Friday, November 22, 2013

Economy: Europe - Why France Is Falling Back

(Drivebycuriosity) - Europe`s economy is growing again, but one big country is shrinking: France. This November the German manufacturing and service sectors both accelerated again to the highest growth rate since months and in UK manufacturing orders rose at the fastest pace in almost two decades (bloomberg). At the other end of the scale, France, the euro area’s second-largest economy, saw manufacturing output slip to a six-month low and the service sector fell to a 4-month low (businessinsider). Both sectors are shrinking faster than in October. And France´s GDP fell in the third quarter, while it grew in UK and in Germany.

France “showed further signs of being the ‘sick man of Europe’ with output showing a renewed decline and raising the risk that GDP could fall again in the fourth quarter, constituting a renewed recession,” commented London-based Markit Economics who supplies these economic barometers (bloomberg).

It becomes clearer and clearer that France is falling back.

France`s economic weakness is not surprising. The different developments in the 3 large countries are the result of different politics. UK and Germany both have center-conservative governments that are business friendly and committed to a market economy.  France is ruled by a socialist with strong leftish tendencies.

France´s economic misery has a name: Fran├žois Hollande, the President of the French Republic. In May 2012 - as candidate of the Socialist Party - Hollande won the French elections by "throwing red meat to the left", writes the Economist (economist). Hollande used populistic leftish arguments like raising taxes on big corporations, banks and the wealthy and bringing the official retirement age back down to 60 from 62. He also pledged for creating subsidized jobs in areas of high unemployment for the young and promoted more industry in France by creating a public investment bank.

Hollande`s socialistic ideology and his commitment to more state influence and regulations are bad for the business climate. Shortly after his election victory the French president started to implement his visions and raised taxes on businesses to increase revenue for Socialist-favored programs (telegraph). Recently he announced a tax of 75% on incomes higher than €1 million.

High taxes are poison for the economy because they are weakening private initiative and slowing down investments in capital. Hollande`s business unfriendly policy also reduces the competitiveness of French companies on global markets and discourages them to hire.

The damage is now showing in the economic numbers.

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