Friday, August 31, 2012

Anne Sinclair Confirms Separation from DSK

Le Parisien:

Comment va votre vie personnelle depuis votre séparation d’avec Dominique Strauss-Kahn?
J’ai bonne mine, j’ai pris des vacances, je retravaille durement, je suis à fond sur les élections américaines. J’ai toujours un lien très fort avec mes six enfants (NDLR : deux fils qu’elle a eus avec Ivan Levaï et les quatre enfants nés des précédentes unions de DSK). Et je vais très bien, merci.

Tangled Web

Sometimes one gets the impression that all of France is one gigantic interlocking directorate. The new public investment bank promised by Hollande during his campaign will be created with the advice of the private investment bank Lazard Frères, which is headed by Matthieu Pigasse, who supported Hollande for the presidency, is a stockholder of Le Monde and owner of Les Inrockuptibles, which employs Audrey Pulvar, the companion of redressment minister Arnaud Montebourg, who is miffed that he wasn't informed of the decision to consult with Lazard, made by Pierre Moscovici.

Euorozone Unemployment at Record High

11.3%. How high will it go before Eurozone leaders decide that austerity was a mistake?

Thursday, August 30, 2012

No Longer Passing Between Raindrops

On his inauguration day, François Hollande was drenched by heavy rains, but in the ensuing months he seemed to passer entre les gouttes, as they say. No longer. His approval rating has been falling sharply:

Un effritement à l'ifop (moins 2 points), un fléchissement chez CSA et TNS Sofres (moins 5 points), un affaissement pour Ipsos (moins 11 points).
The reasons will be clear to anyone who has been reading this blog over the past few weeks. Hollande's program has been looking increasingly incoherent. Any pretense to combat Europe-wide austerity seems to have been shelved. He has meekly accepted the fiscal pact, which he had promised to renegotiate. While that promise has been forgotten, other promises--to subsidize youth employment, roll back gasoline prices, hire new policemen and teachers--have been kept, but so has the insistence that the budget will somehow be balanced to respect the fiscal pact. Some tax increases have been announced, but not enough to compensate for the new spending.

The next few weeks may well prove decisive. Either he has a real plan in mind, or he intends to hold these contradictory good intentions together with chewing gum and baling wire, in which case the whole contraption may well fall apart, triggering protests from both his left and his right. I wish him well, but at this point it is hard to see where he is headed. If, in fact, his goal is the "balance-budget stimulus" recommended by Joseph Stiglitz, then he really owes it to the country to lay out in detail how he will shift government spending priorities to bring about growth while at the same time raising revenues to meet the requirements of the fiscal pact, which he now apparently supports.

Wednesday, August 29, 2012

2.3 Billion for Youth Jobs

Employment subsidies: Hollande has just announced 2.3 billion euros' worth. The money is earmarked for underskilled youth in the 16-25 age group. We have been this way before. The move is billed as a boost to French competitiveness, since it will reduce labor costs in some industries. But actually it doesn't reduce costs. It only transfers the costs to the state, meanwhile discouraging industry beneficiaries from investing in new, labor-saving technology to reduce costs over the long run while spurring employment among manufacturers of capital goods. In short, this is a bad investment. To be fair, youth unemployment is quite high, and this will provide some immediate relief. But similar measures have proved disappointing in the past, and there is no reason to think that this time will be different.

Budget Control

Mediapart has published a draft of the law implementing the fiscal pact in France. The draft envisions the creation of a High Commission of Public Finance, which will be charged with monitoring compliance with the terms of the fiscal pact and reducing expenditures deemed excessive in case of divergence. In particular, control of social security and local government expenses is to be exercised by the High Commission. The government insists that this text is merely a draft.

