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May 8, 2012

Over the Cliff for France!

It's Thelma and Louise time for France! Francois Hollande, of the Socialist Party, is to be their next president.


His platform includes these promises:

* Hiring 60,000 teachers
* Raising taxes on big corporations, banks, the wealthy
* Imposing a 75% tax on income above 1 million euros a year
* Bringing the official retirement age back down to 60 from 62
* Gay marriage/adoption
* Creating subsidized jobs for young people
* Recruitment of 5 000 judges, police officers and gendarmes.
* Construction of 500 000 homes per year
* Less electricity from nuclear plants and more "renewable energy"

And, get this

* Balancing the budget

In short, free ice cream for everyone, and let the good times roll!

sources here and here

John Hinderacker at Powerline observes all this and asks the relevant question:

Is Europe Doomed? May 7, 2012

In France and Greece, voters have rejected "austerity"-the idea that European governments should live within their means. In Italy, too, anti-austerity candidates are currently leading in the polls. French Socialist Fran├žois Hollande vows to continue running huge deficits so that he can hire more public sector workers; in a burst of stupidity, he announced that "My real enemy is the world of Finance." I suppose there could be a surer way to impoverish your country than to declare war on the flow of capital, but I can't think of one offhand.

What does it all mean? Two things, in my opinion. First, Southern European voters are determined to go over the waterfall in a canoe as long as there are politicians who will promise to keep paddling. One might think it obvious that no country can live beyond its means forever by borrowing money which it can't possibly pay back. But voters in countries like Greece and France apparently think: it has worked so far, why not keep it up?

Realistically, it will work until creditors-Germany, mostly-decide to pull the plug. Then there will be default, some form of bankruptcy, some degree of chaos. That evidently is what many European voters want. In one sense, you can't blame them: why not live on someone else's money as long as you can?

What's amazing, or amusing, is that as this Washington Post article points out, the election of Hollande does not represent "a seismic shift for Europe's second- largest economy."

To move ahead, Hollande favors a little more spending; higher taxes on wealth; a little less austerity; and generally, preserving or expanding, rather than cutting, France's social- safety net. Sarkozy campaigned on a vow to cut taxes for business and continue the reform of entitlements that he had begun by raising the retirement age to 62 from 60 and easing restrictions on the labor market, such as the 35-hour workweek. These are changes around the margins, concessions to their respective political bases.

Maybe. This article in the British paper The Guardian adds that the elections in Greece may be the real problem:

Asian stock markets have been pummelled by election results in France and Greece that have heightened uncertainty about Europe's ability to solve its debt crisis. ...

Election results in Greece sent tremors throughout Europe as voters punished the parties responsible for highly unpopular austerity measures brought in to prevent the country from defaulting on its massive debts. No political party won enough votes to form a government, leaving the political and financial future of the country in serious doubt.

Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, said the election results were likely to heighten political instability and market volatility.

"The issue is that in Greece the outcome raises the level of uncertainty a lot, because it's not clear who can form the government or in fact how long they will last, and what their attitude to the current agreements that the Greek government had reached would be," said Richard Yetsenga, head of global markets at ANZ Research.

France was already headed in the wrong direction, and Hollande simply accelerates the trend. In other words, their policies are already untenable for the long term, and Hollande is simply speeding up the process, so why get worked up over that?

Posted by Tom at May 8, 2012 9:00 PM

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