France Decides.

Tomorrow (6/5/12) voters in France will go to the polls to decide who will be their next President. In this second round run-off they have a straight choice between the centre-left Socialist Party's Francois Hollande and the centre-right UMP incumbent Nicolas Sarkozy.

Whomever wins will take charge of the Eurozone's second largest economy. They will also find themselves in charge of a country with the Eurozone's sixth highest rate of public debt behind Belgium, Portugal, Italy, Ireland and Greece but ahead of Spain. They will also lead the nation with the seventh highest rate of unemployment behind Portugal, Ireland and Spain but ahead of Italy. They will also lead the Eurozone nation with the lowest retirement age and the highest public to private spending ratio. These factors have already seen France lose it's AAA credit rating and led to people seriously predicting that France will soon be joining Portugal, Italy, Ireland, Greece and Spain in needing a bailout to avoid going bankrupt.

If re-elected Sarkozy intends to tackle this looming crisis by cutting public spending by increasing the pension age to 62 and gradually shrinking the public sector by only creating one new government job for every two lost through natural wastage. He also intends to cut unemployment by reducing France's excessive payroll taxes encouraging companies to hire people and to fund those tax cuts by increases in corporation tax. By contrast Hollande intends to re-negotiate the fiscal compact that will eliminate France's structural deficit by 2017 and increase both public spending and the public sector's share of the economy by hiring 60,000 new teachers and cutting the pension age to 60. This plan is expected to increase France's public spending by some E20bn which Hollande intends to fund by increasing payroll taxes and introducing a 75% top rate of income tax for households earning more the E1million per year. The only problems are that increased payroll taxes will increase unemployment and there are only around 3000 households in France earning more the E1million and they can all quite easily leave France for a country with a lower tax rate. This will reduce the French government's tax take and along with increased unemployment benefit payments will force the French government to borrow even more money.

Put simply Hollande's policies will not work. At best they will reduce France's competitiveness causing the economy to shrink further. At worst they will destroy the French economy forcing France to seek a bailout. Neither the European Union (EU) nor the International Monetary Fund (IMF) have the resources available to bailout a country the size of France so instead the nation will be forced into default and out of both the Euro and EU.

In a nation that is intensely proud of it's national identity and it's ability to stand apart from the global, Anglo-Saxon status quo this might sound like an attractive idea. The only problem is that France is home to some of the world's largest international brands such as Citroen, Renault, Peugeot, L'Oreal, ATOS, Vieola, AXA, Total, BNP Paribas and Societe Generale. These transnational giants make up the bulk of the French economy and their success is dependent on France's membership of free trade bodies like the EU and the World Trade Organisation (WTO). If France loses membership of those bodies then it also loses those companies and their economy becomes based on a few farmers trying to get by without the EU's Common Agricultural Policy subsidies.