Regulating Gasoline Prices

Pierre Moscovici looked very proud of himself while making the announcement: gas prices would be cut by 6 centimes per liter, "a very substantial amount." Even Total tried to put a good face on things: This will be part of our commercial strategy to show our clients that we are participants in the national effort, said, in essence, the firm's chief. The national effort to do what? To subsidize the burning of fossil fuel despite an ostensible commitment to reducing carbon emissions? To reduce the share of gasoline in the average family budget still further (it has in fact been declining steadily for decades)? To prove that, even if "l'État ne peut pas tout," il peut parfois quand même faire quelque-chose.

But who is the dupe here? If the state picks up 3 of those 6 centimes but Hollande sticks to his goal of reducing the budget deficit, taxpayers--including those who don't drive--will be taking change out of one pocket to put it in the other. What the companies contribute or don't contribute will soon be camouflaged by normal fluctuations in the market price of crude and the regular ups and downs of the euro.

In short, Opération Prix de l'Essence is nothing but de la frime, de l'esbroufe, even if it does make good on a Hollande campaign promise. It's no mystery why politicians everywhere--the US is no different from France in this respect--like this particular swindle. Nobody likes oil companies. They make too much money. They corrupt the state (notoriously so in France). They operate as virtual global powers and make their own foreign policy. And the market for oil, both crude and refined, is subject to various sorts of manipulation. Consumers are sensitive to the price at the pump. It's well-known to be a prime irritant simply because it's such a visible manifestation of the capriciousness of the market.

But really. Isn't there some more grown-up way to respond? Under Sarkozy one became inured to what Hollande himself memorably called le coup d'éclat permanent. It would have been nice if the new president, having named the vice, had refrained from perpetuating it. But a promise is a promise, alas.

Richard Millet

Richard Millet, an editor at Gallimard who, according to Wikipedia, played an important role in the publication of Jonathan Littell's Holocaust novel Les Bienveillantes, has published a book in which he claims to be "struck by the formal perfection" of Anders Breivik's murder spree in Norway. He also despairs of the fact that European nations are "fraying socially as they lose their Christian essence to the benefit of general relativism."

Shocking. (h/t Peter Gordon)

Monday, August 27, 2012

Reality Bites

Austerity, unsurprisingly, has produced economic contraction across Europe. French unemployment is up sharply and, worse, long-term unemployment--the kind that permanently damages future employment and earning prospects--is up 22% in one year.

What does the Hollande government propose to do about this? It's very hard to say. Hollande, who many had hoped would lead anti-austerity forces, has rather meekly accepted continuation of the fiscal pact ("golden rule") concocted by Merkely and Sarkozy and has thus far seemed intent on realizing his (hopeless!) goal of reducing the budget deficit to under 3% by 2013. But these latest figures bring renewed pressure on the government to act decisively.

Decisiveness is not Jean-Marc Ayrault's long suit, however. He appeared tonight on France2 and offered a brief paean to "concertation," "deliberation," "discussion," and "dialog," as important, he said, to the whole of France as he had learned it was to collectivités locales--reminding viewers rather lamely of his long tenure as mayor of Nantes, as though to prove he was no amateur at this business by vaunting his long career in the bush leagues. It was a lamentable performance, not because there's anything wrong with concertation or deliberation but because Ayrault seems incapable of departing from the langue de bois he mastered in long years as the head of the Socialist group in an inhospitable National Assembly. To make matters worse, he was forced to put out a small brush fire started by Arnaud Montebourg, who announced that nuclear power was une filière d'avenir, when Hollande during the campaign had promised the Greens that he would begin to phase it out. It was a very poor beginning to la rentrée, which promises to be chaude, as workers, unions, left-wing voters, and some left-wing politicians lose patience with la force excessivement tranquille. Hollande's next move had better be carefully calculated.

Friday, August 24, 2012

An Interesting Chart

The graph below (FT Alphaville via TexExile) depicts real disposable household income growth by decile over the period 2000-2010:


Households in the southern periphery did quite well out of the euro; German households lost across the spectrum. but France is the real outlier here: sharp growth in the bottom and top deciles, losses in the middle. Explanations welcome. (Yes, Sarkozy tax policies no doubt helped the top decile. But what about the bottom 3? The RSA?)

