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Archive for the ‘European Commission’ Category

I’ve warned many times that Italy is the next Greece.

Simply stated, there’s a perfect storm of bad news. Government is far too big, debt is too high, and the economy is too sclerotic.

I’ve always assumed that the country would suffer a full-blown fiscal crisis when the next recession occurs. At that point, tax receipts will fall because of the weak economy and investors will realize that the nation no longer is able to pay its bills.

But it may happen even sooner thanks to a spat between Italy’s left-populist government and the apparatchiks at the European Commission.

Here’s what you need to know. There are (poorly designed) European budget rules, known as the Maastricht Criteria, that supposedly require that nations limit deficits to 3 percent of GDP and debt to 60 percent of GDP.

With cumulative red ink totaling more than 130 percent of GDP, Italy obviously fails the latter requirement. And this means the bureaucrats at the European Commission can veto a budget that doesn’t strive to lower debt levels.

At least that’s the theory.

In reality, the European Commission doesn’t have much direct enforcement power. So if the Italian government tells the bureaucrats in Brussels to go jump in a lake, you wind up with a standoff. As the New York Times reports, that’s exactly what’s happened.

In what is becoming a dangerous game of chicken for the global economy, Italy’s populist government refused to budge on Tuesday after the European Union for the first time sent back a member state’s proposed budget because it violated the bloc’s fiscal laws and posed unacceptable risks. …the commission rejected the plan, saying that it included irresponsible deficit levels that would “suffocate” Italy, the third-largest economy in the eurozone. Investors fear that the collapse of the Italian economy under its enormous debt could sink the entire eurozone and hasten a global economic crisis unseen since 2008, or worse. But Italy’s populists are not scared. They have repeatedly compared their budget, fat with unemployment welfare, pension increases and other benefits, to the New Deal measures of Franklin D. Roosevelt.

Repeating the failures of the New Deal?!? That doesn’t sound like a smart plan.

That seems well understood, at least outside of Italy.

The question for Italy, and all of Europe, is how far Italy’s government is willing to go. Will it be forced into submission by the gravity of economic reality? Or will Italian leaders convince their voters that the country’s financial health is worth risking in order to blow up a political and economic establishment that they say is stripping Italians of their sovereignty? And Brussels must decide how strict it will be. …the major pressure on Italy’s budget has come from outside Italy. Fitch Ratings issued a negative evaluation of the budget, and Moody’s dropped its rating for Italian bonds to one level above “junk” last week.

So now that Brussels has rejected the Italian budget plan, where do things go from here?

According to CNBC, the European Commission will launch an “Excessive Deficit Procedure” against Italy.

…a three-week negotiation period follows in which a potential agreement could be found on how to lower the deficit (essentially, Italy would have to re-submit an amended draft budget). If that’s not reached, punitive action could be taken against Italy. Lorenzo Codogno, founder and chief economist at LC Macro Advisors, told CNBC…“it’s very likely that the Commission will, without making a big fuss, will move towards making an ‘Excessive Deficit Procedure’…to put additional pressure on Italy…” Although it has the power to sanction governments whose budgets don’t comply with the EU’s fiscal rules (and has threatened to do so in the past), it has stopped short of issuing fines to other member states before. …launching one could increase the already significant antipathy between Brussels and a vociferously euroskeptic government in Italy. Against a backdrop of Brexit and rising populism, the Commission could be wary of antagonizing Italy, the third largest euro zone economy. It could also be wary of financial market nerves surrounding Italy from spreading to its neighbors… Financial markets continue to be rattled over Italy’s political plans. …This essentially means that investors grew more cautious over lending money to the Italian government.

For those who read carefully, you probably noticed that the European Commission doesn’t have any real power. As such, there’s no reason to think this standoff will end.

The populists in Rome almost certainly will move forward with their profligate budget. Bureaucrats in Brussels will complain, but to no avail.

Since I’m a nice guy, I’m going to give the bureaucrats in Brussels a much better approach. Here’s the three-sentence announcement they should make.

  1. The European Commission recognizes that it was a mistake to centralize power in Brussels and henceforth will play no role is overseeing fiscal policy in member nations.
  2. The European Commission (and, more importantly, the European Central Bank) henceforth will have a no-bailout policy for national governments, or for those who lend to national governments.
  3. The European Commission henceforth advises investors to be appropriately prudent when deciding whether to lend money to any government, including the Italian government.

From an economic perspective, this is a far superior approach, mostly because it begins to unwind the “moral hazard“that undermines sound financial decision making in Europe.

To elaborate, investors can be tempted to make unwise choices if they think potential losses can be shifted to taxpayers. They see what happened with the various bailouts in Greece and that tells them it’s probably okay to continue lending money to Italy. To be sure, investors aren’t totally blind. They know there’s some risk, so the Italian government has to promise higher interest payments

But it’s highly likely that the Italian government would have to pay even higher rates if investors were convinced there would be no bailouts. Incidentally that would be a very good outcome since it would make it more costly for Italy’s politicians to continue over-spending.

In other words, a win-win situation, with less debt and more prudence (and maybe even a smaller burden of government!).

