(July 30, 2012)
[Please include your first and last names, and your city and state of residence. Thank you.]
It's a Beautiful [French] Life
Hey Mr. d'Aymery,
This new governing team in France is really funny. One of the first actions they wanted to take before increasing taxes was to bring the retirement age back to 60 (Sarkozy had brought it up to 62). So what does the new president, François Hollande, do? He calls upon an old 74-year-old cacique (Lionel Jospin) to lead yet another commission to look into moralizing and renovating political life, and to create a new "ethical charter." There is no retirement age for politicians!
In your June 4, 2012, article, "France: Change Is Now?," you wrote: "The Hollande administration wants to increase the [tax] rate to 45% for incomes over €150,000, and to 75% for incomes over €1,000,000 in the name of social justice and patriotism. Whatever the merits of that decision, it is going to face a major hurdle, which may actually lead to lower revenues for the government. People with really high incomes are simply going to relocate, be it England, Switzerland, Belgium, Luxemburg, or Liechtenstein" (as well as many other countries). The 75% rate was supposed to be an exceptional and temporary contribution. However, the government has now announced that it would last several years until the budget deficit is fully eradicated. The exodus has already begun. In London the French lycée Charles de Gaulle has received over 700 requests for the inscription of new students. Top managers are relocating, taking their collaborators and staff with them. It means that the government will lose the taxes of not only high-income managers but also those of their collaborators and staff.
What the legislators do not understand is that most of the 100 biggest French groups conduct about 80% of their business outside of France, leading top managers to travel a large part of the year to meet with clients and customers. So, delocalizing entire teams to other countries is possible and feasible. Then, there are top foreign managers who work in the headquarters of these French groups -- Americans, Germans, Italians, etc. It's hard for them to accept being hit in the name of social justice and patriotism, or what the government calls the "just effort." If you add the increase of the ISF (solidarity tax on wealth), which really is a wealth tax, that of the CSG (general social contribution, and other taxes (like the estate tax), the risk is that at the end of the day the state may well collect less tax revenues because of capital flight and fiscal expatriation. Once more it will be the middle class that will have to carry the burden. (Perhaps, when you have time, you could explain to the readers what the ISF and the CSG are.)
I'm aware that you have often advocated higher marginal rates or, better (according to you), maximum wages no higher than 5 or 15 times those of average employees. This may have been possible in the post-World War II era, but is no longer realistic due to globalization and international norms. At that time the economies were national, people were attached to the land of birth, and the disparity in salaries was much more modest (but for a few exceptions), and people, coming out of the trauma of the war, wanted to rebuild the country. Individualism was muted, consumerism modest, and banks strongly regulated. It all has changed with the influence of the US culture, the spectacular growth of air travel, and the economic and financial globalization. Today, many professionals do not hesitate to leave for a job in many other countries, and money knows no borders. Changing the system as you like to say is a challenge to which no one has yet found a response, but this new French government is particularly clueless. I hope I'm wrong.
For the pleasant part: My husband and I with the coming baby are going to take a week of vacation in mid August. Destination? The little known, at least in our globalized world, tiny Île de Bréhat (Brehat Island) -- French (more informative than the English page), English on Wikipedia. It's located in northern Brittany, near the small city of Paimpol in the Côtes-d'Armor. We decided to go there because this has been a crazy year and we wanted some quietness and recharging. There are very few year-round residents -- about 400. Then in the summer the number shoots up to over 2,000 because of visitors like us (and a few wealthy individuals who own a very expensive property and come here and there). There are no private cars on the island except those used for social services (firefighters, ambulance, doctor, and police). Everybody else either walks, uses a bicycle, or takes a little train, which is nothing more than a small wagon drawn by a tractor (the island is just about 3.5 km long and 1.5 km wide). There are only three hotels, one with seven rooms, the other with 15, and the third one with 17. The third one was expensive -- more than €220 day -- as it offered amenities we did not want (Wi-Fi, Internet access, TV with video games, phone, and the like). Why would one want to get out of civilization for a few days to find oneself in the middle of it? The first one was the cheapest at some €60 a day -- it looked friendly, but was badly located. So we chose the middle one at about €90 a day, La Vieille Auberge. It looked like three generations had kept the inn going, maintaining it and offering an old-family style to the guests. But for the sempiternal TV and phone, nothing much more, but breakfast in the morning and, they say, good fish in the evening. We'll see. We are going to walk and bike and read and make love. I think it's going to be a super week. I'll let you and your readers know.
Paris, France - July 24, 2012
More European Union Turbulence
To the Editor:
The eurozone is entering into total uncharted territory. Greece has been unable to meet the obligations imposed by the troika (ECB, IMF, and EU) in exchange for financial help. The troika has yet to decide whether to disburse the next tranche of financial help and does not expect to do it, if it does, before September. In August, Greece must make a €3.2 billion bond payment, but its coffers are empty. The recession continues unabated. The country has lived for three years through various bailouts but has shown no real improvement How long can this last? There are more and more muted conversations in European chancelleries about Greece leaving the euro.
In Spain, the fourth largest economy of the eurozone after Germany, France, and Italy, the situation is dire. The yields on 10-year bonds are over 7% and the country has entered its fourth consecutive quarter of recession. The economy is expected to shrink again next year. Another €65 billion package of austerity measures has been approved by the parliament. Spain was granted a €100 billion bailout for its banks. Now, the regions' finances are crumbling. The central government put aside €18 billion to help the regional governments. Valencia, in eastern Spain, has already asked for €3.5 billion. Other regions will follow suit in the near future. There are 17 regions in the country and it is estimated that they must repay €35 billion of debt this year alone. In light of the size of the Spanish economy, if the country looses access to public markets the Europeans don't have enough money to provide a full-fledged bailout.
Portugal and Ireland remain mired in recession.
Italy's situation is not as dire due to the high level of personal savings. Still, the yield on 10-year bonds is over 6%, the economy is flat, and the Sicilian economy is on the brink of collapse.
Now, it's the turn of France to flirt with the danger zone. Its economy is anemic, but the new government has chosen to raise at least €7 billion in increased taxes, which will not help growth. However, next year it will have to find an additional €39 billion in new revenues or spending cuts to achieve the announced budgetary goals -- a tall order. For the time being the good news is that the yields on 10-year bonds remain very low (even at times negative), and France can also rely on a high level of personal savings. Still, with a projected growth of only 0.2% how long will it take before the country enters the danger zone? Not long. Even Europe's economic engine, Germany, is slowing down significantly.
Also quite worrisome is the level of unemployment in the eurozone. For instance, on average, 22.6% of the youth under 25 are unemployed, with disparities among countries -- in Spain it's over 40%. When you see the recurring social unrest, even in the middle of summer, you have to wonder what's going to happen in the fall. In my opinion the entire euro experiment is falling apart.
Tempe, Arizona, USA - July 28, 2012
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