Sunday, October 07, 2012

AHHH The French

The French just can’t seem to accept that they must actually work for a living and compete in the marketplace just like everyone else. Even more ironic is that Germany started its failed march to European dominance with the Franco-Prussian War and two world wars, but is now poised to achieve that goal without a shot being fired. The Germans live the good life (for European standards) by working hard and living within their means. Alas the French live the good life but seem to expect that the government should pay for it. The people think a 40 hour work week is exploitation and a 32 hour work week is as much as any employer should expect. Of course the problem with socialism is that eventually it cannot be sustained. The proof of this is being played out across Europe as the economies of Spain, Portugal, Ireland, and Italy teeter on edge of financial collapse. The economy of Greece has already imploded and threatens the Euro itself.

Now the French who view themselves as the dominant force in Europe are finding that not only are they not the dominant country, but that it is Germany calling the tune. Faced with the prospect of actually having to give up some of their benefits and actually work a 34 hour work week, they threw out President Sarkozy and elected inexperienced Hollande. Unfortunately Hollande had no real experience, had no real plan, never took Economics 101, but was sure his Gallic Charm would enable him to win over Germany, the tax payers in both Germany and France, without actually having to make any financial sacrifices. Alas his socialist economics seems to have failed him. The reality is that money will gravitate to the highest return and flee extortionate taxes.

Hollande felt that what was needed was higher taxes and that the rich should pay their fair share, a typical socialist position. In his view the fair share of the rich was 75% of their income, after all the rich should be forced to share their wealth with the workers. Not unexpectedly the rich simply moved their wealth out of the country. Renault moved 70% of their manufacturing to low wage Trukey and ArcelorMitta the French steel manufacturer shut down two furnaces in preparation of shutting the plants. The government’s response to this is to introduce a law forcing manufacturers to sell their idle facilities at a price established by the courts. Apparently the socialists seem to think that any sharp entrepreneur would jump at the chance to buy these facilities just to keep the workers employed.

Hollande was elected on the basis that he would preserve “the social model” while engineering an economic recovery. Neither Hollande nor the socialist electorate realized these are conflicting goals, especially in light of the high level of protection the French worker has. Nevertheless French unemployment is at a 13 year high with more layoffs coming. It is very difficult for an employer in France to layoff employees and it is very expensive due to the required severance costs. Consequently, when employers actually layoff people they are very reluctant to rehire and the tendency is to move those jobs overseas where it is cheaper and the rules more flexible. This means that reducing high unemployment is very difficult and takes a long time.

The Euro is in real danger and unless Hollande can get control of the French economy it may be unsustainable unless the Germans are willing to step up and bail him out. However, the Germans are tired of subsidizing the life of the rich and famous enjoyed by so many countries in Europe. Plus the Germans are also feeling the impact of the slowing world economy and may not be able to continue supporting these failing Club Med European economies. The stark reality is that socialism cannot work unless there are enough tax revenues to sustain the government programs. In a slowing economy the government must react in a business like fashion and reduce expenses which means cutting programs. When the people are accustomed to lavish government handouts this becomes almost impossible so it is now up to Hollande to show us how this is done.

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