Grexit, Grinnit?

Frau Merkel met with Hollande yesterday, Samaras today. Friendly pictures emerged of both meetings, and friendly words issued. Greece will keep its promises, Samaras said. Merkel said she was "encouraged." "Trust" has been restored. Casual observers may be wondering what's going on, since Greece hasn't, you know, paid any actual bills since it was all doom and gloom a few weeks ago. But "Europe" is enjoying another of its fits of optimism. We made it through the last apocalypse by temporizing, leaders seem to be thinking, so we can make it through the next one. Mario Draghi has left speculators in just enough uncertainty that they aren't prepared to make large negative bets. And so we wait until the next major surprise, which could be the decision of the German Constitutional Court on Sept. 21. Meanwhile, the euro is up against the dollar--naturally, since I just bought tickets to Paris. I'm always on the wrong side of history.

The Socialists at La Rochelle

Is there any spectacle sadder than a French political party meeting when it is already in power? Since the parties these days are mere vehicles for selecting a presidential candidate, there's not much to hold the interest of outsiders when a party whose candidate has already been elected meets. This is not the moment for the ambitious to reveal themselves nor for rebels to propose bold departures from the status quo. So there will be no Sixth Republics this summer, no nights of the long knives (remember when Moscovici was left sitting alone in a café while other former DSKers went over to Aubry?), no Mélenchonesque reminders that the left in power hasn't really accomplished much or even set a clear course.

All the drama will be over at the UMP, where each of two former second bananas will attempt to emerge as the Contender.

But at least the Socialists aren't being threatened with annihilation by hurricane, which could be the fate of the American Republicans if Isaac stays on course.

Thursday, August 23, 2012

How do you say l'arroseur arrosé in German?

It seems that Germany, having imposed austerity on the rest of Europe, is now slipping into recession at an accelerating rate. Perhaps this will concentrate minds in Berlin.

Bilger on Cohn-Bendit

A surprising, lyrical homage by a rightist, Philippe Bilger, to a leftist, Daniel Cohn-Bendit. If only political dialog were always like this.

Wednesday, August 22, 2012

Fillon, Reformer

To win the top spot in the UMP, François Fillon has proposed a number of bold  familiar reforms: end the 35-hour week, increase the working hours of civil servants, and fuse regions and départements. The first two no doubt enjoy the support of nearly everyone in the UMP, including Copé. The third is the one to watch: Raffarin and his cronies (the Fourth Republican rump in the UMP) didn't like Sarkozy's territorial reform proposal, and chances are they won't like this one either, sensible though it is.

Tuesday, August 21, 2012

The UMP Leadership Fight

The Fillon forces are girding their loins for battle. Philippe Goujon, a deputy and mayor of the XVe Arrdt. of Paris, has launched an "Appeal of the 144" to unseat Copé. I don't expect much intellectual enlightenment from this battle between two cults of personality. What will be interesting will be how the winner deals with the losers. And how the Sarkozy loyalists are treated. Most UMP sympathizers still prefer Sarkozy to either of the two prime contenders to replace him, according to one recent poll. Whoever wins will face a formidable task of party rebuilding and ideological reorientation.

La Rentrée

It's been a dull summer, but September promises to be an active month politically speaking. There will be elections in the Netherlands on Sept. 12, and the Socialist Party there is expected to do well:

Party leader Emile Roemer is staunchly anti-austerity (and a good deal to the left of Hollande):
Economic policy can [not] and must not be reduced to a set of rules which prescribe debt reduction.

Thirteen of the 17 eurozone countries are above the three percent deficit. Who is going tell who what to do? Come on, let’s use our minds and not become too obsessed with the agreed numbers…Rules are good, but we have to adjust to the realities of the moment. I am sure I’ll get broad support in Europe for this.
Such a shift in policy in a northern core economy could significantly affect the balance of power in the EU. On the same day, Sept. 12, the German Constitutional Court will rule on the legality of the European Stability Mechanism. These two events will have great significance for the future of French policy, but there isn't much that Hollande can do about either of them. His responses to both will be interesting to watch, however.

