Sunday, September 30, 2012

The Left of the Left Demonstrates

The Front de Gauche and allied groups will demonstrate today against the austerity policy that the government of François Hollande has embraced. Their anger is comprehensible. Hollande artfully campaigned on the notion that there was an alternative to austerity. He promised to renegotiate the Merkozy agreement, now respectfully rebaptized the TSCG and erected as a sine qua non of sound government. The gauchistes are also perfectly correct in their analysis of the consequences of austerity: there will be plant closings, business failures, layoffs, and suffering. To all of this Hollande now argues--or, rather, implies--that There Is No Alternative. This is the famous Thatcherite justification for retrenchment. So the only question is whether Hollande's implicit analysis is correct.

So what is the alternative? If France were to try deficit spending, would investors park their money elsewhere and send French borrowing costs higher? This is not absolutely certain. Germany cannot absorb capital indefinitely, and interest rates are already negative. To the extent that investors wish to remain in the euro, France would still be attractive even if it were to diminish the budgetary shock. Hollande seems to be gambling on "shock therapy": if he concentrates all the pain--a shock to GDP of -3%--in his first year, then things will improve over the remainder of his quinquennat. This would be a better bet if Germany were stimulating its economy, but it isn't, nor is anyone else in Europe. Hence the risk is a mutually reinforcing contraction that will steepen the slide and leave everyone in a deeper hole.

Politically, Hollande seems to be tacitly assuming that he can brave the anger from his left, because the left of the Left has no place to go. The Right can cavil, but he is essentially continuing the economic policy of Sarkozy-Fillon and in fact pushing ahead where they were too timid to go. His cuts are deeper, his tax hikes are sharper than the Right dared while it was in power. This is a big bet for an essentially cautious politician like Hollande, and it's not clear where he retreats to if things go wrong. Nor does he have any carrots to offset the lash of his many sticks. The likely outcome is a sharp rise in anti-EU, anti-German, anticapitalist sentiment.

3 comments:

Hilary Barnes said...

You are right that as France is trapped in a monetary union there is no alternative to a policy for reducing the budget deficit and capping the government debt, but he seems to be choosing to do it in a way that promises a bad outcome.Firstly, gradualism rather than a rush to meet a 3% deficit would be more appropriate. Secondly, France needs a bigger private sector and more productive industry, but Hollande is pursuing policies that ail first and foremost to preserve the French social model while implementing other policies that will seriously discourage business and hence will hit business investment. Montebourg, of course, thinks this is all to the good: politics are now trumping economics and in the process France will be re-industrialised (though all he is doing so far is to try to preserve operations that the businesses themselves regard as obsolete). It is however not governments that dream up businesses like Microsoft or Google. It is bright young people whom no one has ever heard of but have a good idea and find backers to enable them to a exploit it and a business climate that promotes this kind of activity. The way France runs things (high taxes, pay charges sociale before you have made a single euro from selling something,load an owner down with wealth tax as soon as he/she achieves moderate success, etc etc) does not bring forth successes of this type, and in the atmosphere created by the Hollande regime it is even less likely to.
Unfortunately, peoplelike Laurence POaqrisot who say the governlent's approach is likely to drive the country into recession (or worse) are all too likely to be proved correct - and then one reads in Le Monde Mosocovici say or imply that if the 3% target seems to be slipping from the government's grasp he will be prepared to do whatever it takes to hit it. One feels France being sucked into the vortex that is already destroying Spain, Greece and Portugal. Yet France is able to borrow at about 2% and capital is still moving into France, suggesting that France should be able to avoid a Spanish type scenario.

Anonymous said...

"because the left of the Left has no place to go." Also because There Is No Alternative… On The Table. The "left of the left" has a well packed, and meaningful, critical appraisal of the present process, but no structured alternative, even no credible perspective, imho.

The strongest block opposing a structured "doctrine" to the present (and weak) consensus, is the nationalist one ("push foreigners outside, drop the euro and build tax barriers, so the invasion will be stopped and the Antifrance will loose the game"). And this doctrine gained stronger support in the opinion, than Mr Mélenchon's.

That does not leave Mr Hollande so much room.

FrédéricLN said...

oops, Anonymous is FrédéricLN.

Who still thinks there IS an alternative, but his own alternative way is supported by even less voters than Mélenchon's…