My advice seems so sensible that you’re probably wondering if there’s a catch.

There is, sort of.

When I talk to policy makers, they generally agree with everything I say, but then say my advice is impractical because Italy’s debt is so massive. They fret that a default would wipe out Italy’s banks (which imprudently have bought lots of government debt), and might even cause massive problems for banks in other nations (which, as was the case with Greece, also have foolishly purchased lots of Italian government debt).

And if banks are collapsing, that could produce major macroeconomic damage and even lead/force some nations to abandon the euro and go back to their old national currencies.

For all intents and purposes, the Greek bailout was a bank bailout. And the same would be true for an Italian bailout.

In any event, Europeans fear that bursting the “debt bubble” would be potentially catastrophic. Better to somehow browbeat the Italian government in hopes that somehow the air can slowly be released from the bubble.

With this in mind, it’s easy to understand why the bureaucrats in Brussels are pursuing their current approach.

So where do we stand?

  • In an ideal world, the problem will be solved because the Italian government decides to abandon its big-spending agenda and instead caps the growth of spending (as I recommended when speaking in Milan way back in 2011).
  • In an imperfect world, the problem is mitigated (or at least postponed) because the European Commission successfully pressures the Italian government to curtail its profligacy.
  • In the real world, though, I have zero faith in the first option and very little hope for the second option. Consider, for instance, the mess in Greece. For all intents and purposes, the European Commission took control of that nation’s fiscal policy almost 10 years ago. The results have not been pretty.

So this brings me back to my three-sentence prescription. Yes, it almost certainly would be messy. But it’s better to let the air out of bubbles sooner rather than later.

P.S. The so-called Basel Rules contribute to the mess in Europe by directing banks to invest in supposedly safe government debt.

P.P.S. If the European Union is going to impose fiscal rules on member nations, the Maastricht criteria should be jettisoned and replaced with a Swiss-style spending cap.

P.P.P.S. Some of the people in Sardinia have the right approach. They want to secede from Italy and become part of Switzerland. The Sicilians, by contrast, have the wrong mentality.

P.P.P.P.S. Italy is very, very, very well represented in the Bureaucrat Hall of Fame.

P.P.P.P.P.S. You’ll think I’m joking, but a columnist for the New York Times actually argued the United States should be more like Italy.

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If you look at the top of your screen on my home page, you’ll notice that I have a collection of special pages such as the Bureaucrat Hall of Fame and examples of what happens when you mix government and sex.

I’m thinking of creating a new page, but I need a pithy way of describing leftists who lie about poverty. And there are plenty of them.

Today, we identify some additional members who are eligible for this disreputable club.

And we’ll start with the European Commission.

Here’s a chart from a recent report that supposedly shows poverty rates in various European nations.

If you compare the “at-risk-of-poverty rate” for various nations, you’ll notice some very odd outcomes.

For instance, the tiny tax haven of Luxembourg is one of the world’s wealthiest nations, yet it supposedly has more poverty than Hungary. And super-rich Switzerland has more poverty than Slovakia. And oil-rich Norway has more poverty than the Czech Republic.

Are all those rich nations in Western Europe really suffering from higher poverty rates than some of the Eastern European countries still recovering from communist rule?

Of course not. The chart is based on a big, fat lie.

And I know it’s a lie because if you look in the glossary at the end of the long report, you’ll see that the bureaucrats openly admit that their so-called poverty chart has nothing to do with poverty and nothing to do with living standards (I’ve underlined the most important parts).

Interestingly, the bureaucrats in Brussels included a chart in the study revealing the level of inaccuracy for each country.

Here’s a look at the dishonest poverty rate (the blue diamond) compared to a measure of “severe material deprivation” that presumably does a better job of showing the real number of poor people (the red diamond).

By the way, I’m not a huge fan of the European Commission’s measure of “severe material deprivation” since it includes variables such as having a car, a color TV, and the money to take a one-week vacation.

But that’s a separate story.

Let’s look at other new members of our club.

An Eduardo Porter column in the New York Times also used the dishonest definition of poverty.

How can it be that the United States spends so much money fighting poverty and still suffers one of the highest child poverty rates among advanced nations? One in five American children is poor by the count of LIS, a data archive tracking well-being and deprivation around the world. …the United States tolerated more child poverty in 2012 than 30 of the 35 countries in the Organization for Economic Cooperation and Development, a grouping of advanced industrialized nations. The percentage of children who are poor is more than three times as high in the United States as it is in Norway or the Netherlands. America has a larger proportion of poor children than Russia.

And here’s a chart from the article that definitely makes the United States look bad.

But, unless you read the column carefully, you would have missed this all-important detail.

…international standards that set the poverty line at one-half the income of families on the middle rung of the income ladder.

In other words, everything in the article, and all the numbers in the chart, have nothing to do with actual poverty. Instead, we’re simply looking at an indirect measure of income distribution.

And the United States is made to look bad because our median income is generally much higher than it is in other nations.

How absurd.

You’ll think I’m joking, but you can dramatically reduce “poverty,” based on this dishonest definition, if you randomly kill rich people.

Let’s conclude by looking at the U.K.-based Guardian‘s article about supposed poverty in Hong Kong.