Hortefeux Steps on His Tongue

Brice Hortefeux, criticizing the Socialist government yesterday, recalled that there had been no urban riots under Sarkozy. Unfortunately, he forgot a few notable incidents, such as the two-day armed uprising at Villiers-le-Bel. What's even more surprising is that he was interior minister during a number of these events, responsible for the police response. Amazing what political bias can do to memory. Or perhaps Brice is just exhibiting signs of dementia praecox.

Monday, August 20, 2012

Brad DeLong on the Euro Crisis

Brad is terrified:

When I came to his piece I was terrified about the economic future of Europe: I had moderated a panel composed of Barry Eichengreen and Wolfgang Munchau last month in Rio de Janiero that had made me want to hide under the table and not want to come out.
I hoped Bergsten's piece would restore my equilibrium.
But Bergsten's attempt to convince me to worry less and be happier failed: "if this is the strongest argument for optimism he can come up with..." I found myself thinking. The key problem is that Bergsten has an unusual definition of "resolve". So now I am hiding under the table, and so blogging from my iPad.


Cumul des mandats

For a party that officially opposes le cumul des mandats, Socialist deputies are awfully fond of the practice. 19 of them hold three additional mandates, 80 hold 2, and 202 hold 1.

I know, I know: babbling about le cumul des mandats is what one does when there's no real political news to discuss. But whaddayagonnado? It's the middle of August.

Friday, August 17, 2012

Apologies

Apologies, dear blog readers. I find myself, incongruously, in Florida for a funeral and have been out of touch with the French news for a few days, so blogging will be sporadic to non-existent for a while.

Wednesday, August 15, 2012

Gay Marriage Divides the Right

Same-sex marriage will almost certainly be legalized in France next year. The left and much of the center support it and have a majority in the AN. But the UMP is deeply divided on the subject and trying to avoid an open split at the party's next congress. 65% of the French favor same-sex marriage and 53% favor adoption by homosexual couples.

Tuesday, August 14, 2012

Amartya Sen Considers the Europe Question

Sen adds his voice to the worries about the pressures on European democracy:

If democracy has been one of the strong commitments with which Europe emerged in the 1940s, an understanding of the necessity of social security and the avoidance of intense social deprivation was surely another. Even if savage cuts in the foundations of the European systems of social justice had been financially inescapable (I do not believe that they were), there was still a need to persuade people that this is indeed the case, rather than trying to carry out such cuts by fiat. The disdain for the public could hardly have been more transparent in many of the chosen ways of European policy-making.

Riots in Amiens

Amiens? Riots? Bienvenu chez les Ch'tis! The riots broke out in one of the newly designated "special security zones." Whether there was an immediate cause remains unclear, but the government is clearly worried that the disturbance may spread, as similar disturbances have in the past. A sign of things to come?
Gilles Demailly, the Socialist mayor of Amiens, told news agencies that “there have been regular incidents here, but it has been years since we’ve known a night as violent as this, with so much damage done.” He said tensions had been mounting in the area.
The clashes involved about 100 youths from a poor district in northern Amiens and up to 150 police officers, who used tear gas and rubber bullets. A nursery school was ransacked and partly burned, as was a community center.
The district, Fasset, is one of 15 special urban zones identified by the Hollande government that are supposed to get more policing next month.

Plenel, Habermas, and the Treaty Formerly Known as "Merkozy"

François Hollande has had a fairly free ride up to now. He has avoided public splashes, and criticism has been mainly muted, except for the occasional tantrum on the Right. But now, from the left side of the spectrum, comes Edwy Plenel, editor of Mediapart, to remind Hollande that he had promised to "renegotiate" the "golden rule," that is, the treaty formerly known as "Merkozy," but is now content to avail himself of the Constitutional Court decision that no ratification or constitutional inscription is needed to swallow the treaty's terms as if they were not in binding (and in fact they are not very binding, as the wording of the pact leaves enormous loopholes). But for Plenel, who cites Habermas in support of his position, Hollande's complacency marks another step in the drift toward a "post-democratic" Europe, in which national electorates are supposed to acquiesce in the irrevocable decisions of technocrats censés savoir:

