During the French presidential election, it became clear that François Hollande, if he were to win the presidency, would try to align other Eurozone countries, particularly Italy and Spain, into a southern front against German Chancellor Angela Merkel and her government—to fix the problems of the Eurozone à la française. Among his ideas: pushing the ECB to buy government bonds of troubled debt-sinner countries and instituting eurobonds—or euro-bills, as he now calls them—that would give any member access once again to cheap unlimited loans. Everyone would benefit, except the German taxpayer, who’d have to foot the bill. Both policies are despised in Germany where budgetary discipline is seen as the solution to the debt crisis—rather than even more debt and monetizing of that debt.
Now that he has won the election, he has set out on his pre-charted collision course with Germany. The war of words has already started. For the first time that I can remember, a French government is lobbing unvarnished and relentless verbal attacks across the Rhine. They had their differences before, but they always put makeup on them and dress them up nicely to come across as the harmonious if not always smiling Franco-German couple. But now, the center of Europe, the two architects of Europe and the Eurozone have chosen the path of confrontation—and if any single thing can break up the Eurozone, or cause Germany to bail out—that will be it.
But Hollande isn’t just on collision course with Germany.
“We have the feeling that we live a grave historical moment, a moment of truth,” said Laurence Parisot, President of the MEDEF, the largest employer union and lobbying group in France, representing 700,000 companies. During a press conference on Monday, “the boss of the bosses” delivered her solemn words without a trace of a smile.
The situation for French companies, she said, was already tough: collapsing margins, falling orders, extreme cash flow tensions, frozen hiring projects, and “uncertainties of such magnitude that all large investment projects are put on standby” (video). And she plowed into Hollande’s program item by item:
- Imposing a dividend surtax of 3% that companies (over 250 employees or €50 million in revenues) have to pay. Shareholders already pay income taxes on dividends.
- Raising company contributions for pensions, healthcare, work-injury and disability insurance, and other state programs.
- Raising the minimum wage, already at €9.22 ($11.60) per hour. Arch-competitor Germany doesn’t even have a minimum wage.
- Making layoffs even harder and more costly if they fall into the nebulous category of “abusive layoffs” whose sole purpose is to goose the stock price.
- Lowering the retirement age to 60 for those who started working in their teens, and funding it by increasing corporate and individual contributions.
“These increases will not remain endurable for long,” she said, before “they hit small and medium-size enterprises very hard.” They were already in distress, and with these policies, France would “run the risk that private investors will invest less, or elsewhere.” And bringing taxation of capital in line with taxation of work would “dry up” the economy. The new programs are “disconnected from the reality companies have to face, from what a company can endure.” Based on these new costs, taxes, and limits, she said, “We fear a programmed strangling.”
Adding to the uncertainties about Europe is the feeling among foreign countries, she said, that the old continent is no longer a market of the future. She called for a unified European voice in foreign policy, defense, economic strategy, and finance that would allow it to “counterbalance the colossal powers in other parts of the world”—particularly China and the US. Thus, without saying it, she implored Hollande to make peace with Germany. And she warned him “not to transform our country into a hyper-rigid enclave that would be totally disconnected from the functions of a market economy.
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