Research for Online Investors
Francois Hollande has fulfilled one
of his campaign promises. Yesterday the French Cabinet lowered the
retirement age for some workers from 62 to 60 years of age. The change
affects approximately 110,000 workers. To qualify they must have
contributed to the retirement system for 41 years, so they would have had to start work at 19 years
According to the Wall Street Journal, maternity leave and other unemployment periods will not be counted
towards the 41 years of contributions. The lower requirements to
retire are estimated to cost $1.4 billion dollars next year and increase at 30% annually over the next three
Costs will be borne by employees and
employers in increased pension contributions. Hollande campaigned on
rolling back the increased retirement ages implemented by past president Sarkozy. He also promised to create 60,000 new civil servant jobs in education (out of
150,000 new state jobs), increase taxes on the “rich” and reduce the deficit to 3.0% of GDP in 2013 then balance
the budget by 2017.
France has parliamentary elections
scheduled for the next two weekends. The French Senate is already
controlled by the left, now Hollande needs control of the lower house by his Socialist party or at least a
coalition of Greens and Communists.
The two round elections finish on
the same day Greece votes in the second parliamentary election in as many months. Greek voters are deciding who to back.
If they vote for SYRIZA, the party has promised to throw out the austerity measures required by the eurozone to
continue receiving bailout funds.
The dichotomy between France and
Greece couldn’t be greater. France is embracing socialist policies and
wants more money “for growth” from the eurozone. Greece is trying to
pull back from all their socialist policies and is pleading for more money from the eurozone just to pay their
bills. They are raising retirement ages and laying off government
French voters remind us of
“Whistling Past the Graveyard.” They evidently believe they are immune
to the laws of economics. They have bought in on the lie of
socialism. The Soviet Union wasn’t enough, Greece wasn’t enough, they
will have to learn on their own.
More hard lessons are going to be
taught. France seems determined to spend until they run out of money...and credit, thus ignoring Margaret
Thatcher's famous observation.
S&P cut France’s sovereign
credit rating in January. One of the most important reforms forced on
Greece by the eurozone to receive a bailout was raising the retirement age. Can you imagine the coming confrontation when France needs consideration from
While the French government wants to
increase taxes on the wealthy, the country’s unions are predicting layoffs from many large
corporations. The country ran a record $85 billion dollar trade
deficit last year. Unemployment is at a 13-year high at almost
10%. GDP is expected to grow at a tepid 0.6% this
The International Business Times reports that Sarkozy asked companies not to announce layoffs
before the presidential elections. Hollande is playing the class
warfare card, and since he is in office now, businesses have no political reason to hold back on cutting
The market is rallying today on
hope. Hope the European Central Bank (ECB) will extend some help to
Spain tomorrow when they try to sell bonds. Hope that Ben Bernanke will
comment favorably about another round of quantitative easing tomorrow when he testifies before
congress. Hope that Greece will elect the New Democracy
conservative party in a week and a half. Hope that the Federal
Open Market Committee (FOMC) will keep the party going. Hope the
U.S. will get involved in the eurozone credit crisis.
We think that is a lot of
Hope is not a trading strategy.---John Dalt
Back to Top