Ferme partisan du Traité constitutionnel européen (TCE) en 2005, Habermas s’est alarmé en octobre 2011 de l’avènement européen d’une « domination post-démocratique » dont le pacte budgétaire alors en cours d’élaboration serait l’instrument. « Un tel régime, expliquait-il (lire ici la traduction française),permettrait de transférer les impératifs des marchés aux budgets nationaux sans aucune légitimation démocratique propre. Les chefs de gouvernement transformeraient de la sorte le projet européen en son contraire : la première communauté supranationale démocratiquement légalisée deviendrait un arrangement effectif, parce que voilé, d’exercice d’une domination post-démocratique ». « Le joli mot de “gouvernance” n’est qu’un euphémisme pour désigner une forme dure de domination politique », ajoutait-il dans un entretien postérieur.
I expect this discussion to become more heated at the rentrée.

University Reform: Ça continue!

Behind a paywall, Philippe Aghion discusses university reform. Consulted by Pécresse under the ancien régime, Aghion is now consulted by Geneviève Fioraso under the new. Exactly how the reform process may (or may not) be inflected does not emerge clearly from this interview, which is nevertheless worth reading.

Zero Growth Thanks to Rounding Error

"France Escapes Recession," read one headline. Official growth was 0.0%, thanks to rounding up of -0.045 (although any economist will be guffawing to see growth figures reported to 3 decimal places). In any case, the big surprise was in net exports: up to Germany, down to the rest of the world (largely because imports from the rest of the world increased).

71% on the Left Support Dismantling Roma Camps

There's no getting around it: the Roma camps have very little popular support, left or right. So Valls' policy is not likely to meet with much opposition.

Monday, August 13, 2012

Friday, August 10, 2012

Hollande Approval Down to 46%

Governing in a time of crisis is not easy. After 100 days in office, a new poll has Hollande's approval down to 46% and reflects a general pessimism on the part of the public. Indeed, pessimism more than disapproval of Hollande seems to be the driving force here: the French by and large do not see a way out of the crisis and don't expect Hollande to invent one. Realism is the watchword, and realism is not necessarily a bad thing. I think one can also say that Hollande has worked to reduce expectations, since he knows that he is not really in command of what happens to the larger European economy.

Hollande Expels Illegal Roma

The Times:

“We’re dismayed,” Yann Lafolie, president of L’Atelier Solidaire, a Roma support organization, told Le Monde, adding: “There are many children who will be sleeping on the street tonight. Sarkozy never expelled us. In the end, it was the Socialists who did.”

Thursday, August 9, 2012

Comparing Presidencies at 100 Days

So, Hollande has passed his first hundred days. If any of you readers are obsessive enough to monitor my blogging output, you will probably find that the average number of posts per day has diminished since the election rather than increased. Indeed, my output is probably at a nadir in the five years that I have been keeping this blog.

It's interesting to compare the past three months with Sarkozy's first hundred days. To be sure, the blog was new back in August of 2007. Blogging fatigue had not yet set in, and I was still eager to build an audience, so much so that I recall blogging from hotel lobbies in Greece while on vacation, lest I miss a day's news and disappoint my then small but dedicated band of readers. But still, there was no shortage of news to fill my day's quota of posts. Sarkozy was a president who believed that in every presidency there is but a brief window of opportunity to lay down the broad outlines of policy change. He was determined to make his mark at the outset, and practically every day brought a new announcement. To be sure, governing by press release (le coup d'éclat permanent, as François Hollande quipped at the time) turned out to be not only the essence of the Sarkozy style but also the Achilles' heel. There was no follow-through.

