On Sunday, The French went to the polls and elected Francois Hollande as President. On so many levels this is an interesting and welcome development.
|The French equivilant of John Major's soapbox...|
One of the key planks of Hollande’s strategy has been the promise to put taxes up for higher earners – to 75% for Euro-millionaires and to 45% for those earning above €450,000. The commentary in this country has been that this measure, alongside the policy to put up Corporation tax, will lead to people and companies leaving France and becoming tax exiles in the same way that businessmen in this country threaten to leave here if taxes go up. I do often wonder how much of this is hogwash, particularly as any time the French elections have come up in the news there has been no mention of large scale treats to leave the country. Mind you it is difficult to think of the French equivalent to Frank Bruno, Phil Collins and Paul Daniels.
All kidding aside, the treat of a mass exodus does get treated much more seriously here than it probably does elsewhere in Europe. It, alongside the shadow of tax evasion, was one of the deeply risible reasons for Gideon Osborne’s decision to cut the top rate of tax to 45% in the budget. Yet Hollande promised what many politicians would consider as the unthinkable by promising higher taxes for higher earners. One wonders if there is a lesson there for our lot, after all New Labour were less than whole hearted about the introduction of the 50% rate when it was introduced – so much so it was set at above £150,000 rather than the more sensible £100,000.
What could undo Hollande though would be his promise to re-negotiate the Eurozone’s Fiscal Convergence Treaty, this measure alone has seen the markets become restless at the fate of the Euro. Yet what has got the market’s reaching for the alarm button is Greece’s wholesale rejection of the EU enforced austerity package – a package wholly designed to keep the eurozone “family” together. The reason that Hollande is seeking to re-negotiate this treaty (lets not forget, a treaty that Cameron failed to torpedo) is that the French President elect has set out the bare bones of an alternative to the type of hair shirt austerity that the afore mentioned Osborne advocates as being part of his plan here.
Hollande’s plans so far include the aforementioned tax rises, the lowering of the retirement age to 60 (for some people) and the creation of 60,000 teaching jobs as part of 150,000 “jobs for the future”. What Hollande seems to have grasped is that austerity may be all very well and good, but it has a destructive effect on growth. In short, if people have no money, they will not spend it – simple yet somehow out of Osborne’s grasp. If he can get this off the ground, it will be good for France and provide an alternative to Osborne’s “Scorched Earth Policy”. However, there are big obstacles in Hollande’s way – those bad Credit agencies and “the markets”.
If Osborne’s whole strategy has been based on keeping the UK’s AAA rating, then one wonders what the likes of Standard & Poor and Abercrombie Fitch think of Hollande’s policy of deficit reduction by tax rises and not cuts to expenditure. They won’t be the only people twitchy at the prospect of a break with the austerity consensus. The EU will be interested in how exactly Hollande proposes to re-negotiate the Fiscal Convergence Treaty. What will be of interest to some in the EU will be Hollande’s pledge to look for an EU wide Financial Transactions Tax to be included in an amended treaty. This measure was thought to be popular among some countries, with Cameron the only leader to show any outright hostility to the plans (Sarkosy and Merkel might have been adverse to it too). Meanwhile “the markets” might well see any reduction in credit ratings as a green light to attempt to go after France, and try and bring them back into the austerity camp.
The election of Hollande represents a break from the austerity consensus which currently dominates thinking from Westminster to Brussels via New York. That this has occurred at precisely the moment that austerity in itself looks to be failing here in the UK has provided another dimension to the debate about the best way out of our economic woes. Should the French economy begin to thrive and recover, not only will it put pressure on Cameron and Clegg to change course, it will put pressure on Milliband the Younger to adopt some Hollande’s policies. It will also hopefully embolden socialists in this country to put pressure on New Labour torch-bearers by asking them precisely what they thought they were doing in following Tory economic policy for their 13 years in charge.