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the old-style French socialist turned into Margaret Thatcher

Kitty Miv, Editor
16 May, 2016

Kitty's Country Rankings are below, with a description of how they are compiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

Depending on which of two recent conflicting reports you believe, France may or may not bring forward corporate tax cuts scheduled to be phased in over the next three years. While Finance Minister Michel Sapin later dismissed an accelerated cut, there's no smoke without fire, and for such a report to have reached the French media in the first place indicates that the idea must have been discussed in the upper echelons of the French Government. This is a good thing for French taxpayers because it's evidence that some in the Government feel the pace of reform is going too slow. And it is. Under the Growth and Responsibility Pact, corporate tax is due to be cut from 33.33 percent to 28 percent – still high by international standards – by 2020.

If fact, it seems to me that President Hollande has experienced some kind of ideological epiphany. Because his current policies, compared with those when he first came to power four years ago, are almost like night and day. Somewhere along the line, the old-style French socialist turned into Margaret Thatcher. Okay, that's stretching things a bit. But he does seem to have recognized, perhaps belatedly, that France could be condemned to years of low growth and stagnation unless some of the sacred cows of the French way of life are sacrificed. With unemployment running at 10 percent, and one-quarter of under 25s without a job, France's rigid labor code — said to deter the hiring of new staff — is one of them. And Hollande has acted decisively to deliver change, dispatching the sacrosanct 35-hour week by decree in a highly controversial move last week. How very Thatcher-esque!

On a personal level though, this is likely to be a Pyrrhic victory for Hollande. While Thatcher grew in popularity as she took on the trade unions, winning three elections in the process, Hollande is running out of friends fast, on both the left and the right. With his popularity ratings on the floor, he is very unlikely to win a second term.

Elsewhere in the EU, there was further evidence that the corporate tax cuts delivered since 2010 have made the United Kingdom one of the most competitive economies in the industrialized world from a tax perspective. However, this all seems rather irrelevant at the moment as the Brexit debate goes into hyperdrive.

Opinion polls would seem to suggest that, so far, British voters have been largely unaffected by "Project Fear," as the remain campaign has come to be known because of its increasingly apocalyptic visions of how a Brexit would play out economically. The numbers have suggested throughout the referendum campaign that those intending to vote "in" slightly outnumber the Brexiteers, with about 20 percent undecided. However, perhaps things will start to swing more decisively in the remain camp now that they have wheeled out their prize fighter – Christine Lagarde.

So far, the analyses of a post-Brexit landscape by the likes of the OECD and the British Government have predicted general economic ruination for the UK. And the IMF is due to publish its findings next month, more than likely with similar conclusions. It will probably be received with a similar level of derision by those sensible enough to realize that IMF economists don't possess a crystal ball. However, IMF chief Lagarde may have landed an early sucker punch on the leave campaign by homing in on the potential effect of Brexit on Britain's real estate market, and warning of a house price crash. Of course, like all the other doomy economic forecasts, this is just an assumption. But, since an Englishwoman's home is her castle, and the majority of voters do own their castles, perhaps the one thing likely to get the electorate scurrying into the poll booths to vote "in" is a scare about house prices. A low blow by the IMF? The Brexiteers might think so. But it could be a very effective one for the remainers. We shall see in just over a month's time.

From Brexit to Grexit. And how odd it is that, putting aside the touchy subject of freedom of movement, Britons would probably struggle to tell you how their daily lives are supposedly made miserable by the UK's EU membership. Yet, enough of them want out to make the upcoming referendum very interesting. By contrast, most Greeks have been living in a waking nightmare of tax hikes, cut backs, job losses, and recessions for the last six years, largely as a result of EU policies, but the majority of them want to remain. If the roles were reversed, and the UK was subject to the privations visited on the Greeks, the referendum would be a foregone conclusion – no debate to be had!

There's no space here to reflect on the reasons why the majority in Greece are prepared to suffer to stay in the EU, but it must be an indication of their desire not to go back to the "old" Greece, which experienced devaluations and high inflation under the drachma. But how much longer will Greece be prepared to tolerate the suffering? When will the Greeks get their country back? It's impossible to answer these questions with any certainty, but if they are determined to scale the mountain under the direction of the EU, then the journey will be a long and arduous one. The Greek Parliament's recent approval of tax and pension reforms, designed to secure funds to meet an upcoming debt obligation, shows this. These reforms will generate an estimated EUR3bn in revenue, which is a trifling amount when set against Greece's overall debt. Indeed, it is effectively using the money it is borrowing to repay debts to the same lenders. Not so much robbing Peter to pay Paul, as borrowing from Peter to repay Peter. Something that the EU and other members of the troika must be well aware of. But still their approach won't change.

It's almost as if the EU were a giant automaton, incapable of acting differently unless someone reprograms its computer. It's why large swathes of the population of Europe are turning against the EU, and perhaps it will take something like a Brexit for the code to be changed. For poor old Greece though, the light at the end of the tunnel must be very dim and distant.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at minus 2, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums

France flexible

United Kingdom attractive

Kitty's Execrations

Greece benighted




About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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