Five years later, things could not be more different. The change is not solely due to blogging fatigue. And I think that Hollande's self-effacement is not just a matter of temperament; it's an entirely different philosophy of government. He seems to have rejected the whole "100-day shock therapy" approach. He thinks that the way to lasting change is to build consensus (in his own notoriously fractious camp, not across the board, which would be impossible), and this takes time. He knows that he can make headlines whenever he chooses--he did so during the campaign with his announcement of a 75% maximum marginal income tax rate, for example (see yesterday's post on the subject)--but he has also concluded that getting in people's faces this way gets their backs up too often and is ultimately unproductive. So he's moving slowly and cautiously and unobtrusively. And therefore, most days, there is precious little to blog about the chief executive, unless one wants to recount his trek across the beach, fully clothed, near the Fort de Bregançon.

The news, such as it is, is the inexorable news of economic austerity, currency crisis, and continental drift. A factory closing here, layoffs there, an ECB announcement one day, a "petite phrase" from Juncker the next (a Greek exit from the euro would be "manageable," the financial wizard tells us--yet another nail in Greece's coffin, even as Draghi hints that no one will leave the Eurozone on his watch), etc. etc. August is of course the cruelest month for newshounds, but this August seems particularly quiet, an ominous lull before what I expect will be a fall storm in Euroland.

The tale of two presidencies is thus inconclusive. We know that Sarkozy's shock therapy didn't work, but we don't yet know whether Hollande's "return to normalcy" will fare any better than Warren G. Harding's.

Wednesday, August 8, 2012

Sarkozy Calls for French Intervention in Syria

Tradition has it that ex-presidents do not directly criticize the foreign policy of sitting presidents, but Sarkozy has broken with tradition. "In Libya, at least, I acted." There is all of Sarkozy in a nutshell: "action" is the premier value, whereas "consequences" matter only to the commentariat.

Will there be an intervention in Syria? Pressure for action is mounting in the US as well as France, but to date the abundant reasons for caution still appear to be preponderant. How much longer this will be the case is hard to say. Perhaps Sarkozy has rightly interpreted the signs of an impending shift and wants to be on record as having pointed the way. But then again, the Assad regime may collapse without intervention. The defection of the prime minister is surely a sign, although the massive counteroffensive in Aleppo is a contrary sign. In any case, Hollande does not seem inclined to take the lead in forming a coalition for action, as Sarkozy did in Libya. Is this due to the difference in the temperaments of the two presidents, or to the differences in the two situations? I find it impossible to judge.

The Travails of Wealth

Imposing a 75% top marginal rate on incomes over €1 million has surely brought François Hollande a lot of attention, in addition, presumably, to some number of votes in the election, which may well have contributed to his margin of victory. The New York Times takes notice of the policy today with a certain amount of the usual disbelief: "What? 75%, you say? Can they get away with that?" In search of proof that such a "confiscatory" tax rate will wreck the French economy, the Times intrepidly sets out in search of tax accountants and their clients. But despite a good deal of heavy breathing, it doesn't come up with much:
“Should I be preparing to leave the country?” the executive asked Mr. Grandil.
The lawyer’s counsel: Wait and see. For now, at least.
Or, to get right down to the nitty gritty, we can look at actual numbers:
A tax accountant in Paris with many wealthy clients, Steve Horton, has calculated that a two-parent, two-child household with taxable annual income of a bit more than 2.22 million euros ($2.75 million) now has after-tax take-home pay of about 1.1 million euros ($1.35 million) under France’s current tax system.
That household would end up with 780,000 euros, or $966,000, if the Hollande tax took effect, Mr. Horton says. (The same family, with comparable income in Manhattan, would take home $1.55 million, the dollar equivalent of 1.25 million euros, after paying federal, state and city income taxes, he calculated.)
"Confiscation" looks a little less bleak now. A family of four should be able to get by on $966,000 after taxes, even in Paris. Perhaps the rich won't be forced to avail themselves of the privilege they share with the poor, to sleep under bridges, after all. And if Johnny Hallyday and Laetitia Casta decide to make their homes elsewhere, France will still have Sylvie Vartan and Sophie Marceau to console itself.