A record number of Hong Kong residents live in poverty, with one fifth of the population falling below the poverty line despite economic growth, according to new government figures. The number of people living below the poverty line rose to 1.35 million in 2016, about 20% of the city’s population. The number is the highest number of poor since the government began publishing statistics in 2009. Despite opulent wealth, Hong Kong is a deeply unequal society. …The number of poor rose despite the government raising the poverty line last year. For single person households it is set at HK$4,000 (£388). It is HK$9,000 (£873) for a two person home and HK$15,000 (£1,455) for a family of three.

There’s a small problem and big problem with this article. The small problem is that it states that the number of poor people increased “despite” an increase in the poverty line.

Huh?!?

If the government raises the threshold, of course it will seem like more people are poor. The article should replace “despite” with “because.”

Tom Worstall, writing for CapX, explains the big problem in the article.

One of the great injustices of our age is, as The Guardian reported…, that 20 per cent of the people in Hong Kong, one of the richest places on the planet, live in poverty. …The Guardian [is] waxing indignant over things it doesn’t understand. …there’s an important underlying point: inequality – not poverty – is being measured here. The international definition of poverty is less than $1.90 a day. There’s no one in Hong Kong on this at all, therefore there’s no poverty. …we’re told that the poverty line in Hong Kong is HK $4,000 per month (roughly £380) for an individual which certainly doesn’t seem like much. Yet when we plug that into a comparison of global incomes we find that, accounting for price differences across geography, it’s firmly in the top fifth of all global incomes. In other words, the poorest 20 per cent in Hong Kong are still find themselves in the richest 20 per cent of all humans.

Given the praise I’ve heaped on Hong Kong, I also can’t resist sharing this excerpt even though it’s a separate topic.

As Hong Kong so vividly demonstrates, the…economy in which the poverty line is defined as being rather rich by global standards must have something going for it. According to the World Bank’s figures, back in 1960 Hong Kong was at around the average level of income for the planet, with GDP per capita at a little over $400 (in 1960 dollars). Today the figure is slightly over $40,000 per head while the global average has only struggled up to $10,000 or so. An over performance by a factor of four isn’t that bad over half a century, is it?

Amen.

If we actually care about reducing genuine poverty, there’s no substitute for the miracle of compounding growth.

Which is why our friends on the left, if they actually cared about poor people (and I think most of them genuinely do care), should focus on growth rather than being fixated on redistribution.

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As an economist, I admire Switzerland for its sensible approach to issues such as spending restraint and taxation.

As an observer of political systems, I admire Switzerland for its robust federalism.

As a supporter of human rights, I admire Switzerland’s protection of financial privacy (sadly weakened because of external pressure).

As an advocate of freedom, I admire Switzerland because there is a tradition of gun rights.

Indeed, there is a gun store less than a mile from the federal parliament in Bern that sells (gasp!) military-style assault rifles.

Sadly, it wasn’t open when I walked by this past weekend, so I could only snap a photo of the display window.

I couldn’t help but mentally compare the Swiss capital, where guns are sold, with the U.S. capital, where favors are sold.

There’s also a pro-gun culture in Switzerland, as reflected in this article.

“Shooting is becoming increasing popular again among the young, and the federal decision to lower the age of access to lessons is a big part of it,” says a happy Christoph Petermann, deputy chief of communications for the Swiss Target Shooting Federation. In 2016, the government lowered the age at which young people can attend target shooting lessons from 17 to 15. “In addition, we’re particularly pleased with the number of girls and young women who choose shooting…” When it comes to training children how to shoot, …Children are admitted from the age of five – but not to shoot with an assault rifle. This young, they train with pistols, air rifles, crossbows or bows. It gets serious from the age of ten – with small-calibre weapons – and from 12, in general, with assault rifles.

Unfortunately, Swiss gun rights are being attacked.

The problem isn’t the politicians in Bern. It’s the bureaucrats at the European Commission.

The Swiss media is covering the issue.

…the EU gun control plans, due to be completed by 2019, aim to curb online weapons sales and impose tight restrictions on assault weapons. …Swiss army-issue weapons would still be allowed to be kept at home after military service, in keeping with tradition. Hunters are also not affected by the plan. But certain semi-automatic weapons – such as those with magazines holding over 20 rounds of ammunition – and some high-capacity shoulder-supported rifles would be banned. …Gun collectors will be required to catalogue and report their collections to the authorities.

Needless to say, Swiss gun groups are not happy.

Critics…say the government proposal was decided undemocratically and the clampdown will have no influence on public safety or terrorism in Europe. They are concerned about its impact on their right to bear arms and are particularly unhappy with restrictions on certain categories of semi-automatic weapons and magazines, the possible impact on army-issue guns, and additional bureaucracy. …Jean-Robert Consolini, the owner of Lagardere Armoury, said he would fight the proposal. “These terror attacks were carried out by people using guns from the black market, not from a legal trade via an armoury. So, this directive won’t prevent the traffic of weapons…” Today, Switzerland has among the highest gun ownership rates per capita among Western countries. It is thought that around two million are in circulation. High rates of ownership and existing gun laws reflect the country’s deep-rooted belief in the right to bear arms and the needs of its militia army.

