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Friday, October 18, 2013 11:40 AM

Still More France Economic Idiocies: New Rent Price Controls, Mandatory Rental Insurance, "Unfair Competition" Laws

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The economic stupidities in France keep piling up. Reader "AC" who lives in France writes:

Hi Mish,

I saw you covered some of the latest crazy things happened in France recently: actually there is much more. Let me give you a short digest of the craziest things.

Government wants to address the high cost and low availability of apartments to rent, especially in Paris.

After passing a law regulating the rent increase (the increase an owner can ask to a new person renting his apartment with regard to the rent of the former occupant), Cécile Duflot, the Minister of Territorial Equality and Housing, decided to go a big step further: government will fix the price of the lease.

The proposed law (and most likely going to be approved), will impose 2 things:

Mandatory insurance for unpaid rent. The cost will be shared by the owner and the renter
For new rental contracts, the owner will have to stay in a band of +/- 20% of a reference price the government will set based on the average price per square meter in the area where the apartment is located.

No matter what features the apartment has (or lack thereof), or its condition, government will fix the price.

Mandatory insurance seeks to address another chronic problem: owners are extremely concerned about people not paying rent, because the time it takes to get them out of the flat by a court can be very long (up to 2 years), and often in these cases the renters return the flat in poor state. Therefore landlords are extremely selective. Most likely, the mandatory insurance will compound the problem.

The craziest thing is the destruction of real, private, profitable jobs along with the creation of public subsidized, unprofitable jobs, in the middle of growing unemployment and falling GDP.

You have already written about the "Emplois d'Avenir", government subsidies for jobs for not qualified people in the no-profit sector. And that is already crazy enough.

But now, smack in the middle of the rising unemployment, unions have started a campaign to destroy on purpose real, profitable jobs, citing "unfair competition".

The most incredible situation has been the make-up shop Sephora in Champs Elysees.

Champs Elyssees is one of the most crowded and touristic avenues of the world. There are locals and tourists anytime of the day, especially after dinner. Some shops there stay open until late, because of the tourists.

Sephora was one of the shops having an extended opening. It stayed open until midnight every day of the week. 20% of their sales came between 20:00-24:00. The employees get paid more for this working time, and everybody was happy, except of course the unions.

The unions started a legal action to oblige Sephora to close by 21:00 like most other shop, arguing that Sephora had an "unfair advantage". After some back and forth negotiation, Sephora was obliged to close at 21:00 and fire people. The Daily Motion has a video where Sephora employees are in tears for something they never asked.

In the video the union representative says that they will go shop after shop among those having extended hours in Champs Elysees, obliging them to close at 21:00 for "unfair competition".

This is not an isolated situation: The same is happening with a number of "bricolage" stores open on Sunday in the Paris suburb. The problem is getting so hot that the government is thinking passing a law to clarify when businesses can stay open outside normal hours.

Just have a deeper look on the Web, you will find more and more stories like these (for example auto-entrepreneurs).

France will be soon the sick man of Europe.

Best regards,

Rise of National Front

If Paris rentals were in short supply before , they will be in even shorter supply now. And inane union agreements take away real jobs on top of it.

These economic insanities are exactly the kind of thing that will fuel the rise of extreme right candidate Marine Le Pen (See Decisive Victory by Le Pen's Eurosceptic National Front Party in Local Election Stirs Fear in Mainstream French Parties).

Please note that I am not a fan of Marine Le Pen's position on every issue even though I agree with her anti-Brussels stance.

Pater Tenebrarum gets it correct in Europe's Tottering Banks
Political Risks

Said tax cows have lately become rather restless, as inter alia shown by the municipal by-election that was recently won by Marine Le Pen's Front National in France. If you read Mish's assessment which we have linked to, he is quite correct when he states that the whole EU and euro project could easily be derailed by political developments. Populist parties continue to gain support amid euro-land's economic decline, to the point where they represent a real threat to the EU.

We would add that Ms. Le Pen's FN, although it has received a 'face-lift' to rid it of the more obviously objectionable parts of its far-right image, still pursues an economic agenda that closely resembles the autarkic economic program of the German national socialists of yore. The FN is not just another version of UKIP, with its far more libertarian streak. Although we sympathize with Ms. Le Pen's anti-Brussels technocracy stance, her protectionist mercantilistic agenda is just as doomed to failure as Mr. Hollande's milder version thereof (note that the differences between socialist and national socialist economic programs are only of a cosmetic nature; not surprisingly, the FN's gains have largely come at the expense of the socialist party). In spite of the intellectual bankruptcy of France's political mainstream, it is a bit disconcerting that the FN actually leads in national polls at present. France's voters seem eager to “chasser les démons par Belzébuth“, i.e., to replace one evil with an even worse evil.

This brings us back to the banks, which have incidentally become quite a popular target of Europe's populist political parties. They are quite correct in objecting to bailouts of course. The point we want to make is merely that any upcoming revelations of additional large losses hidden at European banks have a political dimension that could go well beyond the current 'banking union' related discussions.
Poisoned Policies

Those looking for poisoned economic policies should look no further than the policies of socialist president Francois Hollande. Here are seven prime examples.

  1. October 10, 2013: Law of Career Security: France's Minister of Digital Economy Orders Telecom Companies "to be Virtuous and Patriotic" and to Use Alcatel-Lucent to Prevent Layoffs
  2. October 3, 2013: France Vows to "Save the Bookstores", Fixes Price of Books, Bans Free Shipping by Amazon
  3. May 17, 2013: Hollande Asks ECB to Engage in Japanese Style Currency Debasement
  4. March 22, 2013: Hollande Announces 20 "Confidence Shock" Measures to Support Home Building
  5. January 28, 2013: France "Totally Bankrupt" Says Labour Minister; Inappropriate or Inaccurate?
  6. October 31, 2012: "Google Law" Yet Another Warped Policy by Hollande; Government Motors French Style
  7. June 8, 2012: Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"

My next update on the economically insane policies of France will have this post as the eighth example.

Mike "Mish" Shedlock

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