HAS
THE NEOLIBERAL MODEL LED EUROPE TOWARD DISASTER?
Despite the election of socialist
François Hollande to the presidency of the Republic, FRANCE, far from breaking
with the neoliberal model that has led much of EUROPE toward disaster, has
chosen the path of austerity.
GEOPOLITICAL INFLUENCE: TROIKA IMF, ECB AND WORLD BANK: POLITICALLY
UNPOPULAR, ECONOMICALLY INEFFICIENT AND SOCIALLY DISASTROUS?
The austerity policies advocated by
the EUROPEAN UNION - promoted primarily by GERMANY’S Angela Merkel - the
International Monetary Fund and the EUROPEAN Central Bank have led to deadlock.
They are politically unpopular, economically inefficient and socially
disastrous. Wherever they have been implemented, whether in GREECE, IRELAND,
ITALY, PORTUGAL, SPAIN and ARGENTINA - without a single exception - they have
been unsuccessful, engendering an increase in poverty, unemployment, and public
indebtedness as well as leading to the dismantling of the welfare state through
the destruction of public services and a drastic lowering of state revenues.
François Hollande’s election to the
presidency of the Republic in May 2012 sparked some hope among FRENCH citizens
for an alternative to austerity policies. But rather than significantly
increasing the minimum wage and public investment - measures that would have
boosted economic growth - the government of Prime Minister Jean-Marc Ayrault
adopted the "Pact for competitiveness" recommended by the Gallois
report. This is a pact that has shown itself
slavishly devoted to policies that have already demonstrated their
ineffectiveness across EUROPE.
FRANCES GOVERNMENT MEASURES WILL
LEAD TO REDUCTION IN ECONOMIC ACTIVITY
The government has in fact decided
to implement the measures recommended by Louis Gallois, commissioner general
for investment. In his opinion the policy would improve the competitiveness of
French companies at the international level, stimulate the economy and create
jobs. At the same time, President Holland has chosen to reduce the corporate
tax by granting a tax credit of 20 billion EUR.
In order to do this, the Elysée has
adopted two measures. As a first step, public expenditure will be reduced by 10
billion EUR. This means that public services made available to FRENCH citizens
will be severely affected, with a direct impact on the quality of life of the
most vulnerable elements of the population.
The second measure is the most
unpopular: Reneging on his campaign promise, François Hollande has made a
decision to increase VAT, or value-added tax. Indeed, former President Nicolas
Sarkozy had already raised the VAT using a differentiated formula in which the
middle rate was raised from 5% to 7% and the overall rate from 19.6% to 21.4%.
This represents an increase in VAT of 10.6 billion EUR, a cost that would
necessarily be borne by FRENCH citizens.
One of the first measures taken by
the new National Assembly in July 2012 was to remove this VAT hike. Now, three
months later, the Socialist government has reversed this decision by again
raising the main VAT rates. Thus, beginning the first of January 2014, the
overall rate will climb from 19.6% to 20% and the intermediate rate from 7% to
10%. Only the lowest rate will be decreased from 5.5% to 5%. Collectively,
these measures represent a tax increase for the FRENCH population of 7 billion EUR,
an imposition that will mainly affect the most vulnerable elements of the
population. Indeed, this new tax will account for a loss in purchasing power of
260 EUR per person per year, in other words, 25% of the monthly minimum
wage .
FRANCES FISCAL GIFT OF 20 BILLION EUR TO LARGE CORPORATIONS ALLEGEDLY
WILL CREATE 300,000 JOBS IN BY 2017!!
The increase in the VAT (+3% for
products as necessary as gas, electricity, transport, books, or medicines not
reimbursed by social security) will inevitably lead to a reduction in economic
activity. Indeed, the loss of household purchasing power will result in a
decrease in consumption and, thereby, a decrease in production. This in turn
will cause an increase in unemployment, and consequently a decline in tax
revenues for the State as well as an increase in the cost of allowances paid to
the unemployed.
Furthermore, this plan will
stimulate only 20% of the country’s economy. Indeed, in FRANCE, export
production represents only one fifth of the wealth produced, while eighty
percent of the country’s production is intended for domestic use. It is the
latter that will be directly affected by the increase in the VAT
According to the Government, this
fiscal gift of 20 billion EUR to large corporations will potentially create
300,000 jobs in FRANCE by 2017. However, this is highly uncertain and, in fact, it is contrary to all economic
logic. Indeed, assuming that the number is correct, this means that 67,000 EUR
will need to be allocated to cover the cost of each job created. However, the
creation of a post of teacher, nurse, social worker or cultural attaché in the
public service requires an expenditure of only 40,000 EUR yearly. Thus, had the
State allocated 20 billion EUR to the public sector, 500,000 quality jobs would
without a doubt have been created. This is 200,000 more than what is currently
planned for and these are jobs that would contribute greatly to the improvement
of public services and the welfare of citizens.
The measures taken by President
François Holland and the Government of Jean-Marc Ayrault constitute an economic
oxymoron and are doomed to failure. They fall directly in line with the
austerity policies already implemented throughout EUROPE, policies that have
led the most vulnerable elements of the population to disaster.
By Salim Lamrani
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