Monsieur Consolini is completely correct, by the way, about the EU directive having no effect on terrorists, who invariably can get weapons on the black market.

In any event, American gun groups have sympathy for their Swiss counterparts.

The National Rifle Association has opined about the controversy.

Switzerland…has the most civilian-owned firearms per capita in Europe and ranks third worldwide… The experience of Switzerland, just like many parts of the United States, serves to refute gun control advocates’ contention that more firearm ownership means more violence. Unfortunately, …a tradition of peaceful gun ownership will not dissuade gun prohibitionists. …the latest push for gun control in Switzerland stems from the updates to the European Union Firearms Directive Brussels adopted in April 2017. …The most controversial change to EU gun law…classified handguns equipped with a magazine with a capacity greater than 20 rounds and long guns equipped with a magazine with a capacity greater than 10 rounds as Category A firearms. Category A firearms are generally prohibited for civilian use. Further, the legislation required EU Member States to create firearms registries… Switzerland is not a member of the EU, however, the country is a member of the Schengen Area… As such, Switzerland is obligated to conform to the EU’s firearms restrictions.

Here are more details from the NRA report.

On April 9, Swiss gun rights organization ProTell (named for legendary marksman William Tell…) expressed their opposition to the EU changes to the Swiss legislature. Calling Switzerland’s gun laws “an expression of trust and respect between citizen and state,”… In December, ProTell made clear that it is willing to fight any further restrictions on gun rights through the referendum process. The Swiss People’s Party has also registered its staunch opposition to the new EU restrictions.

So what’s going to happen?

There are two possible positive outcomes.

First, as I noted last year, the Czech Republic is on the right side of this fight. And its government is challenging the European Commission’s interference in what should be a matter decided by national governments.

The Czech Republic filed a lawsuit…against a new European Union directive tightening gun ownership, aimed at limiting access to semi-automatic and other weapons… EU interior ministers gave a final nod to the changes…despite the Czech Republic, Luxembourg and Poland voicing opposition. The Czech Interior Ministry said the directive was too harsh, affecting for example thousands of hunters – a popular activity with a long tradition in the central European country. …“Such a massive punishment of decent arms holders is unacceptable, because banning legally-held weapons has no connection with the fight against terrorism,” Interior Minister Milan Chovanec said in a statement. “This is not only a nonsensical decision once again undermining people’s trust in the EU, but implementing the directive could also have a negative impact on the internal security of the Czech Republic, because a large number of weapons could move to the black market,” he said. …The lower chamber of the Czech parliament approved a bill in June putting gun owners’ rights in the constitution.

In theory, the Czech government’s legal argument should prevail since “subsidiarity” is ostensibly enshrined in European treaties.

But I fear that principle of decentralization will be overlooked because of the pro-harmonization ideology that is so prevalent in EU institutions.

So the second option for a positive outcome is a referendum in Switzerland, which has a long tradition of direct democracy.

And since the Swiss tend to be very sensible when voting on national issues, we can hope that they reject gun control and – for all intents and purposes – tell the European Commission to take a hike.

Let’s hope so. There are very few libertarian-minded jurisdictions in the world. It would be a shame if the Swiss rolled over and let EU bureaucrats dictate their gun laws.

P.S. For more info on global gun control data on information, click here and here.

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The evil ideology known as communism left a track record of unimaginable horror. Experts estimate that 100 million people were killed by Marxist regimes.

Some were murdered. Other starved to death because of the pervasive economic failure of communism.

Yet there are dupes and apologists who overlook all this death and misery.

One of them is Jean-Claude Juncker, the President of the European Commission. A few days from now, this über-bureaucrat will help celebrate the 200th birthday of Karl Marx.

The European Commission President will travel to Trier, Germany, where he will give a speech to celebrate the 200th anniversary of Marx’s birth. …The Commission President will give a speech at the opening ceremony of the Karl Marx exhibition in the city. …The chief eurocrat’s trip has received critics, who have suggested the 63-year-old forgetting how Marx’s “warped ideology” led to millions of deaths across the world. Ukip MEP and the party’s former leader Paul Nuttall said: “It is appalling that Jean-Claude Juncker feels it necessary to commemorate a man whose ideology – Marxism/Communism – led to more than 100 million deaths. …Conservative MP Daniel Kawczynski…, who as a seven-year-old boy fled to Britain with his family from the Communist regime in Poland, said Mr Juncker should reject any invitations to commemorate the event. He said: “I think it’s in very poor taste we have to remember that Marxism was all about ripping power and individual means away from people and giving to State. “Marxism led to the killing of millions around the world as it allowed a small band of fanatics to suppress the people we must learn the lessons from this and share with our children.”

How disgusting.

And let’s not forget that communism is still claiming victims in places such as Cuba and North Korea.

Here’s the part of the story that caused my jaw to drop.

A commission spokeswoman defending Mr Juncker’s visit… She said: …“I think that nobody can deny that Karl Marx is a figure who shaped history in one way or the other.

In that case, why not celebrate Hitler’s birthday as well?

