Friday, December 9, 2011

A Victory for France?

The Economist thinks France scored a victory in Brussels:

But especially for France, on the brink of losing its AAA credit rating and now the junior partner to Germany, this is a famous political victory. President Nicolas Sarkozy had long favoured the creation of a smaller, "core" euro zone, without the awkward British, Scandinavians and eastern Europeans that generally pursue more liberal, market-oriented policies. And he has wanted the core run on an inter-governmental basis, ie by leaders rather than by supranational European institutions. This would allow France, and Mr Sarkozy in particular, to maximise its impact.
Mr Sarkozy made substantial progress on both fronts. The president tried not to gloat when he emerged at 5am to explain that an agreement endorsed by all 27 members of the EU had proved impossible because of British obstruction. “You cannot have an opt-out and then ask to participate in all the discussion about the euro that you did not want to have, and which you also criticised,” declared the French president.
To which I am tempted to reply, "Another such victory and we are undone." This is, frankly, preposterous: all that Sarkozy has accomplished is to bind the Eurozone to constitutionally inscribed austerity. So Europe will embark on a lost decade, while the markets may--emphasize the conditional--choose not to precipitate the bad equilibrium for fear that this would at last provoke the ECB to act and wipe out the first intrepid speculators. If death by slow strangulation rather than a bullet in the back of the head is victory, then, indeed, France has won, and Germany too. "The Constitution is not a suicide pact," Justice Holmes famously said, but Merkel and Sarkozy have done their best to ensure that the Eurozone treaty is just that. Forgive them, Keynes, they know not what they do.


FrédéricLN said...

Well, we fully disagree on the issue "should a budget be, in time average, balanced?", but I fully agree with your

"Another such victory and we are undone."

This 11th last-chance-agreement looks a funny and as unclear as the 10 former ones.

The US politics are so much clearer: the Republicans play Russian roulette with the credit of the United States and the global role of the US dollar. Okay.

But European politics are so intricated and confuse. A very simple reason for this: the people who are negociating just do not speak and understand the tongue they are using, the arguments and tone os each other. Only the British and Irish truly speak English (not meaningless globish) - and for this reason, no one of their partners would understand them.

I guess their negociations stop, not at the moment when they are sure to have fund an agreement, but at the moment when all of them are so tired they cannot anymore understand clearly the other one's word and object a relevant way to the one's agenda.

Steven Rendall said...

I love the neologism "globish," if it refers to a kind of lingua franca that amounts to what the French call "langue de bois."
But I agree with Art that the current agreement is an endorsement--nay, a commitment--to a policy of "austerity" that may well prove disastrous. These leaders seem much more conversant with Friedrich Hayek than with Keynes, or his moder advocate, Paul Krugman.

Arthur Goldhammer said...

I do favor a "time-averaged balanced budget" across the business cycle, by the way, and so did Keynes. But the time to save is not in the middle of a depression, it's when business is booming. The paradox of thrift ensures that if everyone saves to restore balance, all will become poorer, because one man's (or government's) spending is another's earning.

Mitch Guthman said...

I’m not sure what else may just have happened but I’m fairly certain that the EU just answered Henry Kissinger’s famous question: “Who do I call if I want to call Europe”. The question has now been resolved. He would call Angela Merkel.

FrédéricLN said...

@ Arthur Goldhamme : "I do favor a "time-averaged balanced budget" across the business cycle, by the way, and so did Keynes." Oh! So we fully agree. I'm not less keynesian that that, actually.

The issue with our States is that many of them, including France, show structural deficit, and even structural primary deficit (not taking the debt cost into account). Since 45 years (!) in the French case — 41 primary deficits, 4 exceptions only (under Barre and under Jospin).

So, some structural changes are actually needed to get that "globally balanced budget". On this need, I agree with the central bankers, IMF, Mario Monti, Angela Merkel and so on.

I think that effective changes (plus default of really insolvent States) can bring trust back: trust would be deserved, not just an agreed convention between gamblers; and thus, bring interest rates at a reasonable level.

On WHICH structural changes are needed to get that, I disagree on most of the ideas of central bankers and the IMF.

I do not think, at all, that transferring the costs of reforms on the working class and the poor would be of any help (True, it would be morally disgusting; bur moreover, it would be uneffective and even counter-productive.)