Why France is F*cked

I am sure a 75% tax increase on the upper income bracket of the French people got everyone's attention. Hollande backed out of the plan and instead decided to implement the 75% tax on business with over 1 million Euros. (http://www.france24.com/en/20130524-pierre-moscovici-tax-rate-salary-cap-france)

Brillant. So let's ignore the fact that:

• revenue generation will be minimal
• it chases business and people (if not already) out of the country
• this is class warfare
• opens the door for more crazy taxes and regulations
• creates more loopholes (lawyers, soccer players, docs are exempted)

The Keynesian Perspective

Keynesians don't even agree with Hollande's tax plan. Increase taxes during a recession goes against the logic of the Keynesian framework of something called the automatic stabilizer. The automatic stabilizer is simply defined as a way to implement tax cuts in a recession with Govt Spending flat or increased then as the country comes out of a recession you increase taxes and lower Govt spending (or flat). Then viola, you balance the budget. Nice in theory but reality is a different story (another discussion for another time).

France (and rest of Europe for that matter) are stuck in a recession.

So according to Keynesian framework there should be a tax cut there and supplement that with either an increase in or continuation of government spending. Yeah, that's not happening. Hollande has chosen to even ignore Keynes! THAT is how bad the French are dealing with their economics. 

Under the Hood

France's PMI has not crossed the 50 in over a year - major signs of contraction.

*source: http://www.businessinsider.com/french-pmi-2013-5

France's UE rate is trending upwards the last 5 years with Italy while Germany and the US trend downward. 

France is joining the PIIGs in higher yields:

EUROPE		Yield	1 Day	1 Month	1 Year	Time
Germany		1.52%	-2	+30	+25	12:00:10
Britain		1.96%	-3	+28	+32	11:59:42
France		2.10%	+4	+39	-38	11:59:58
Italy		4.11%	-7	+22	-182	11:59:59
Spain		4.34%	-5	+23	-229	11:59:57
Netherlands		1.85%	0	+28	+16	11:59:55
Portugal		5.44%	+1	-19	-637	11:59:16
Greece		8.80%	+23	-193	-2104	11:59:30
Switzerland		0.68%	-1	+14	+13	11:58:26

* Data taken from Bloomberg

France's industrial production just sucks:

Household confidence is dismal equalling the worse confidence as seen in the previous recession

Conclusion

Move...unless you're a soccer star.