedge” – or tax as a share of labour costs – is one of highest in the world at almost 50pc.
Just 39.7pc of those aged 55 to 64 are in work, compared with 56.7pc in the UK and 57.7pc in Germany. Early retirement incentives are to blame. “French workers spend the longest time in retirement among advanced countries,” says the Fund.
Le déluge is unlikely to be far off.
Read the whole thing.