Thursday, November 27, 2014

Saving France, Saving Europe

PARIS – The face of French politics changed dramatically in May and June. First, after 17 years of center-right presidents, François Hollande, a Socialist, was elected. Then, a month later, a center-left majority took control of the National Assembly, too, after ten years of right-wing domination.

Meanwhile, the Senate, the French parliament’s upper house, a conservative bastion between the two world wars and ever since, swung to a Socialist majority for the first time in history at the end of 2011. The Socialists also control 20 of France’s 22 regional governments, a majority of the presidencies of the Departments, and most cities with more than 30,000 inhabitants. In short, we are now witnessing a stunning concentration of power that is unprecedented in French republican history.

All of this occurred very peacefully, with no wave of triumphalism, or even much enthusiasm. Indeed, the abstention rate for a presidential election had never been higher before the contest between Hollande and Nicolas Sarkozy.

France’s profound political shift reflects the persistence of the economic crisis that began in 2008. French electors did not vote for a dream. The Socialist Party’s program and its presidential candidate’s campaign promises were considerably less ambitious than they were in 1981, when François Mitterrand was elected.

As a result, the campaign was quiet, almost cautious. Indeed, most candidates, notably Sarkozy and Hollande, might have been too cautious: the current crisis and possible future threats received little emphasis, which means that it may be difficult for Hollande to claim a mandate for any painful reforms that he will have to propose.

And now there is no escape from the difficult reality that the budget deficit remains massive, at more than 4% of GDP in 2011. Except for creating 60,000 new jobs in education (following controversial cuts last year) and restoring the right (rescinded under Sarkozy) to retire at 60 for roughly 200,000 individuals, Hollande’s administration has barely any room to maneuver, and severe economic measures will have to be introduced in the 2013 budget.

Moreover, France’s rapidly worsening foreign-trade deficit is boosting already-excessive debt levels, while output is falling and unemployment is rising. Unfit for modern markets, France’s tax system actually stifles the country’s businesses, reflected in a disturbing increase in bankruptcies among small and medium-size companies.

In such conditions, France urgently needs to restore and maintain economic growth, and should seek to coordinate its policies with those of other eurozone member countries. After all, because most of the eurozone’s 17 member states suffer from heavy debt burdens, they are all anxious to find fiscally responsible ways to promote growth.

Unfortunately, the eurozone’s institutions lack the powers needed to defend the monetary union effectively. Greek debt amounts to less than 2% of European GDP. Had the European Central Bank been entitled to deploy enough firepower when the Greek crisis first erupted, the threat would have lasted only two hours. Instead, it took three weeks to grant the ECB only partial authorization to act, causing speculation to take hold and spread to Portuguese, Spanish, and Italian debt, thereby jeopardizing the euro’s survival.

Removing the risk of a euro implosion – which, given massive global imbalances, derivatives markets run amok, and the colossal scale of America’s budget deficit, could catalyze a major international crash – presupposes two fundamental changes in Europe. The first is political and involves sovereignty: Full European solidarity can be achieved only through stronger fiscal and monetary federalism, which would enable the eurozone to act, despite minority dissent. Europe has succeeded in missing this goal for a half-century; now it has no choice but to shoot straight.

The second change involves economic doctrine. If markets self-correct, they do so only when defaults are registered and punished. But countries and their public services cannot default without inflicting severe pain on entire populations. Europe urgently needs an economic doctrine that, despite today’s deficits, preserves funding for the investments and research that promote growth. Here, Germany’s leaders, in particular, need convincing.

Hollande, backed by Spain and Italy, accomplished a small step in that direction at June’s European Union summit, which finally endorsed the idea of a banking union. It is only the beginning, but Europe must start somewhere. So must France, whose great concerns can be resolved solely within the EU – and only if the EU carries out the essential political and economic changes that all of its members need.

Read more from our "Are the French Toast?" Focal Point.

