Mr. Lott, what are the main policies for exiting the crisis that will be applied by the ruling in France after the election?
– To be honest, the short answer is: I do not know. You know, all political parties are similar in the way that they talk something before the election, then make things quite differently…
And it happens in an old democracy like France, which has survived five republics?
– I think in any democracy the main principal motive in politics is to get reelected. But you can not count that you will be reelected if you talk to voters about things they do not like, even if they are true.
Anyway, a month ago there was a presidential election in France. The second round of parliamentary election ended a week ago. So in the coming months we will see what laws will be offered. The new government has a majority in parliament and at the same time very little room for political maneuver and improvisation.
France is an open economy and any policy that tries to achieve growth based on consumption in this country is doomed to failure. So the French government, I believe, will be forced to follow an economic policy which will not significantly differ from that of our European partners, especially Germany. Even a few weeks ago we began discussions for reconciliation with Germany on measures to achieve growth.
How do you expect to achieve it?
Well, look, Europe is now stagnant, but in the rest of the world the situation is different. It seems that the overall global growth is 4% annually, which means that in other regions outside Europe the economies are developing. And Europe must take advantage of this situation. Moreover, no growth is achieved by a decree. It comes when people begin to feel the need to buy more goods and companies start considering the fact that they must make additional investments. For this to happen, people must have greater confidence in the future. And the role of politicians not only at regional but also at European level is to inspire the confidence of both individuals and businesses.
And how do rulers in France inspire greater confidence in the businesses after their talking about higher taxes?
– You know that after Denmark, France has the record-high rate of taxes. For example dividend tax in the country can reach 70% …
And businesses are to watch this without protesting?
– The plans are that incomes of over 1 million euro to be taxed at 75% and earnings of managers of large companies to be limited. There are other bold steps in this spirit, but unfortunately they will not generate large revenue to the budget. It is said that total revenues will be 100 million, which is next to nothing. So, what I say is that there is a problem in the communication between politicians, businessmen and people.
I think the government will have to prepare a plan for real spending cuts in administration. And in this respect there is much that can be done because the costs of running the state are 55 percent of the gross domestic product of France. And surely, the government should take unpopular measures in this direction. This, however, will give the impression that cuts are not evenly distributed over all layers of society. That’s why they make all these announcements of further taxation of the wealthy Frenchmen.
The ruling party now, as you said, has a majority in parliament. Do not you think it takes away their ability to justify the strong opposition when they meet one or another promise given before the election.
– The current situation is as follows. If the socialists succeed they will have all the glory. If they fail, they will assume all negatives. But you’re right, both in domestic and especially international plan, the rulers will find it extremely difficult because the most important economic decisions are now taken at international level.
In the last month and European Commission President Jose Manuel Barroso and President of the European Central Bank Mario Draghi started talking about the need for greater fiscal consolidation. Is this not an attempt to create a new European Union – with a single supervisor, with a single fund for insurance of deposits, with common rules for drawing up budgets and controlling their performance, as well as uniform requirements for taxation?
– In this direction there are many new ideas. Already, there are rules regarding the prior approval of budgets. Yes, it comes to trying to build a more homogeneous Euro area. From a technical point of view, this task is quite complicated, because you will be faced with problems of political nature. There is no clear answer whether to transfer more powers from the States to pan-European structures. I’m not sure that even the Eurozone countries have a unified position on this topic. At the same time, there is the question: whether there may be a strong single currency, without having behind it a strong unified political power. If you ask me, the very idea of ??the euro implies that behind it will stand a strong political governance. But in the same time I do not think that to date, European nations and states are willing to accept this strong single governance…
Especially if it is under the umbrella of Germany…
– Well, yes.
France is the only country in Europe that has firmly decided to introduce a tax on financial transactions. What would the effect of this be?
– This tax, known as the Tobin tax, is very attractive as an idea because it can generate a lot of money. Globally, its imposition can harvest 57 billion.
In recent years, financial operations are growing very rapidly and I feel that most of them are unrelated to the real business. The volume of transactions with currency in the world is seventy times greater than the actual exchange in currencies. And these ratios apply to many other financial products. It is these imbalances between the real and the virtual financial transactions that make markets extremely nervous, which is nothing healthy not only for them but also for the global economy. So I think it is good idea that such transactions be taxed in some way.
France took a unilateral decision to introduce a tax on financial transactions in August. However, its imposition will be cautious and its scope will be on a limited number of transactions. We are talking about a fee of 0.1%, but only on transactions in shares of French companies whose market capitalization is over 1 billion…
Let’s go back to Bulgaria. Can you rate for the financial market in the country.
– I suggest you still can compare the current situation with the period of growth before 2008. I think things do not look so bad. If you look at the credits granted by the banking system – at the end of 2010 they were 53.4 billion lev; in late 2011 they were 55.5 billion and 55.8 billion lev in late May 2012. This shows a stability in the core business of banking. It’s the same with deposits. At the end of 2010 they are 47.3 billion lev; in late 2011 – 53.3 billion lev and in late May 2012 the total amount was 55.2 billion lev. So we do not talk about any drama in the banking environment.
I think the industry is currently in a phase of stabilization and increased liquidity. Speaking of liquidity, we must make the proviso that there were banks that were forced to work by reducing the pace of lending. They just have to accept the fact that more companies and individuals do not want to draw new loans and prefer to save. Because of this deposits increased faster than loans, resulting in increased liquidity. The truth is that there is money, but there are not many solvent customers who want to borrow.
