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Wilbur Ross: France May Be ‘Sick Man of Europe’

By    |   Thursday, 27 December 2012 06:04 PM EST

France may be the "sick man" of Europe that threatens the health of the continent the most as opposed to crisis-ridden Greece or Spain, said Wilbur Ross, chairman and CEO of WL Ross and Co.

"I think at the end of the day, the real sick man of Europe is liable to turn out to be France, not Greece, not Portugal, not Spain, not Italy," he told Newsmax TV in an exclusive interview.

"The reason is France is very uncompetitive to begin with on a global scale and the measures that Hollande has been putting in have been very, very negative from the point of view of economic growth," Ross said.

Watch our exclusive video. Story continues below.

Markets have roiled in the past year over fears Greece may default and be shown the door to the eurozone, possibly pressuring the larger Spain to follow suit.

Video: Economist Predicts 'Unthinkable' for 2013 

Yields on the Spanish 10-year note have soared above 7 percent in 2012, a level seen by markets as unsustainable and a threshold that indicates a country is in need of a bailout, though rescue funding aimed to prop up the country's banking sector have sent borrowing costs falling.

Greece, meanwhile, recently conducted bond buybacks to tap fresh bailout funding, keeping economies and markets calm for now.

The real threat, however, may lurk in the much larger France, which recently saw its sovereign ratings downgraded by Moody's to Aa1 from Aaa.

Under President Francios Hollande, France has raised taxes on upper-income earners while eliminating tax breaks as well, reversing many fiscal policies put in place by his predecessor, Nicolas Sarkozy.

Slapping a 75 percent tax on high-bracket citizens may be bad for the country, but a decision to do away with a tax exemption Sarkozy allowed for overtime income will hurt the country's incentives to grow.

"France, as you know, has a 35-hour workweek, which is crazy in today's world. Sarkozy, to encourage people to work overtime, said you could pay no tax on your overtime income. Hollande immediately repealed that," Ross said.

"It's a middle class tax and even worse than that it's tax on the middle-class people who are trying to get ahead by working a little bit harder. That's not the way to make France succeed."

Turning to European success stories Ross cited Ireland as one that took proper reforms early on during the crisis that have resulted in a cleaner financial house today.

"We think that some countries there like Ireland that bit the bullet very early are starting to get themselves turned around, and that's why we went into Bank of Ireland. Many of the other countries have not really dealt with their problems," Ross said.

Video: Economist Predicts 'Unthinkable' for 2013 

China will continue to run a strong economy even growth rates have cooled, as comparatively, growth is roughly double the economic expansion taking place in the U.S. and well beyond Europe.

"While growth is slowing down some, it still is growing — it still, we think, is one of the better-managed economies in the whole world. So while they are going into a little bit of a slower period, the wonder is that they grew as fast as they did for as long as they did," Ross said.

"To say they've slowed to 6-6.5 percent growth — that would be miraculous in Western terms."

Japan holds many investment opportunities as well even if the broader economy remains sluggish, as many big Japanese firms export to the more robust emerging markets.

"The typical big Japanese company has somewhere between a third and 40 percent of its revenues coming from developing countries, and about a third of Japan's exports are also to the emerging countries, so in a strange way, Japan, which has very little internal growth, it's big companies are a good way to play the emerging markets," Ross said.

More from the exclusive Wilbur Ross interview:

Wilbur Ross: Shale Gas Could Transform US Economy

Wilbur Ross Sees Recession, Warns of 'Greek' Situation

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France may be the sick man of Europe that threatens the health of the continent the most as opposed to crisis-ridden Greece or Spain, said Wilbur Ross, chairman and CEO of WL Ross and Co.
Thursday, 27 December 2012 06:04 PM
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