  • Contact us to secure rights


  • Hide Comments Hide Comments Read Comments (5)

    Please login or register to post a comment

    1. CommentedZsolt Hermann

      The greatest problem with this approach, and with most of the present analytic approaches that it still examines problems in isolation, as if there was a Greek problem, a Spanish, French or Italian problem, when in fact we have a global problem.
      Even the Eurozone situation is simply the most acute symptom of the overall disease.
      At the moment the weakest links in the chain start breaking, although last week we also learnt that Germany started slowing down, not to mention the "separate" UK problem, the soft or hard landing of China, the sudden halt of the mining boom in Australia, the inevitable rude awakening in the US after the elections, and we could go through the whole planet, all the continents, countries one by one.
      But sooner or later we have to put the picture together, as this problem is unsolvable in isolation, this is why it is called global crisis, or system failure.
      It requires a mutual approach and a complete rethink of how we view our world, and how we start cooperating together.
      After all as more and more people realize and say it, we are all sitting on the same sinking boat.

    2. CommentedPaul A. Myers

      As to 17 years of center-right presidents, might we ask: where are the center-right policies? Was there a center-right legacy?

      So M. Rocard analyzes France along a left-right spectrum. Can one suggest possibly evaluating policy along an unpragmatic-pragmatic continum.

      But before analysis, one might ask: what is the problem, the challenge?

      Northeast Europe is on its way to becoming a powerhouse in the globalized world economy. How might France participate in what arguably might be a windfall opportunity?

    3. Portrait of Christopher T. Mahoney

      CommentedChristopher T. Mahoney

      M. Rocard says that "Europe urgently needs an economic doctrine that, despite today’s deficits, preserves funding for the investments and research that promote growth." There is an economic doctrine that can increase France's government revenues, balance her budget, and grow her economy. It is called inflation. The ECB is currently delivering 1% nominal growth and 0% real growth. You can't have 4% real growth with 1% nominal growth.

        CommentedMarten Klein

        You don't get it Mahoney. Monetary policies are on autopilot, they are not policies. But then the question is how to spent budget. The "German" doctrine of fiscal prudence and the French growth doctrine go hand in hand. France has no lack of price inflation.

    4. CommentedRichard Dolan

      Is this what passes for incisive commentary in Europe today? We are told that France has a large and growing debt, unsustainable deficits and trade imbalances, falling productivity and rising unemployment, and a tax system that stifles businesses. OK, sounds about right. M. Rocard reminds us that the Socialists are now in charge from top to bottom; that their first measure was to increase public employment (those 60,000 education jobs) and to reverse Sarko's modest pension reform; and that "severe economic measures" of an unstated nature must be introduced for the new budget. Presumably, those "severe economic measures" will be the opposite of the Socialists' first moves, since the effect of increasing public employment and its cost (the result of the pension volte-face) makes the debt/deficit problems worse, not better. Is there any possibility that the Socialists running the show will do any such thing? Sounds doubtful, but time will tell.

      As for "Saving France, Saving Europe," the proffered solution is more EU integration, and a change in "economic doctrine" to preserve growth-inducing but unspecified public investments. Really. Talk about 'integration' in the EU seems to be a way of talking about other problems in code -- it means, from the French/Spanish/Italian/Greek perspective, getting the Finns, Germans and Dutch (among others) to pay more so that they will share the pain (and make it possible for the party to continue); and from the Finnish/German/Dutch perspective, it means forcing those profligate southern Europeans to live within their means and earn what they consume (so that the partying will stop). How exactly can one achieve 'integration' in that environment? And the British, who didn't want the euro, don't seem eager to start paying the tab to preserve it. It might make sense to talk of 'integration' if one could come up with a way to make it mean the same thing to all of those who would be impacted by it. But you will look in vain to find that explanation.

      As for preserving public investment, the problem is that most public spending is either for transfer payments or maintaining bureaucratically delivered services at current levels. The growth-inducing 'investment' aspects of public budgets that he seems to have in mind -- education and infrastructure, mostly -- already receive huge levels of support. Marginal increases in those items are unlikely to solve the economic problems -- debt/deficits, unemployment, lack of competitiveness, etc. -- his article starts out talking about and says are the key problems. Investments in 'research' is mostly a way of talking about education (already lots of funding, but perhaps some can be redirected) or things like CERN, which are wonderful in their own right but aren't intended to (and quite unlikely to) offer any solutions to the EU's economic problems.

      As analysis goes, Rocard's piece is an unhappy mix of the obvious (the problems) with the fanciful (the proposed solutions). The really sad fact is that it is now par for the European course.