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Thursday, January 02, 2014 2:47 PM


Eurozone Manufacturing Expands Except in France and Greece; Hollande Concedes Taxes 'Too Heavy' Offending Everyone


Eurozone manufacturing is at a 31-month high according to Markit. Every country but France and Greece are expanding. French manufacturing is at a seven-month low in an intensified downturn.

The seasonally adjusted Markit Eurozone Manufacturing PMI® rose for the third month running to post 52.7 in December, up from 51.6 in November (and unchanged from the earlier flash estimate).



The latest improvement in overall operating conditions was underpinned by solid and accelerated growth in the Netherlands, Germany, Ireland and Italy, while Austria continued to expand at a robust clip despite the rate of increase easing slightly since November. Meanwhile the Spanish PMI moved back into expansion territory. There was even relatively positive news from Greece, where higher levels of output and new orders elevated its PMI to a 52-month high and close to the 50.0 stabilisation point. France moved in the opposite direction, however, with its PMI falling to a seven - month low and signalling contraction for the twenty-second successive month.

Chief Economist Comment

Markit Chief Economist Chris Williamson

"While Germany, Italy and Spain are seeing the strongest output growth since early - 2011, buoyed to varying degrees by improved export sales, France is seeing a steepening downturn, in part the result of widening export losses. This suggest s that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers."
Hollande Concedes Taxes 'Too Heavy' Offending Everyone

French president François Hollande rang the bell on the new year the same way he rang the bell throughout 2013, with an economic as well as public relations gaffe.

His vague promise of lower taxes coupled with an admission on national TV that taxes are too high, infuriated French households facing tax rises now, at the start of the year.

The Telegraph explains François Hollande concedes taxes 'too heavy' in admission that annoys all sides in France.
A New Year's message from François Hollande backfired as his vague promise that taxes would be lowered some time in the future jarred with French voters facing tax increases that took effect as he was speaking.

Instead of winning plaudits for his unexpected admission that taxes had become "too heavy, much too heavy", the unpopular socialist president - weakened by tax increases, rising unemployment and a shrinking economy - provoked incredulity and scepticism among critics on both Left and Right.

Hard-pressed French households faced VAT increases on most goods and services from Jan 1 and only days earlier France's supreme court had upheld a new 75 per cent supertax on high-paying companies.

Mr Hollande made his televised address in front of a virtual background, an image of the Elysée Palace, which provoked a flood of comments on Twitter comparing his appearance with that of a Soviet leader of the 1970s.

He offered companies a "responsibility pact", which he defined as the possibility of "lower labour charges and fewer restrictions on their activity in return for hiring more workers and more dialogue with trade unions".

But he gave no details about which restrictions might be lifted or how he would reduce the high social security charges and payroll taxes that leave French companies with some of the lowest profit margins in Europe.

His proposal came days after France's highest court approved his controversial 75 per cent "supertax" to be paid by companies on annual salaries exceeding €1 million.

Mr Hollande's proposal immediately came under attack from the left wing of his Socialist Party. Marie-Noëlle Lienemann, a Socialist senator, said: "This is not the time to offer companies incentives when ordinary people are struggling. It has to be balanced with measures to help them."

She complained that households would be hard hit by an increase in the standard rate of VAT from 19.6 per cent to 20 per cent yesterday, with an intermediate rate increased from seven to 10 per cent.

Bernard Accoyer, a centre-right MP, said his message was "a litany of his failures in 19 months as president" and added: "He admitted that he underestimated the crisis, raised taxes and charges on companies too high and failed to make the necessary cuts in public spending."
Vague Promises, Nonsensical Proposal

Hollande offers a "possibility" of lower taxes and labor charges IF businesses expand hiring and negotiate more with unions.

What business would accept that nonsensical proposal? Given the proposal was accompanied by an admission "taxes are too heavy, much too heavy", it's no wonder everyone was offended.

It's also no wonder France is going the opposite of the rest of the eurozone. But the rest of the eurozone is not out of the woods yet. No structural problems have been fixed anywhere.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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