Writing for the Atlas Society, Alan Charles Kors expresses dismay that communism does not receive the same treatment as its sister ideology of National Socialism.

No cause, ever, in the history of all mankind, has produced more cold-blooded tyrants, more slaughtered innocents, and more orphans than socialism with power. It surpassed, exponentially, all other systems of production in turning out the dead. The bodies are all around us. And here is the problem: No one talks about them. No one honors them. No one does penance for them. No one has committed suicide for having been an apologist for those who did this to them. …The West accepts an epochal, monstrous, unforgivable double standard. We rehearse the crimes of Nazism almost daily, we teach them to our children as ultimate historical and moral lessons, and we bear witness to every victim. We are, with so few exceptions, almost silent on the crimes of Communism. So the bodies lie among us, unnoticed, everywhere. We insisted upon “de-Nazification,” and we excoriate those who tempered it in the name of new or emerging political realities. There never has been and never will be a similar “de-Communization,” although the slaughter of innocents was exponentially greater, and although those who signed the orders and ran the camps remain. In the case of Nazism, we hunt down ninety-year-old men because “the bones cry out” for justice. In the case of Communism, we insisted on “no witch hunts”… The Communist holocaust should have brought forth a flowering of Western art, and witness, and sympathy. It should have called forth an overflowing ocean of tears. Instead, it has called forth a glacier of indifference. Kids who in the 1960s had portraits of Mao and Che on their college walls —the moral equivalent of having hung portraits of Hitler, Goebbels, or Horst Wessel in one’s dorm—now teach our children about the moral superiority of their political generation. Every historical textbook lingers on the crimes of Nazism, seeks their root causes, and announces a lesson that should be learned. Everyone knows the number “six million.” By contrast, it is always “the mistakes” of Communism or of Stalinism (repeated, by mistake, again, and again, and again). Ask college freshmen how many died under Stalin’s regime, and they will answer, even now, “Thousands? Tens of thousands?”

Of course, some of these kids are probably wearing t-shirts celebrating Che Guevara, so it goes without saying that they are ignorant.

Or, if they actually know Che’s track record, the kids are immoral punks.

In any event, Jean-Claude Juncker should know better. Sounds like he wants his name to be added to the biggest-clown-in-Brussels contest.

P.S. I’m embarrassed to admit that some economists were apologists for communism.

P.P.S. There’s a very small silver lining to the dark cloud of communism. You can click here, here, here, and here to enjoy some clever anti-communism humor.

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In last year’s French presidential election between Emmanuel Macron and Marine Le Pen, I joked that voters should choose the socialist over the socialist, but made a serious point that Macron – despite having been part of Hollande’s disastrous government – was preferable since there was at least a hope of market-oriented reform.

…the chance of Macron being good are greater than zero. After all, it was the left-wing parties that started the process of pro-market reforms in Australia and New Zealand. And it was a Social Democrat government in Germany that enacted the labor-market reforms that have been so beneficial for that nation.

And after Macron won the election, I reviewed some of his initiatives to restrain government, including plans to reduce the burden of government spending, lower France’s corporate tax rate, and to shrink the size of the bureaucracy.

His ideas sounded so good that I wrote – only partly in jest – that “I wish the Republicans in Washington were as sensible as these French socialists.”

We’re not quite to the one-year anniversary of his election, but let’s take a look at Macron’s track record. And we’ll start with a very encouraging report from the New York Times.

…if France’s young president, Emmanuel Macron, has made one thing clear, it is that he is not afraid to shake up France and take on its venerable institutions. Now it is the turn of the heavily subsidized and deeply indebted French rail system. Mr. Macron says he wants to erase the railway workers’ special status, which gives them more generous benefits than almost any other workers, including a guarantee of early retirement. In doing so, he has set himself a new and formidable challenge in his expanding campaign to reshape France’s society and economy, which started last year with a law that made it easier for private companies to hire and fire workers, a near revolution for France.

Macron has a difficult task.

…the railway workers are a public-sector work force, one of the most powerful in the country, with a chokehold on as many as five million riders daily. When they go on strike, the whole country feels it. …rail unions have already pledged to join a strike by public-sector employees planned for Thursday… The rail workers then plan weeks of strikes starting in April that will be staged on a rolling basis.

Here’s some of what Macron wants to fix.

French rail workers’ current, ample benefits — including in some cases, the option of retiring at 52 — date to the first half of the 20th century, when many railway jobs involved hard, physical labor… Mr. Macron…to push for a broader overhaul that, for new hires, would end advantages like guaranteed jobs, automatic pay raises and generous social security benefits. …The French rail system is both heavily subsidized and deeply in debt, to the tune of 55 billion euros, or about $68 billion.

And if the French President succeeds, there are other reforms on the horizon.

Mr. Macron has pledged to follow the railway plan with an overhaul of the unemployment system later in the year. Next year he intends to take on the French pension system. …changing the employment terms for railway workers appears to be part of a larger crusade to push French workers into the 21st century.

Good. Similar reforms were very beneficial for German workers and the German economy, so I’m sure Macron’s proposals will produce good results in France.

