Friday 23 March 2018

Cockerel looks like a turkey

IT'S squeaky-bum time for those cheese-eating surrender monkeys. And about time, too. Despite a rally last week, the French stock market has crêped out, falling up to 20 per cent in three weeks.

French banks -- especially Societe Generale -- seem to be deep in the merde over their exposure to sovereign debts. French banks have been the financial equivalent of Mr Creosote from Monty Python's Meaning of Life, gorging themselves on risky loans. The worry is whether or not they have already consumed the "wafer-thin mint" that did it for Mr Creosote.

The French economy has just hit a wall, recording zero growth in the last quarter. Given that the entire country seems to take the whole month of August off, it's remarkable that there's ever any growth at all. Throw in a big, fat current-account deficit -- the only one among the top six eurozone economies -- and you can see why French credit-default swaps have gone all Buzz Lightyear.

The markets fear that one of the ratings agencies will give the French a poke in the eye and downgrade its triple A credit rating. This would be more awkward than discovering that the Maginot Line didn't work because you could simply drive your tanks around the side of it. Or if you were going to blow up a Greenpeace ship, that you'd forgotten to bring the getaway plans with you.

While the threat of a downgrade has receded, it damn sure hasn't gone away. France isn't going to need a bailout like ours but it is going to find raising money on world markets much more expensive.

Given that France is one of the biggest contributors to the European Financial Stability Facility, it means the euro bailout fund is going to find it harder to breathe. Investors are going to ask the French all kinds of tricky questions like 'how are they going to get the deficit under control?' or 'what kind of debts have the assorted state companies clocked up?' or 'how will it fund its ageing workforce when they retire to Provence?'. This is more than just irritating stuff and it's not something the French can merely shrug their shoulders at and pretend they don't understand.

It may lead to French-fronted moves for some politically palatable form of eurobond or a mutual European guarantee for sovereign debt. French President Nicolas Sarkozy is doing lunch with Germany's Angela Merkel on Tuesday in a bid to come up with a solution to the euro crisis. That'll be solution number 11 then.

The French may need to wrangle support for a eurobond-type solution as the Germans will initially tell them to swivel. Suddenly the proud French cockerel is beginning to look like a turkey. The French may need allies and political support.

This might just be the time for Enda Kenny or Michael Noonan to bring up objections to the French VAT rate of 5.5 per cent, which was cut from 19.6 per cent last year. French restaurants and cafes are now about 10 per cent cheaper as a result and it has been estimated that 25,000 cafes and restaurants have been saved from going out of business. Good news for the French but what about our tourism industry? How can we compete with the French and their artificially low restaurant tax rate?

Or could Noonan remind them of the billions in state aid and soft loans funnelled into Renault, Citroen and the French car industry as the global economy tanked? Or could he raise his eyebrows at the effective rate of corporate tax in France? Last March, a PricewaterhouseCoopers report showed that the effective rate of corporate tax in France was just 8.2 per cent -- far lower than our 12.5 per cent rate. The sight of Sarkozy wriggling would almost make up for Thierry Henry's handball. Almost.

Sunday Indo Business

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