Monday, July 2, 2012

Euro Crisis Survey

A survey of proposals to deal with the euro crisis, from OFCE.

Coming Up Short

Didier Migaud, a Socialist, comments on the audit conducted by the Cour des Comptes, which he heads. The report indicates that slowing growth has reduced anticipated revenues to the point where France needs to find an additional €33 billion euros in order to reach Hollande's self-imposed target of under 3% budget deficit by the end of 2013.

A combination of €33 billion in spending cuts and tax increases should not be impossible to achieve. It amounts to about 1.5% of GDP. The question is whether a decrease in the state deficit this rapid is warranted, or whether, as Paul Krugman and many others argue, it will only slow growth still further, probably tipping France into recession and deepening the state's fiscal hole. Absent some new source of aggregate demand, this downward spiral will almost surely be the result of rapid belt-tightening. Belief in "expansionary contraction" has been shown to be a pipe dream.

Is there any hope of a revival of demand to compensate for diminished government outlays? It's not likely to come from the private sector, which has increased its savings rate in order to rebuild its battered balance sheet. It's not likely to come from China, whose economy has been slowing. Exports to the US may increase somewhat, as the US economy continues its own excruciatingly slow recovery, and a continued fall of the euro might help here as well, but not much.

France's European trading partners won't be picking up the slack, as most of them are operating under imposed austerity regimes as well. Germans might of course buy more French goods if they wished, but French prices are unlikely to decline very much over the next two years. Germany may need to purchase more electricity from France as it closes some of its nuclear plants.

So Hollande is in a box. If he does what the Cour des Comptes says is necessary to meet his own goal, he will probably fail. If he doesn't, he will open himself up to the charge of reneging on his campaign promise, and the Right will lambaste him for irresponsible economic management.

The right thing to do, in my opinion, is to delay the budget reduction for a year, to announce forthrightly, while he still has the public's trust and mandate, that the goal cannot be met. So this is a test of both Hollande's grasp of the economic realities and his readiness to face slings and arrows in pursuit of the right policy.

Pirate Party

Those of you who follow politics in the rest of the EU are probably aware that the Pirate Party has been making waves in Germany. The Pirates, born in Sweden but spread to other countries, are sometimes dismissed as a "party of geeks," whose main interest is in the use of the Internet as a political forum, free sharing of software, music, and film, and opposition to laws allowing the state to monitor private Internet usage. But the German Pirates have expanded their purview to become a more broad-based anti-system party and defender of civil liberties. They have been receiving 6-7% of the vote in some elections.

In France, there is also a nascent Pirate Party, but it didn't fare well in the last legislative elections, garnering under 1%, despite fairly decent press coverage. This article describes the French Pirate Party and explains why it will have a hard time matching the performance of its German counterpart.

Eurozone Unemployment Hits 11.1%, a record


Toujours plus de chômage pour la zone euro en mai

Le taux de chômage dans la zone euro a atteint en mai un nouveau record, à 11,1 % de la population active, contre 11 % en avril. Selon les estimations d'Eurostat, 17,56 millions de personnes étaient au chômage dans la zone euro en mai, soit 88 000 de plus que le mois précédent.

La Guerre des Chefs

It's amusing to watch Jean-François Copé and François Fillon launch their guerre des chefs while solemnly pretending that there is no guerre des chefs. Copé was even more unctuous than usual last night on France2's JT 20h. He must have worked with a media consultant to cultivate a more "happy warrior" image. He was all smiles and, as usual, glib, wall-to-wall verbiage that added up to nothing.

Meanwhile, Fillon has enlisted the support of the party's chief wonks, Pécresse and Wauquiez, along with the folksier Bertrand. Only Lemaire is missing. And of course Juppé, who is playing his own quiet game. So it seems as if the battle lines are shaping up to pit "the base" against "the elite," which is merely a polite way of saying those who think the road to victory lies in going after the FN vote using whatever it takes and those who would prefer to talk about budgets, university reform, social policy, etc.

In other words, it will be ugly. Copé has yet to explain how his idea of la droite décomplexée differs from Sarkozy's--and, more importantly, from Buisson's. And he has yet to prove that pursuing an escalating rhetorical war on Muslims, insecurity, etc., will actually revive the UMP's fortunes rather than play into the hands of the FN. He cited his own record in Meaux in reducing the FN vote from a high of 23, but he didn't say what he had done to achieve this goal. In any case, he seems determined to bury Fillon under the weight of Sarkozy's failure while at the same time taking over the central themes of Sarkozy's failed campaign. The contradictions will be covered over with smiles and a verbal flow bordering on the hemorrhagic.

Fillon, on the other hand, remains the Knight of Doleful Countenance. It's hard to see how he overcomes his initial deficit in internal support. His phlegmatic appearance lacks Copé's beauf appeal. Right-wing parties everywhere are succumbing to populist fevers, and Fillon is not a natural populist. Copé--a corporate lawyer with the look of a high-pressure, low-ethic used car salesman--might not seem a natural charmer of the angry petite bourgeoisie either, but he's been honing his act for quite some time and seems to have made headway with the Café du Commerce crowd. But let's see if his smarmy manner can really survive five years of constant exposure as the leader of the Right. My guess is that it won't. But then I've never liked the guy.