The inefficiency of European markets (Summary comparison between two financial systems)

 

The comparison between the United States and the rest of the world is more relevant than ever. We see this kind of comparison as an often political, interested, and therefore rarely reliable act. Nevertheless, some comparisons can show us the extent of the cleavages between two distinct entities.
“What about savings and capital market finance? Why the inefficiency of European markets?”

European markets

Overall, the United States does not have a state program for the pensions of its citizens. France, for its part, is constantly accumulating political speeches and reforms in order to perpetuate a global pension system. The two countries face the same problems but do not treat them in the same way. It is considered normal in France and Europe to contribute a fixed amount each month, which goes directly into a state pension fund.

In the United States, retirement is not considered in the same way. It results from a succession of financial investments made directly by the investor or in collaboration with brokers and fund managers. American companies are often directly involved in the retirement plans of its employees. The consequences are sometimes dramatic (see Enron Case). In Europe, retirement is the responsibility of the state and not that of each citizen.

As a result, savers lose the notion of funded retirement and are no longer connected to the economic cycle. This deprives the citizen of a vision of markets unlike the American people. This distinction between our two savings and retirement models is fundamental in studying the disparities in crisis management on these two continents.

The French take a negative view of finance because it is used by politicians to extract derivatives. Market finance and investment are integrated by the majority of French people as being sources of crisis and cause of all evils.
This is when we understand why crises such as those we saw in 2016 on the pig and milk markets were managed by politicians and not by the markets themselves.

Some major raw material processors such as Bigard-Socopa have boycotted the purchase of French Pork because of the prices set by the state considered “In total discrepancy with the prices of the European markets” The raw material market in France and Europe is so important that it represents 1/3 of the contributions paid by taxpayers to Europe (La P.A.C).

In contrast, in the United States (notably on the Chicago Stock Exchange), commodity prices are managed centrally, with a futures market fixing prices over a given period of time. This minimizes the volatility of the price of cereals, milk, pork, etc…. Stephan Le Foll, former Member of the European Parliament on agricultural issues and current Minister of Agriculture in France, explained to us the difficulty of establishing such a system and the cost to the state, but did not disagree in any way with this method of forward pricing.

“My real opponent is the world of finance” Quote from François Hollande during his speech at Le Bourget on January 22

The question is not why we use subsidies rather than the tools offered by markets (European markets) but rather what is the cost to taxpayers of such state intervention in the market itself.
The cost of the CAP (11 billion euros per year) is constantly increasing, so it is money that is taken from the final consumer to compensate farmers who lose by producing the raw material.

This means an immediate decrease in purchasing power for the consumer in order to increase the producer’s selling price. The cost of all these crises is therefore directly attributed to contributors without their even being aware of it. In the United States, the markets regulate these crises themselves and are therefore in a closed circuit (consumers are not taxed in order to correct a drift in stock prices).

The non-use of futures markets in France and the risk management tools offered by the markets therefore has the opposite effect to the basic premise, namely: “we do not want to be dependent on the financial markets”.

Our economy is global and it is a market economy. Every state intervention has an impact. France has decided not to follow its American counterparts on the subject of savings. Thus pushing the French citizen further and further away from the realities affecting his daily life and constantly intervening in the setting of prices (food, heating, petrol, etc….).

Nicolas Persant

Nicolas DUVOISIN


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