The news from France is very bad. Perhaps not so bad as it was back in 1940, when Winston Churchill famously began a speech with the same line, but it’s not good.
French voters on Sunday ejected President Nicolas Sarkozy after five desultory years in office, which is reasonable, and replaced him with Francois Hollande, which is quite unreasonable. Hollande is a Socialist — and we use that term with a capital letter and no fear of contradiction, because that is what his party actually calls itself — so the French economy is likely to take a turn for the even worse.
Socialism’s sorry record as an economic system aside, Hollande’s policies will accelerate his country’s and the European continent’s already rapid rush toward fiscal calamity. Declaring that “austerity can no longer be the only option,” the President-elect has promised to renegotiate the laboriously crafted treaty that has imposed a sort of budget discipline on the European Union’s member nations. Hollande’s plan to revive a French economy weighed down by too much debt, then, is to start spending more.
This scheme is proposed in the name of economic growth, but the smart money isn’t betting on that happening. If a massive amount of government spending were an effective way to achieve growth, the French and American economies would both be booming right now, and we’d be looking back fondly at the Roaring ‘30s and the fat years of the ‘70s. Hollande also proposes a number of policies that will negate any stimulative effects that his spending might have achieved. He hopes to repeal a recent law that raised the retirement age from 60 all the way to 62, apparently on the theory that having fewer people working less of their lives will increase productivity, increase the minimum wage, with hopes that struggling companies will then hire more low-skilled workers, and hire 60,000 more teachers, probably not in order to teach basic economics.
Having explicitly stated that he “does not like the rich,” and that “my real enemy is the world of finance,” Hollande further proposes to impose hefty tax increases on corporations and wealthy individuals. France’s corporations and wealthy individuals don’t much care for Hollande, either, so many are already planning to take their money, skills, and business elsewhere. This is not likely to encourage economic growth.
Re-negotiating France’s treaty with the rest of Europe, which the Germans have already indicated they will resist, will cause further problems. The treaty, a cumbersome and complicated arrangement whereby debtors bailed out debtors in exchange for promises of a slower rate of debt accumulation, was always an imperfect plan, but it was good enough to calm the international financial markets and buy some much-needed time to find a better solution. Hollande’s desire to start again from scratch, and with the financial markets as his stated enemy, could even hasten the end of the European Union and whatever economic benefits it has achieved.
— Bud Norman