France is sliding into a grave economic crisis and risks a full-blown “hurricane” as investors flee rocketing tax rates, the country’s business federation has warned.
“The situation is very serious. Some business leaders are in a state of quasi-panic,” said Laurence Parisot, head of employers’ group MEDEF.
“The pace of bankruptcies has accelerated over the summer. We are seeing a general loss of confidence by investors. Large foreign investors are shunning France altogether. It’s becoming really dramatic.”
MEDEF, France’s equivalent of the CBI, said the threat has risen from “a storm warning to a hurricane warning”, adding that the Socialist government of François Hollande has yet to understand the “extreme gravity” of the crisis.
The immediate bone of contention is Article 6 of the new tax law, which raises the top rate of capital gains tax from 34.5pc to 62.2pc. This compares with 21pc in Spain, 26.4pc in Germany and 28pc in Britain.
“Let’s be clear, Article 6 is not acceptable, even if modified. We will not be complicit in a disastrous economic mistake,” Mrs Parisot told Le Figaro.
Portugal to unveil more austerity in budget (“will include an “enormous” increase in taxes”)
As in other heavily indebted European countries, public hostility to cutbacks is running high as hard-hit workers balk at falling living standards. The coalition government, too, is showing signs of strain amid mounting criticism as leading figures in the governing parties have expressed deep reservations about the strategy.
Announcing “very significant” tax hikes, Finance Minister Vitor Gaspar said Portugal had no choice because it is locked into a three-year debt reduction program by its international creditors in return for the bailout.
“We have no room for maneuver,” Gaspar told a news conference. Portugal “has to stay the course,” he said.
With the government struggling to balance its books due to a slowdown in consumption and consequent drop in tax revenue, the bailout lenders — the International Monetary Fund, European Central Bank and European Union — recently eased Portugal’s budget deficit target for this year to 5 percent from 4.5 percent of the country’s €171 billion ($221.8 billion) economy. The 4.5 percent goal was pushed back to next year. In 2010 the deficit was 10.1 percent.
Several thousand participants of the protest “Siege of St. Benedict! This is not our budget” “make themselves heard with drums and slogans. Protesters tore down the barriers and tried to climb the staircase giving access to Parliament and already occupied part of the garden that surrounds the building.
The turning point came in September when Mr. Passos Coelho offered a plan to redistribute social security funds by cutting employers’ social security taxes while significantly raising those of employees. Although the measure was meant to lower labor costs, the outcry from workers was so ferocious that he was soon forced to withdraw it.
While we’re all watching Spain and Greece, their alleged saviors in the rich core of the eurozone are starting to show serious signs of corrosion. This makes all the hollow words and promises coming from the world of troikas and politics sound even emptier than they already did. Not that anyone in Holland or Germany seems to even be prepared to think their economies are in for a big fall; for them, all the bad stuff is temporary, and soon it will all be better. Our proverbial Martian might be tempted to think denial is a river in northern Europe.
Of course, Northern Europeans find support for their optimism in the fact that they don’t have the over 25% overall and over 50% youth unemployment that Greece and Spain have. Yet. But let’s remind ourselves that, as I wrote in the article quoted above, retail sales in Holland fell 11% in April alone (vs 9.7% in Spain). That’s serious stuff, the kind that costs jobs. And that’s not going to recover and get back to whatever people think is “normal”, and then keep growing on giddily forever.
But it will take a while yet before this reality sinks in. These are people who’ve gotten used to taking 3-4 holidays per year on top of buying overpriced real estate with subprime-like mortgage loans. They’ve had it all and then some for over a decade, and that’s a hard addiction to shake. Optimism, illusion, delusion are much easier for now. Still, if you look at those numbers, and you add to them the fact that Holland is one of the rich core countries that has tens of billions of euros, and counting, at risk in the bailouts of southern Europe, PIIGS, Cyprus, Slovenia, it’s hard not to wonder where this is going.
And it’s not just Holland. Germany too is starting to show cracks. And how could it not? Both countries rely to a large extent for their economic success on exports, of which a substantial part stays in the eurozone. That was the whole idea, after all. With Greece, Spain, Italy, Portugal, Ireland et al in trouble, these exports can only go one way. The effects of this shrinking may be somewhat delayed in the richer countries, but of course they must be felt at some point. That is, unless other exports markets are found, conquered and developed, but that hasn’t happened.
One of the things hitting Germany is a pan-European phenomenon: the demise of the car industry.
Europe’s troubled single currency is dividing the continent into warring factions, all of which could end in a “democratic…or violent revolution” between the continent’s indebted economies and their European creditors, a U.K. lawmaker told CNBC Tuesday.
Nigel Farage – leader of the populist U.K. Independence Party and a member of the European Parliament, said on CNBC’s “Squawk Box” that the currency shared by 17 of Europe’s economies was forcing them to “hate each other.” He believes Greece should default, with the euro completely broken-up and reverted back to its legacy currencies.
Protests – and antipathy toward Germany – are raging in Greece over austerity measures. Farage warned that the conflict was exacerbating the divide between Europe’s wealthy northern bloc and its poorer Southern region. (Read more: Snipers, Commandos to Welcome Merkel in Greece.)
“What will break [the euro] up in the end…will be one of two things,” Farage said. “It will either be a democratic revolution in countries like Finland and the Netherlands, where they get governments who say enough, or it will be violent revolution in Southern Europe.”
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