Writing last October for CapX, Diego Zuluaga expressed optimism about Macron’s agenda.

…it is the French government that is tackling the big barriers to growth and dynamism that have stifled their economy since 1975. …Emmanuel Macron…has vowed to attack this status quo. He aims to deconstruct the onerous French labour market law, the infamous Code du travail. This is a 1,600-page, 10,000-article gargantuan piece of legislation which is blamed for clobbering employment in France over the past 25 years. …Macron may be able to deliver considerable reforms when it comes to the labour market. His cabinet intends to move a larger share of collective bargaining to the firm level, remove the requirement of union representation for small- and medium-sized businesses, limit severance pay – right now it averages €24,000 per dismissal – to give employers greater certainty about the costs of hiring… Spain reformed its dysfunctional hiring and firing regulations in 2012, and robust employment growth followed. Now, it is long-ossified France that is taking up the baton.

If you stopped reading at this point, you might conclude that Macron is a French version of Ronald Reagan or Margaret Thatcher.

But that would be a considerable exaggeration. The French President also is pushing some questionable policies, such as higher taxes on luxury goods. But, in Macron’s defense, those class-warfare taxes are an offset for the abolition of the wealth tax, which was a very good reform.

Emmanuel Macron’s administration will propose a tax on luxury yachts, supercars and precious metals in France’s 2018 budget. Lawmakers will propose amendments after critics attacked the President’s move to scrap the wealth tax in France. Mr Macron abolished the tax, which has been seen as a symbol of social justice for the left but blamed by others for driving thousands of millionaires abroad. …The wealth tax, introduced by the Socialists in the 1980s, was levied on individuals with assets above 1.3 million euros (£1.2 million).

Since I’m not familiar with the details (i.e., do these changes result in a revenue-neutral shift, a net tax cut, or a net tax increase?), there’s no way to determine if swapping the wealth tax for luxury taxes is a net positive or a negative. Though I assume the overall effect is positive because wealth taxes are a very bad idea and luxury taxes, while self-destructive, generally are futile.

But this doesn’t let Macron off the hook. Even if we decide that he’s a pro-market reformer inside his country, he has a very bad habit of promoting statism at the European level.

The Wall Street Journal opined unfavorably last year on his plan for greater centralization.

…the French President issued a call for more, more and more Europe. …His EU would be responsible for many of the functions traditionally performed by a nation-state, such as defense, taxation, migration control and economic regulation. …The problem is…Mr. Macron’s dreams of fiscal and economic union. He wants to create an EU finance ministry, funded by corporate and other taxes, that can spend money across the bloc with minimal interference from national capitals. Mr. Macron also wants to harmonize—eurospeak for raise—corporate taxes across the EU. He’d further establish Franco-German regulatory excess as the benchmark for the rest of the EU… This is a recipe for political failure because Europeans already know these policies are economic duds.

Writing for the New York Times, a German journalist poured cold water on Macron’s plan to give redistribution powers to the European Union.

It would be funny if it weren’t dangerous — the solution offered by the new, pro-Europe president, Emmanuel Macron, is to create a eurozone budget, with its own finance minister. …Mr. Macron’s proposal is a disaster in the making. It will only further alienate Europeans from one another and weaken the bloc economically. …Brussels’s money has often been Europe’s curse. The Greek government, for instance, knew it could take for granted the support of the other euro members for its unsustainable budget after Chancellor Angela Merkel of Germany recklessly declared, “If the euro fails, Europe fails.” Athens slowed down on reform, knowing Brussels would bail it out, and northern Europeans grew angry. In the worst case, Mr. Macron’s plan could turn this disincentive into a characteristic feature of the European Union. …Brussels would end up holding the purse but not the purse strings.

So what’s the story with Macron’s schizophrenic approach? Why is he a pro-market Dr. Jekyll for French policy but a statist Mr. Hyde for European policy?

I don’t have the answer, but Diego Zuluaga wrote about this dichotomy for CapX.

The puzzle of Macronism is that it tends to advocate dynamism at home, but stasis abroad. The French President, both during his tenure in Hollande’s cabinet and in his new office, has championed reform of the country’s bewilderingly byzantine employment code, which has promoted social exclusion and led to a high rate of structural unemployment. …But Macron’s liberalism seemingly stops at France’s borders. On the EU level, he has called for increased risk-sharing among euro member states, a eurozone budget and finance minister… Whatever one makes of his climate-change activism, it is nothing if not dirigiste in the extreme, wishing to curb carbon emissions through bureaucratic pacts on a global level. What we are left with is the pro-market equivalent of Stalin’s pre-WWII economic policy of  “socialism in one country”. Liberalism in one country acknowledges the need for economic flexibility and a greater reliance on market forces at home. It champions tax reform and deregulation of industry and hiring. But it shuns those principles on the international level.

By the way, Mr. Zuluaga is using “liberalism” in the classic sense, meaning pro-market policies.

Let’s close with a couple of items that show France still has a long way to go.

First, a leftist columnist wants us to believe that recent riots, caused by a sale on Nutella, are symbolic of a dystopian future.

