Global Security Headlines

Monday, July 16, 2012

#Eurozone Crisis Buffets #France

#France is the next #Spain as Euroland continues to dissolve.

The second eurozone economy is making all the wrong moves to resist the austerity wave imposed by reality on the failed welfare states across the Old Continent.

The fledgling Socialist Hollande administration is cruising for an economic bruising as it pretends all is well.

Eurozone Crisis Hitting Paris
The jolting mass firing of 8,000 Peugeot-Citroen car manufacturing employees last week, including the complete shuttering of its Aulnay plant, is emblematic of the eurozone crisis hitting France.

The bad news follows the firing of 6,000 last year as its prime market, Europe, continues to see sales slump.

Peugot is operating at a loss - 7% so far this year - and will have to find a way to be profitable or go out of business. 

As the Euroland continues to contract - economically, socially, and politically - more French companies could face tough choices between economic viability and drastic cost cutting. 

French Economic Malaise
Things are not going well for France to say the least, economically. The country seems locked into a timewarp as the global economy passes it by.

France is not competitive in the world ranking 18th out of the top 20 countries, trailing neighbors Switzerland, Germany, and even Belgium, according to the World Economic Forum survey.

L'Hexagone ranks 67th in the world for economic freedom, nestled between Cape Verde and Portugal, but way behind Spain at 36th.

Its public unions are dinosaurs (and across the EU) and obstacles to real economic progress in an interdependent global economy where pro-business policies, low tax rates, and dynamism are the coins of the realm.

The post-industrial or Information Economy seems to be in the country's rearview mirror.

As an aside, French manufacturing is slumping in 2012 and 2.2% less than last year.

The sclerotic 0% economic "growth" for the year so far is yet another red flag of the storm brewing ahead. The country is not making any money.

A study computes French GDP to debt ratio far worse than official numbers of 85%. 

Plus, the Holland administration faces a 33 billion gap if France wants to keep its commitments to cut the deficit to 3% of GDP by the end 2013.

Isn't this how Greece, Portugal, Ireland, and Spain got into trouble?

Hiking taxes to the hilt and reversing course on retirement reform (one thing Sarkozy got right) is not a promising start from the technocrat living in L'Élysée.

If the French do not demand more freedom, any escape from their suicidal economic downward spiral is a moot point. 

Stubborn Socialists
French President François Hollande calls the Peugot-Citroen firings as "unacceptable" and must be "renegotiated."

What precisely is there to negotiate? A company that is not making money cannot keep paying its employees.

While it is natural for the leader of the country to not welcome such bad news, the State should resist meddling.

It would set a bad precedent for the remainder of Hollande's term and worse send a signal to international markets already skittish about the Euroland.

The markets are watching you, M. Hollande.

Surely someone in your administration knows enough capitalist economics to advise against acting hastily.

Socialism killing Euroland
At the end of the day, the core economic philosophy of the Euroland is a demonstrable failure - socialism.

Frankly, the EU states cannot afford their welfare states where leisure is more highly valued than productivity, smart (capitalist) economics, and competitiveness.

The structural organization of the national economies traps the states to escape the spirling death trap.

As seen over the weekend in Madrid and in the streets of Athens, any reform is met with cries. So many Europeans are wed to the welfare state, any change - drastic or otherwise - is too politically painful.

However, there is also the math problem - the EU welfare states cannot afford their commitments and socialism produces little or no economic growth to pay the bills.

Spain's hiking the IVA from 18 to 21% will not bring in the promised revenue; it is absolutely nonsensical to raise taxes when the economy is in deep decline, Sr. Rajoy. 

Something has to give whether the dependent classes created by the cradle-to-grave society and their political patrons like it or not.

The alternative is a complete collapse of the civil society over national insolvency.

The lack of capitalism is killing the Euroland.

The harsh reality for (unionized) employees and politicians is that businesses do not exist to create jobs, provide vacations, health care or other benefits.

Businesses do exist to make profit and provide a healthy return to stockholders.

Until aggressive reforms that are pro-economic freedom - cutting tax rates to spur demand - are enacted the socialist economic superstructure will continue to sink the Eurloand.

Thus, France needs more freedom to pursue profit to avoid its own eventual bailout.

Unfortunately, in the last presidential and legislative elections, the  anti-capitalist Socialists (besides their own personal fortunes) were swept into power - the exact opposite of what France needed as the effects of the Euroland storm threaten to throttle the region's second economic engine.

*** Peace through strength.