Thursday, May 24, 2012

French President Francois Hollande Off to a Good Start – The New Normal May be Normal

He Just Needs to Drop that 75% Tax Thingee

Last week was a rather terrible one for economic and politics, with a coming election in Greece threatening to install a radical ex-Communist as head of government with an expected result of fracturing the Euro-Zone and the Euro.  But there is good news in France where newly elected President, Socialist Francois Hollande seems to be pursuing a path of quiet, competent normalcy.  This is despite center/right publications like the Economist who are concerned.

The Economist

The rather dangerous Monsieur Hollande

The Socialist who is likely to be the next French president would be bad for his country and Europe

If all of this plays out as it has started, this is indeed welcome news.  Government policies should be the focus of attention, not the personalities of those governing, something Mr. Hollande’s predecessor did not know which doomed his Presidency from the start.  To begin with Mr. Hollande flew to Germany to meet with German Prime Minister Angela Merkel.   Ms. Merkel had openly supported Mr. Hollande’s opponent, and his plane was struck by lightening on the trip but neither of these things interfered with his apparently calm and rationale approach to the meeting. 

In terms of mood music, it was a better start than that of Mr Sarkozy, who also flew to Berlin hours after his inauguration. The label “Merkozy”, coined to describe a joint approach to the euro crisis, masked an often prickly relationship. Mrs Merkel may have backed Mr Sarkozy for re-election, but she and Mr Hollande, both measured and rational, are a better temperamental match.

Mr. Hollande seems to understand that elections are about politics, they are not personal and so far relations between France and Germany continue to be productive.

Mr. Hollande also has chosen what appears to be a competent person to be Prime Minister.

French Socialist President François Hollande named Pierre Moscovici finance minister, calling in a politician with intimate experience of the euro's creation to tackle the deepening crisis that threatens the common currency.

Mr. Moscovici, 54 years old, inherits a stalling French economy saddled with record debt, and a tough mandate to make good on Mr. Hollande's double-barreled pledge to cut the government's budget deficit while rekindling economic growth.

The nomination on Wednesday of Mr. Moscovici—a member of the more market-friendly strand of the Socialist Party—came as another sign that Mr. Hollande is resolute to make good on his pledge to adhere to strict fiscal discipline.

and while the suggestion that Mr. Hollande will adhere to very strict fiscal discipline may be overstating things, as hopefully it is, it does show that he is not going to adopt a wildly Socialist policy of huge spending increases and nationalization.

Other appointments to the government are equally encouraging.

In addition to the appointment, Mr. Hollande, 57, named moderate Socialists with government experience to run the foreign and labor ministries, in an attempt to further reassure financial investors and to help unite his coalition ahead of crucial legislative elections in June.

Laurent Fabius, who was prime minister in the mid-1980s, was named foreign minister, and Michel Sapin, a former finance minister, was named minister of "labor, employment and social dialogue."

One week does not a Presidency make, and there is plenty of time for Mr. Hollande to mess this up.  But so far he seems quiet, cautious, concerned, low key and at least competent.  If he continues on this path expect The Economist, a very respected and honest publication to admit they were wrong.  (That's what good people do when they are wrong).

One is hopeful that Mr. Hollande will reverse one campaign promise, a vow to impose a 75% tax rate on incomes over 1 million euro’s.  Such a policy will not raise much money as France does not have that many taxpayers in that category, but it would give opponents a rallying cry by distorting things.  One can easily imagine Conservatives everywhere telling everyone that in France the income tax rate is 75%, implying that is what everyone pays and that is what non-Conservatives want to do. 

So the only thing a 75% rate would be is a distraction, and hopefully it will just die a very quiet death.  If so, it will not be missed.

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