The Tale of Two Economies

The headlines say it all. There have been dramatic changes in the geopolitical region known as the eurozone over the last few years.

In 2008 the world was riveted by the economic collapse of Europe as countries plummeted into financial ruin due to deficits out of control. Particularly hard hit were countries like Greece, Portugal, Ireland, Cyprus, and Spain. For a while it seemed that countries like France and Germany were essentially keeping the eurozone together. These latter two countries put together massive bailouts and forced draconian policies, to prevent the entire region from sinking into an economic abyss. After a few years, it is interesting to see how the troubled country of Spain and the much stronger (at the time the crisis began) France have fared since the crisis and with the changing leadership the chaos created.

During the eurozone crisis, France was under the leadership of Nicolas Sarkozy, who was a strong advocate of limited government and was conservative by European standards. His government struggled -- like all leaders did of every ideological stripe -- during the Eurocrisis. Like other countries that were not on the brink of ruin, Sarkozy felt compelled to help structure a plan and bailouts that, hopefully, would prevent the continent from sinking into economic ruin. Sarkozy's center-right Union for a Popular Movement was replaced by Socialist Party François Hollande. Hollande has made his focus on raising taxes across the board, with particular emphasis on soaking the rich and corporations.

Meanwhile, Spain was under the rule of Prime Minister José Zapatero, of the Spanish Socialist Workers' Party. His policies were typical of socialist European governments -- artificially high wages, massive increases in taxes on business and the affluent, and the creation of a hostile business environment through fiscal and regulatory policies. This, accompanied by the worst macro conditions on the continent for years, created a perfect storm, as Spain became a central part of the Eurocrises. Every European leader was vulnerable after the crisis, Zapatero, who led the country from having a very modest debt ratio at the beginning of his administration, to one of the worst in the region in just a few years, was much more vulnerable than others. In 2011, Mariano Rajoy of the conservative People's Party handily won the general election and he immediately pursued a policy of fiscal austerity accompanies by a significant cut on taxes. In particular he focused on reducing corporate taxes and taxes on the affluent.

The headlines that have followed the rise of the socialists in France and the conservatives in Spain have painted a stark contrast between the two. To paraphrase Charles Dickens, for Spain it is becoming the best of times and for France, the worst.

Recent headlines for the Spanish economy under conservative Zapatero:

"Spain Inflation Likely to Average Zero in 2015" (Yahoo News).

"Spain's Unemployment Figure Falls" (Euronews)

"Spain's Economy Continues to Recover" (Market Watch)

Recent headlines for the French economy under socialist Hollande:

"Fitch Downgrades France's Credit Rating" (RFI)

"Eurogroup Warns France It Has Three Months to Show Effective Action on Deficit" (MNI Euro Insight)

"France's Flailing Economy Endangering the Eurozone" (DW)

These trends have followed these candidates (and their policies) consistently since they took power. Spain is finding the reduction of taxes (creating an environment that attracts the wealthy and the businesses they own) works. They are observing that lowering tax rates attracts job creators and revenue generation (verses higher rates that leads to great demands on welfare rolls and repeals revenue creation). Meanwhile, France has yet to take its deficit crisis seriously (and is being rebuked by its neighboring countries) and it has created a tax environment that has fostered long-term stagnation.

The tale of these two economies is clear, profound, and even eloquent. The jury is out on whether France (and those countries that follow similar policies) will learn the lessons from this story.