Including: Mr Hollande goes all paradoxical in a television interview, how his 75% tax is going to increase employment (that’s not a spelling mistake), and Cyprus doesn’t panic.

Good morning

The headlines:

  1. In French News.

    Link: a surcharge.

    Francois Hollande is… wait for it… telling the French to accept spending cuts in pensions and welfare benefits. Because:

    “We can’t wait for growth, we must go find it.”


    In a Krugmanite world, I think that Mr Hollande is looking for it in all the wrong places.  And for that matter, in an empirical world as well.

    Another classic point in his hour-long interview: he’d like unemployment benefits to incorporate more incentives for people to return to work. Oxymoron HELLO. The best incentive to get the unemployed back to work is to not pay them unemployment benefits.

    Finally, there was a magnificent new turn on the 75% tax on incomes over €1 million. Since the constitutional court threw out the tax for being applied unequally across households*, Hollande has now done a little semantic dance. Now the company paying the €1 million plus salaries are going to have to pay the 75% surcharge for the next two years, not the executive in question.

    Which could be quite genius. And here’s why: let’s say that I’m paying my CEO a salary, including a bonus, of €2 million per year. This could end up costing me €2.75 million per year once the surcharge is in place. What would I do? I’d incorporate a new subsidiary that provides “consulting services” to my existing company, and give my CEO a key leadership role there in addition to his current one. The CEO can get paid €1 million from the core company and €1 million by the new subsidiary. He/she is tax neutral – and my companies are left paying no surcharge.

    BUT: the French economy just went from having one job to having two jobs on record. Guess whose unemployment rate is about to go down!

    *Basic summary: France taxes households, not individuals. But this was an individual tax. So a household with two income earners earning €950,000 each would be taxed differently to a household with two income earners earning €800,000 and €1.1 million each. Despite the fact that the household income is the same in both cases.

  2. Cyprus averts panic withdrawals.

    Link: because nothing has changed.

    There wasn’t a panic yesterday, despite the fact that the banks were expected more queues when they opened. But when your cash withdrawal limits are €300 per day – that’s not really worth queuing for, is it?

    Especially when you can visit an ATM instead.

That’s all for now.

Have a good day.