This summer saw the ever-charismatic former French President Nicolas Sarkozy ousted from his position as ‘Monsieur le President.’ The ex-president of the ‘Union pour un Mouvement Populaire’ (UMP) was defeated by Francois Hollande, member of the French Socialist Party, Parti socialiste (PS) by a 52 to 48 percent margin. It is crucial to point out this reflects voters’ preference of Mr. Hollande’s deficit reduction without austerity as opposed to orthodox deficit-reduction measures.
Many keen Euro wonks are wondering what Mr. Hollande, the man who has made Sarkozy the first French president in 30 years to fail re-election, has in store for France and the Eurozone. Most strikingly, Mr. Hollande is not looking likely to go back on his promise to instate a 75 percent tax on income over € 1 million, or at least to prohibitively tax the wealthy.
According to newspapers, the 75 percent tax will come into effect in 2013 and € 7.2 billion ($8.856 billion at the time of writing) will be raised in the form of tax increases this year alone. What will this do? This will ignite a flight of various types of capital to other parts of the Eurozone (which is very easy), namely the United Kingdom. This is evinced in U.K. Prime Minister David Cameron’s comment inviting the French to the U.K., as he tried to appear one step ahead. What is most important here is that such punitive measures to reduce the deficit are slowly frightening French workers, who are seriously contemplating exiting France.
Moreover, his government has lowered the retirement and state pension age and increased the minimum wage without ensuring matched gains in productivity, against countless exhortations otherwise. In addition, Hollande, pejoratively known as ‘Flanby,’ vows to restrict failing businesses’ power to shut up shop, reinvent and innovate, making for a soon to be unhealthy business climate.
However, if those who utilized their right to vote to elect Hollande are disheartened, they might take heed of some more of his campaign promises. One hopes that this is not mere chatty posturing, but Hollande has insisted that a balanced budget is impossible without growth, which is true given that the austerity imposed on foundering countries by the European Union’s Anglo-Saxon axis seems only to perpetuate a vicious cycle of debt, failing repayments and further austerity.
Reminded of this, our typical French voter is reassured. However, Hollande has stated that he aims to achieve a balanced budget by 2017. I highly doubt it is achievable with some of his current policies, or as the French say,“C’est impossible.”
Based on the direction that Hollande is taking the country, it is hard to believe that he will be able to achieve his ambitious targets. From the Organization for Economic Co-operation and Development’s data presented by The Economist, we see that France’s public spending as a percentage of GDP has hovered around a high rate since 2009 and that the country’s labor costs have increased astronomically in the last 10 years, without confirmation of commensurate productivity increases.
All this leads many to believe that he may eventually neglect his promise to balance the budget soon, and Hollande may very well know this. What leaves him between a rock and a hard place is that he has set such lofty goals as well as pledged to focus on growth, and not austerity. Since he cannot resort to thrift, he has enforced policies such as large increases in the property taxes on foreign-owned second homes and on the capital gains tax levied on profits earned by way of sales of such properties. This is less unseemly than his other measures but is unbecoming all the same.
In times like these, it is not patently ridiculous to squeeze the richer with higher taxes. But what make Mr. Hollande’s policies so utterly rebarbative are its seeming contempt and disregard for wealth creation, its selection of populist anger directed at the rich over prudent economics and the prohibitive attitude toward businesses and the market. Monsieur Flanby’s presidential posters bore the phrase ‘Le Changement, C’est Maintenant.’ Unfortunately, that doesn’t preclude any such change from being a turn for the worse.
Nikhil Rao is a Collegian columnist. He can be reached at [email protected].
