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Tuesday, January 28, 2014 6:35 PM

Hollande Plays "Mother May I"; Mish's 5 Giant Scissor Steps Proposal; Foreign Investment in France Falls 77%

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With bloated labor costs, pension requirements, labor rules, strikes, CEOs held hostage (literally), and overall union inefficiencies, it's no wonder Foreign Investment in France Fell 77% in 2013.

Releasing its first estimates for 2013 Tuesday, the United Nations Conference on Trade and Development said that while foreign investment in the European Union increased from 2012, inflows to France fell by 77% to $5.7 billion, extending a decline that began with the 2008 financial crisis and was briefly interrupted in 2011. Foreign investment was last lower in 1987, and as recently as 2007, it peaked at $96 billion.

By contrast, foreign investment in Germany almost quadrupled to $32.3 billion, while in Spain it rose by 37% to $37.1 billion. Foreign investment in Italy, Belgium, the Netherlands and Ireland also rose.

Seeking to revive growth, Mr. Hollande earlier this month launched a "responsibility pact," which includes cuts to chronically high payroll taxes, seeking to repair relations with France's business community, which has voiced anger about climbing costs and alarm that it is losing ground to Germany.
Responsibility Pact Short Synopsis

  • Corporations need to hire more workers
  • If corporations hire more workers, Hollande will consider cutting taxes
  • Hollande will monitor companies that add workers
  • Hollande will pressure companies that don't

Mother May I?

No business in its right mind would accept that proposal.

In the "Mother May I" game that Hollande appears to be playing, the best one can say is Hollande granted corporations a baby step in the right direction (yet coupled with "no you may not" restrictions).

What's really needed is a vast array of giant scissor steps.

Mish's Five Giant Scissor Steps Proposal

  1. Eliminate rules that prohibit firing
  2. Raise the pension age
  3. Lower corporate taxes
  4. Lower individual taxes
  5. Eliminate union work rules

Unfortunately, that's just a start of the scissor actions needed.

Please recall French government spending accounts for 56% of French GDP, highest in the EU. Unfortunately, France Minister of Industrial renewal has pledged to make matters worse (see France Minister of Industrial Renewal has New Target in his Sights).

Regarding my opening comment on CEOs held hostage (literally), here's something from earlier this month that I have not commented on: French workers hold Goodyear execs hostage. A day later, Bloomberg commented In France, Kidnapping the Boss Usually Pays Off.

I see these kinds of stories every day. It is difficult if not impossible to keep up with economic idiocies in France. I even have my own personal stories to report.

Looking for a roundup of economic ineptitude in France?

I just happen to have 24 examples from 2013 alone: France in Review: Perfect Track Record of Economic Ineptitude.

Rest assured the above 24-point list is woefully incomplete. Apologies offered.

Hollande Off and Running

Hollande has a fresh start in 2014. How is he doing? Please consider France Unemployment Hits New Record High; Hollande's November Pledge Reviewed.

Finally, France is a major focus of my European deflation thesis as described in Deflation Will Return: Europe First, Then US; Global Supply Arbitrage.

Looking for a global economic outlook? If so, please read the above link.

All things considered, France was lucky foreign direct investment only declined 77%.

Mike "Mish" Shedlock

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