It was raining the night I took the train to Paris from my university in Belgium for the first time.
The Grateful Dead were on tour in the old country, including three shows in Paris and two in London…
It turned out a friend’s sister was there on business and we could crash on the floor of her hotel room. Awesome.
On the way out the door, the sister offhandedly mentioned that we could help ourselves to the minibar, as she had a work account. Sweet!
Needless to say, we had a great time — though we did take some heat later when the sister realized we’d cleaned out the little fridge. (Those tiny bottles of Jack were a huge hit at the concert.)
This first memory might be why I love France today…
The bread is great, the food is perfect, the wine is outstanding. There are few things more enjoyable than whiling away the day drinking coffee and playing cards at a sidewalk cafe in a medieval city.
The French know how to live.
The problem is they can no longer afford it.
Winter is Coming
Europe is already in hot water…
Stocks in Europe were down again yesterday.
Greece is saying they will run out of money if they don’t get a yet another bailout this month.
And in a vignette that encapsulates the European system, finance ministers in Brussels are putting heavy pressure on Spain to ask them for money.
Meanwhile, housing prices are in free fall in the Netherlands, down 8% in August alone.
That’s what’s going on in the periphery. In the center, it’s starting to get real…
France has the fifth largest economy in the world, second only to Germany in Europe. In 2011 the GDP grew at 1.85% — below Germany at 2.9%, but more than the UK, which grew by 0.6%.
France is home to 2.6 million folks who are worth more than a million dollars. It is the world’s fourth wealthiest nation in aggregate household wealth.
After 2000, wealth per adult grew very strongly in France — tripling in value between 2000 and 2007. This was caused by the rise of the euro against the dollar, but was also due to a rapid increase in house prices.
Things have changed since then. The economy has been stagnating for the last five quarters.
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The Bank of France reported they believe the French economy shrunk 0.1% in the third quarter.
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The business sentiment indicator for industry fell to 92 in September from 93 previously, while production remained below the long-term average for the sector.
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The national statistics agency INSEE said last week it expected France’s economy to “continue to post zero growth in the final quarter of the year.”
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Business confidence is down.
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Sentiment among manufacturing executives is falling.
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Unemployment is at a 13-year high: over 10%.
Hard Reversals
Five months ago France voted in the head of the Socialist Party, Francois Hollande, on a promise he would secure the recovery and get the budget within 3% of the deficit.
Hollande would do this by hitting the rich with a 75% tax on those making more than 1 million. He would tax capital gains on housing and businesses at 62.21% (up from 34.5%).
He told Renault not to lay off workers; he is talking about raising the minimum wage 20% and dropping the retirement age to 60.
Naturally, people don’t like giving the vast majority of their money to the government…
Rich people are starting to leave. The Prime Minister of Brittan said that they should move to London and that he would roll out the red carpet.
French job-seekers boosted the numbers at London recruitment agency Astbury Martin. Applications at the banking headhunter jumped 51%.
It was reported yesterday that 500 expensive houses valued at more than 1 million euro have been put on the Paris market since May.
Renault responded to government thuggery by moving 70% of its new operations to Turkey…
It was H.L. Mencken who wrote, “Democracy is the theory that the common people know what they want and deserve to get it good and hard.”
Hollande has promised a socialist austerity program that will hold spending growth over the next five years to 0.7% annually, and bring the budget within 3% of its annual deficit (down from 4.5%).
In total, the government is in debt of 91% of its GDP — and growing. The French president aims to reduce this debt by raising taxes to putative levels on the rich…
And as we learn time and time again, if you punish something, you get less of it. In this case, France will have less millionaires and fewer entrepreneurs.
iShares MSCI France Index Fund (NYSE:EQW) above is the French ETF. It looks like it is going to 15.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