But what about the disincentivizing effect of high marginal tax rates, you ask? It's not clear that there are any, but economists convinced that entrepreneurs will go on strike if limited to a million a year will now have a natural experiment with which to prove their contention, if only they can somehow control for all the potential confounding variables, which are legion. To me, it's always seemed that one of the great attractions of building a company is the power that goes with controlling it. The income is nice, to be sure, but power, they say, is the greater aphrodisiac.

Bad Economic News

The Banque de France predicts that the French economy will enter into recession in the third quarter. Meanwhile, Freescale, the semiconductor manufacturer, has laid off 500 at its Toulouse plant, which manufactured semiconductors for the ailing auto industry using what the firm's American management calls an obsolete technology. Freescale will continue R&D operations at the site, however.

Monday, August 6, 2012

Wall Street Bets Against the Euro

So reads the Italian headline. The FT has a similar report: in fact, it's the basis of the Italian headline.

Good EU News For a Change

The euro may be going down the tubes, but the EU is running away with Olympic gold.


Monti's Anti-Democratic Remarks Provoke German Ire

Mario Monti has provoked the wrath of the Valkyries. In an interview with Der Spiegel, he told the Germans that he thinks the euro crisis could be solved if only governments would show some healthy independence from their legislatures--an unsurprising thought for the technocrat that Monti is. But to many this sounded like a clarion call for an anti-democratic Europe and brought immediate denunciations.

And France, meanwhile? To my astonishment, Le Monde online breathes not a word of this whole controversy. Indeed, since Hollande's election, France has become the most nombriliste country in Europe. Despite being at the heart of the eurozone, it seems remarkably insouciant about the unfolding crisis. The troubles in the south have sent a lot of capital seeking safe haven to France; France's immediate borrowing worries are alleviated; and the French attitude seems to be Alfred E. Neuman's, "What, me worry?" It's baffling, really. To be sure, Hollande's low-key approach to governance seems to have been taken by many as the key to the success of his first three months--if success is measured as the passage of a number of measures without major opposition. But where is the French government on the euro? Far from leading the anti-austerity coalition, as he was expected to do, Hollande has ceded that role to Monti, who lacks the legitimacy that Hollande has. Is it any wonder that anti-austerity has taken an anti-democratic direction? This is worrisome.

Sunday, August 5, 2012

Another Priority Zone

We've had ZEPs and ZUSs, and now we have the ZSP: Zone de Sécurité Prioritaire, Hollande's answer to the "security" concern that ranks high in the minds of French voters. What will distinguish the ZSP from the ordinary, run-of-the-mill neighborhood? Something like "hot spot policing" in the US: a concentration of resources in areas where crime is more prevalent, according to the statisticians. Is this just another form of pressure from the top to faire du chiffre? It's not clear. This is not an area in which I have any expertise, but opinions about the effectiveness of the strategy where it has been tried vary. The thousand or so new cops to be hired this year will mostly go to these areas, it seems.

Saturday, August 4, 2012

Varoufakis on Draghi

Yanis Varoufakis:
Then came the moment to put up or forever lose his credibility. Alas, probably under incredible pressure from the Bundesbank, he opted for the latter. Citizens and investors felt a wave of desperation hit them and all the gains from the grand declarations fizzled out. Since then, some analysts went back to what Mr Draghi said during the Thursday press conference and read between the lines some evidence of actions-to-come that may offer relief to the struggling Eurozone. They are clutching at straws, I am very much afraid.
And for a roundup of opinion on the Draghi moves (or non-moves), see Brad Plumer.