You may have seen the videos: in French supermarkets Intermarché, customers are rushing towards shelves of Nutella jars. They’re running, shouting, fighting, rummaging to grab a jar of the chocolate flavoured paste… This mess happened simultaneously in various French supermarkets when grocery chain Intermarché advertised a massive sale on 1kg Nutella jars, priced at €1,41 instead of the usual €4,50. …I don’t find this news funny, not even remotely. …it is telling of a France that is more and more divided… The massive response to this sale shines light…on the precarious position in which many French workers, and shoppers, find themselves. …And it’s not going to get any better for them. Macron’s looming labour reform is already eroding French workers’ rights… Macron’s great vision for France increasingly looks like a country where only the rich and “successful” will be able to afford Nutella – and those who “are nothing” will be left to fight for sale prices.

This type of over-wrought analysis makes me want to cheer for Macron.

Why? Because I understand that the best hope for workers is faster growth, not “labor-protection policies” that actually undermine job creation and cause wages to stagnate.

Second, we have a story that highlights the impossible regulatory burden in France.

A French boulanger has been ordered to pay a €3,000 fine for working too hard after he failed to close his shop for one day a week last summer. …Under local employment law, two separate regulations from 1994 and 2000 require bakers’ shops to close once a week… He has been advised the only way to get around the regulations would be to open a second boulangerie with different opening hours. …The federation of Aube boulangeries and patisseries questioned 126 members at the end of last year: the majority were in favour of maintaining the obligatory one-day closure. Eric Scherrer of the retail union CLIC-P, said French employment laws were there to protect workers and employers and had to be respected. …“These people need to have a rest day each week. We can’t just allow them to work non-stop. It’s absolutely necessary that both bosses and employees have a day of rest.”

The bottom line is that Macron should drop his statist European-wide proposals and put all of his focus on fixing France.

If you look at his country’s scores from Economic Freedom of the World, he should be working day and night to reduce the fiscal burden of government.

And lowering the regulatory burden should be the second-most important priority.

P.S. If the numbers in this poll are still accurate, Macron better fix his nation’s bad policies or his productive citizens will escape to America. After all, France is a great place to live if you’re already rich, but not so good if you aspire to become rich.

P.P.S. Here’s a story highlighting the lavish government-financed benefits for the privileged class in France.

P.P.P.S. My favorite French-themed cartoon features Obama and Hollande.

P.P.P.P.S. And let’s not forget Paul Krugman’s conspiracy theory about a “plot against France.”

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If I was a citizen of the United Kingdom, I would have voted to leave the European Union for the simple reason that even a rickety lifeboat is better than a slowly sinking ship.

More specifically, demographic changes and statist policies are a crippling combination for continental Europe, almost surely guaranteeing a grim future, and British voters wisely decided to escape. Indeed, I listed Brexit as one of the best things that happened in 2016.

This doesn’t mean the U.K. has ideal policies, but Brexit was a good idea precisely because politicians in London will now have more leeway and incentive to liberalize their economy.

Though I wonder whether Prime Minister May and the bumbling Tories will take advantage of the situation.

The Financial Times has a report that captures the real issue driving Brexit discussions. Simply stated, the European Union is scared that an independent U.K. will become more market-friendly and thus put competitive pressure on E.U. welfare states.

The EU is threatening sanctions to stop Britain undercutting the continent’s economy after Brexit…the bloc wants unprecedented safeguards after the UK leaves to preserve a “level playing field” and counter the “clear risks” of Britain slashing taxes or relaxing regulation. Brussels…wants…to enforce restrictions on taxation…and employment rights. …the EU negotiators highlight the risk of Britain ‘undermining Europe as an area of high social protection’…the UK is “likely to use tax to gain competitiveness” and note it is already a low-tax economy with a “large number of offshore entities”. …On employment and environmental standards, the EU negotiators highlight the risk of Britain “undermining Europe as an area of high social protection”.

In case you don’t have a handy statism-to-English dictionary handy, you need to realize that “level playing field” means harmonizing taxes and regulations at very high level.

Moreover, “employment rights” means regulations that discourage hiring by making it very difficult for companies to get rid of workers.

And “high social protection” basically means a pervasive and suffocating welfare state.

To plagiarize from the story’s headline, these are all policies that belong in a bonfire.

And the prospect of that happening explains why the politicians and bureaucrats in continental Europe are very worried.

…senior EU diplomats, however, worry that the political expectations go beyond what it is possible to enforce or agree. “This is our big weakness,” said one. Theresa May, the British prime minister, last year warned the EU against a “punitive” Brexit deal, saying Britain would fight back by setting “the competitive tax rates and the policies that would attract the world’s best companies and biggest investors”.

Sadly, Theresa May doesn’t seem very serious about taking advantage of Brexit. Instead, she’s negotiating like she has the weak hand.

Instead, she has the ultimate trump card of a “hard Brexit.” Here are four reasons why she’s in a very strong position.

First, the U.K. has a more vibrant economy. In the latest estimates from the Fraser Institute’s Economic Freedom of the World, the United Kingdom is #6.

And how does that compare to the other major economies of Europe?

Well, Germany is #23, Spain is #36, France is #52, and Italy is #54.

