Monday, October 31, 2011

The French Economic Situation

An interesting analysis by Rob Parenteau:

To be clear, Greece is not a special case, but rather a case in point of what happens when you attempt fiscal consolidation in countries with high private debt to GDP ratios, high desired private net saving rates, and large, stubborn current account deficits – conditions, by the way that also apply to France. EFC’s [expansionary fiscal contraction] are possible, but they are not automatic: in fact, they require very special conditions. Pursuing ID’s [internal devauation achieved by wage and benefit reductions] at the same time a financial consolidation is underway insures the latter effort will be thwarted as domestic incomes deflate. We must conclude the Troika’s policy approach has been an abject failure – indeed, they appear to have finally concluded as much themselves. It is high time to explore entirely new policy directives before the remaining eurozone economies are driven into the ground under what appears to be a faulty, faith based economics of the Troika.

Components of the Right

A Le Monde interactive graphic showing various splinters of the UMP coalition.

Record Eurozone Unemployment

10.2%! Mario Draghi, who takes over tomorrow as head of the ECB, could seize this opportunity to signal a change of policy by lowering interest rates.

Mille e tre

I saw the Met's Don Giovanni this weekend, so I have fresh in my mind the dangers of specifying performance with undue mathematical precision. François Hollande has promised to add 60,000 teachers to the payroll of l'Éducation nationale if elected, and the UMP is not letting him forget it. My informal soundings among French voters (N=2) suggest that skepticism about this promise abounds. But will it matter?

Frankly, I'm not sure that anyone believes Hollande's promise, but I am fairly confident that a) most voters believe that making exaggerated promises is SOP for politicians and b) for Sarkozy, who made a few unkept promises of his own in 2007, to claim that his opponent won't keep his promises will not necessarily persuade voters that he is the better choice if promise-keeping potential is the voter's deciding criterion. Nevertheless, Hollande will be hurt by the obvious contradiction between his desire to present himself as a rigorous manager of national finances and his profligate approach to educational improvement (he defends his promise in the all too obvious way, calling it an "investment in France's future").

Left out of this dialog of the deaf is any consideration of whether adding 60,000 teachers is the proper remedy for France's educational woes. One might propose other, potentially more cost-effective measures, such as adding more teacher's aides and restoring funds for classroom apprenticeship training. But these won't bring as much joy to teachers unions, on which Hollande counts as one of his staunchest bases of support. As rash promises go, this was not a particularly smart one to make, but voters will quickly tire of it, and Sarkozy will recognize the danger of an "Is that all you've got?" reaction, so I expect we will hear less of it after a while, at least until the final debates, when it will again be raised as a last-minute reminder that the Socialists are going to debauch the currency--assuming France still has a currency by next April.