Thursday 14 December 2017

French capital flight spikes as Hollande hits business

Ambrose Evans-Pritchard

FRANCE suffered a surge of capital flight over the autumn as president Francois Hollande pushed through a raft of tax rises and stepped up his campaign against the rich.

Fresh data from the Banque de France show a sudden rise in outflows in October and November, registered in the so-called Target2 payments system of the European Central Bank.

Simon Ward from Henderson Global Investors said the net loss of funds was €53bn over the two months, roughly the period when Mr Holland unveiled a string of tax rises and suffered a collapse in relations with French business.

A key gauge of the French money supply -- six-month real M1 -- has been contracting at an accelerating rate ever since Mr Holland's election in May.

It has fallen to levels last seen in the depths of the crisis in 2008. France's money data is now flashing more serious warnings than numbers in Italy or Spain. "Taken together, it is clear that there has been a major loss of confidence and funds have been pulling money out of the country," said Mr Ward.

While France is at no serious risk of a debt crisis, it has been bumping along at slump levels for two years with the youth jobless rate rising to a record 27pc.

The economy may have tipped into recession already even before Paris embarks on fiscal tightening of 2pc of GDP this year to meet EU deficit targets. Analysts say the "double whammy" of tax rises and monetary contraction could prove a toxic mix in 2013.

Mr Hollande's `soak-the-rich' campaign and a 75pc millionaire tax has erupted into controversy since comedian Gérard Depardieu renounced French citizenship and decamped to Russia in protest, egged on Brigitte Bardot.

Yet the bitter stand-off between France's Socialist leader and French business is a greater concern. An alliance of private sector groups issued a "State of Emergency" alert in October.

The employers group MEDEF said business was "in revolt across the country", warning that bankruptcies were accelerating and firms were slashing investment.

"Large foreign investors are shunning France altogether," it said.

Mr Hollande has sought to rein in his industry minister Arnaud Montebourg, who first lashed out at the Peugeot family and then threatened to nationalise ArclerMittal's steel operations in Lorraine, describing Lakshmi Mittal as "unwelcome" in France.

The government has since embraced the "Gallois Plan' calling for a competitiveness shock, but the country faces deep problems after putting off hard decisions for years.

The state's share of the economy has risen to Nordic levels of 55pc of GDP, without Nordic labour flexibility.

The International Monetary Fund warns that France risks being left behind by Spain and Italy as they cut costs and grasp the nettle of deep reform.

By Ambrose Evans-Pritchard,

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