So it’s easy to understand why the European Union is extremely agitated about the United Kingdom becoming even more market oriented.

Indeed, the only area where the U.K. is weak is “size of government.” So if Brexit led the Tories to lower tax rates and shrink the burden of government spending, it would put enormous pressure on the uncompetitive welfare states on the other side of the English Channel.

Second, the European Union is horrified about the prospect of losing membership funds from the United Kingdom. That’s why there’s been so much talk (the so-called divorce settlement) of ongoing payments from the U.K. to subsidize the army of bureaucrats in Brussels. A “hard Brexit” worries British multinational companies, but it worries European bureaucrats even more.

Third, the European Union has very few options to punitively respond because existing trade rules (under the World Trade Organization) are the fallback option if there’s no deal. In other words, any protectionist schemes (the “sanctions” discussed in the FT article) from Brussels surely would get rejected.

Fourth, European politicians may hate the idea of an independent, market-oriented United Kingdom, but the business community in the various nations of continental Europe will use its lobbying power to fight against self-destructive protectionist policies and other punitive measures being considered by the spiteful political class.

P.S. Here’s a Brexit version of the Bayeux Tapestry that probably won’t be funny unless one is familiar with the ins and outs of British politics.

P.P.S. Here are some easier-to-understand versions of Brexit humor.

P.P.P.S. And here’s some mockery of senior politicians of the European Commission.

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I’m not a fan of what is sometimes called the “European Project.”

Yes, one of the original goals – free trade between European nations – was admirable and has generated significant benefits.

But what started as a positive idea has morphed into a Brussels-based superstate that pushes bureaucratization, centralization, and harmonization.

This is why I was – and still am – a fan of Brexit. And I hope other nations escape as well.

I’m sometimes asked whether it would be a better idea if there was sweeping reform in the European Union. In other words, would I favor the European Project if it basically focused on free trade and competition in a framework of “mutual recognition.”

Of course that would be preferable, but it’s not an option.

Instead, the bureaucrats keep pushing for more bad policy. Policies to penalize on tax competition. Policies to penalize low-tax jurisdictions. Policies to penalize American companies. Policies to penalize European companies.

And don’t forget bailouts, cartelization, subsidies, waste, corruption, and self-aggrandizement.

But if you really want to know why the European Union is a lost cause, just consider that the bureaucrats at the European Commission actually created an online game designed to brainwash students into supporting higher taxes.

I’m not joking. If you play Taxlandia (I selected the 18-25 age group), you’re asked to pick an aggregate tax burden.

So I selected 5 percent of GDP, which seems like the right level to provide core public goods (and also would be close to the tax burden that existed in the 1800s when Europe became rich).

As you can see, the game did not approve of low taxes and small government. I failed.

Needless to say, I automatically became very suspicious that the “correct” answer would be much higher.

So I selected a tax burden of 50 percent of GDP, basically about what you find in France and Greece.

And guess what? I passed!

So what happens if you go even farther and impose a tax burden of 75 percent of GDP?

Keep in mind that no country has ever been in this range (governments own all production in communist nations, so they don’t have conventional systems of taxation).

But if the kids in Europe choose that level of taxation it’s not a problem. They pass!

Heck, an 80 percent tax burden gets a passing grade. As does an 85 percent tax burden.

The good news is that even the EU bureaucrats don’t think a 100 percent tax is workable. As a matter of fact, once players picks a tax burden that exceeds 87.5 percent of economic output, they fail.

It’s good to see confirmation of my hypothesis that even EU bureaucrats are capable of recognizing that taxes can be excessive at some point. That’s not good new for the former French President. Or the ghost of FDR.

It’s difficult to pick the worst part of this taxpayer-funded propaganda exercise, but I was quite irked by the accompanying video that extolled the wonder and joy of paying tax and getting freebies from the government.

Just in case you think I’m exaggerating, this is how the bureaucrats describe the video.

To be fair, the Taxlandia game also allows passing grades for relatively low levels of taxation. Even a tax burden of 10 percent of GDP will allow students to get to the next round of the game.

But don’t be deceived by this seeming evidence of even-handedness. Once you pick a level of taxation that allows you to pass to the next fiscal year, you’re then presented with a bunch of options designed to make it seem like higher taxes are needed to have good dams, airports, railways, Internet, and sports facilities.

At no point is there any option for private provision of those supposed “public goods.”

That’s a rigged game.

Moreover, it’s also a dishonest game.

Given the options that are presented, unknowing students will think that government budgets are basically about physical capital (infrastructure, etc). In reality, though, the vast majority of government spending is for the ever-expanding social welfare state and the accompanying bureaucracy.

And it’s a misleading game since there’s no feedback mechanism showing that higher taxes are associated with slower growth and lower living standards.

As you might suspect, students never learn that high-tax Europe is much less prosperous than medium-tax America or low-tax Hong Kong and Singapore. Or that rich European nations would be poor states if they were part of America.

The bottom line is that European bureaucrats are the ones who deserve to fail for putting together such deceptive propaganda.

P.S. About what you would expect from a group that wants to censor Christmas.

P.P.S. Speaking of games from Brussels, can you pick the bigger clown?

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