The Hollande-Miliband Axis

François Hollande must know the old American political adage, "Don't get mad, get even." In his own quiet way, he has paid back David Cameron for any number of snubs, both during the campaign and since Hollande's assumption of office (such as the invitation to French entrepreneurs to flee to Britain). Hollande invited Labour Party leader Ed Miliband to Paris and received him as though he were already Prime Minister. Meanwhile, Miliband may have borrowed a few ideas from Hollande about how to achieve that goal. There are similarities between the two, starting with the fact that both have been consistently underestimated. It's a bit premature to posit, as The Times does, that Hollande is already imagining himself as the leader of a reinvigorated trans-European left. But it's good to see him recognizing that cross-border alliances can take forms other than the notorious Merkozy duo.

Friday, August 3, 2012

Uh, So, Maybe Draghi Meant Something Different

The markets seem to be rethinking yesterday's message. This is Olaf Storbeck of Handelsblatt via FT Alphaville:


Between the lines the message was perfectly clear. The Bundesbank might not like it, but the ECB will intervene in the bond markets in the foreseeable future. And big time.
From my perspective, the most important piece of the speech was Draghi’s implicit acknowledgement that the ECB has a target rate for bond yields. Draghi described the current yields as unacceptable and he stressed that the ECB “may undertake outright open market operations of a size adequate to reach its objective”.
He did not reveal where the ECB’s pain barrier is. However, the mere acknowledgement that the ECB has a certain threshold in mind is quite something. If Draghi means what he says, it follows that the bank is ready to buy bonds without any limits.
So, bottom line: Spanish yields will be allowed to rise only so high. We won't tell you how high, but somewhere around the level reached last week. This means investing in Spanish debt is "safe" (with an implicit ECB guaranteed floor price), so if you can borrow at a low rate, say around 2%, and earn a spread of 4.5 to 5% investing in Italy or Spain, you've got a nice carry trade. But you have a couple of downside risks: the ECB guarantee stays in place only as long as the peripheral governments play ball, that is, toe the austerity line; and if the continued squeeze makes people desperate enough to topple one of these governments, or even force an existing government off the ECB line, you can lose your shirt. How will the big investors perceive this offer from the ECB? They are desperate for yield, but these risks are not small.

Thursday, August 2, 2012

Draghi Drags

Last week, I thought some of the comments on Mario Draghi's "uselessness" were excessive, but perhaps I was too indulgent. His remarks today seem to have disappointed nearly everyone after his seemingly bold foray last week. So is this another wet squib? Or is it a sign that the behind-the-scenes battle over the fate of the euro has become truly savage? My guess is that Draghi tried to shake things up a little last week, met with far more formidable internal opposition than he imagined (especially from Jens Weidmann of the Bundesbank), and chose the standard option of the losing general in a skirmish: beat a hasty retreat, keep the powder dry for the next battle, and wait for things to get worse while awaiting the arrival of the cavalry. Only in this case, Draghi is supposed to be the cavalry. So I guess he's waiting for an act of God to smite the opponent. So who shorted Spanish debt last week? Profit-taking time.

More Teachers and Cops, Fewer Tax Collectors

Hollande's program for altering the composition of the public sector will have very concrete effects: 10,000 new teachers, 500 additional cops, 500 new judicial sector jobs, 2,000 fewer finance ministry clerks, cuts of up to 1,500 at the ministry of ecology, etc.

Wednesday, August 1, 2012

Hollande and the Roma

This time, the words are more soothing and conciliatory, but the "dismantling" of Roma camps will continue, according to interior minister Valls, whenever a decision of the courts allows. Sarkozy polarized this issue unnecessarily, and created confusion between French travelers and Romanian immigrants, but the problem remains. The Roma are the largest minority population in Europe, numbering between 10 and 12 million. The new government should clarify what it means by alternative solutions and have something to propose besides dismantling and expulsions.

Hollande in the Hamptons

It seems that François Hollande has inspired fear and loathing in the Hamptons. An article in New York Magazine quotes "billionaire Jeff Greene" (a name I'd never heard until a few moments ago):

“Right now, for some bizarre reason, a lot of these people are supporting Republicans who want to cut taxes on the wealthy,” he says. “At some point, if we keep doing this, their numbers are going to keep swelling, it won’t be an Obama or a Romney. It will be a ­Hollande. A Chávez.”