Tuesday, April 23, 2013

Is There a Political Crisis in France?

Gérard Grunberg thinks so. Gideon Rachman is not so sure, and thinks the country is doing fairly well, although he cites other commentators who compare François Hollande to Louis XVI. Dominique Moïsi, quoted by Rachman, sees a "crisis of regime."

The current bad mood has been magnified by two things: the acrimony surrounding the Cahuzac affair and the social cleavage revealed by the gay marriage bill. Neither of these will have today's prominence a year from now. Both are distractions from the central issue, which is Hollande's embrace of the European Troika's view that austerity and structural reform will yield growth. It has become increasingly difficult to deny that this proposition is false. Hollande nevertheless feels he has no alternative. Grunberg backs him up:
Le PS soutient de moins en moins le « sérieux budgétaire » pourtant nécessaire prôné par le chef du gouvernement. L’idée, certes floue et peu fondée, d’une autre politique, refait surface à gauche, mettant en danger à terme l’euro et la solidité du couple franco-allemand.
This is a succinct statement of the conventional wisdom. But is it true? Hollande's approval rating yesterday was 26%, the lowest ever recorded in the Fifth Republic, and still sinking toward the teens. If ever there were a political reason to break with the conventional wisdom of those whom Paul Krugman calls Very Serious People, this is it. If Hollande continues on his present course, and if IMF forecasts of low European growth for the next two years are correct, the Left will be in a very weak position as new elections approach. Meanwhile, it is being challenged by displaced workers, hundreds of whom recently disrupted a party meeting. Many who voted for the PS are badly disillusioned with Hollande's betrayal of his promise to buck austerity.

So why won't he try something different? He could, for instance, announce a major stimulus program for the next two years coupled with structural reforms intended to encourage investment in growth sectors rather than defensive subventions to declining ones. The great fear, of course, is that the bond markets would then turn against France, as they did against Italy and Spain. The ECB could of course deter bond speculators if it chose, as Mario Draghi promised, to do "whatever it takes" to preserve the euro. But the ECB has shown itself willing to support only those countries that toe the line on austerity and structural reform. Would it defend France if France chose "Keynesianism in one country?" There is no certainty, but I believe that it would. And is it certain that bond speculators would reject the rejection of austerity? Not necessarily: Bill Gross of Pimco, the world's largest bond fund, yesterday attacked austerity in the EU and UK (h/t Henry Farrell). Of course, Gross has been wrong in the past, spectacularly so about the direction of US sovereign debt prices, and it is by no means certain that his fellow traders would follow his lead (they haven't always). But here is yet another sign that a bold move might be rewarded rather than punished.

I favor such a move, but I have serious doubts that Hollande will attempt it. He, like many of the older heads in the PS, remembers the 1981-83 debacle all too well. He may feel that it is now too late in his presidency, and his popularity is at too low an ebb, to risk such a dramatic departure from the line he has set to date. But for most French people, that line is now so vague and fluctuating that he arguably suffers more from trying to hold to such an uncertain course than he would from setting a more definite one in a different direction. But I think he must make a move soon if he hopes to wrest his presidency from events beyond his control. If I were Hollande, I would seek to form a new government, a government of national unity, including politicians from the Right who might be willing to defy the Troika. Surely there are some (or some who could be enticed by the opportunity to run a ministry). And then I would stake my all on an active rhetoric of hope: we can get out of this crisis, if only we look at it as we should have looked at it from the beginning: as a crisis not of governmental excess but of private sector irresponsibility for which government has assumed responsibility without acknowledging the true source and nature of the crisis, or the validity of a Keynesian remedy if coupled with a new strategic vision of active industrial policy.

14 comments:

Anonymous said...

You do not seem to acknowledge that the impact of a stimulus in one country will probably benefit imports as much as current French production.

To my knowledge, the budget expansion post-1981 failed for that reason and the stimulus leakage has every reason to be bigger now given the deepening of echanges within and outside the EU.

In the US, no one has suggested that California embraces its own stimulus plan. It's the role of the federal state, and it should be the role of some EU-level institution to undertake a similarly successful stimulus (with or without the euro btw). Maybe a seemingly suicidal and absurd one-state-stimulus strategy by France would force Germany into expansion, but that kind of "coup" vis-a-vis Northern European countries is a leap in the unknown and would impair coordination efforts in the long run.

Laurent

Art Goldhammer said...

Laurent,
I acknowledge the leakage problem but think that the benefits to other countries might inspire a shift to a more cooperative attitude throughout Europe. Call me naive, but I think such an effort to foster positive feedback would be more productive than the current effort to enforce negative feedback, which you must also acknowledge if you believe in the leakage thesis: the contraction of all of Europe's economies spills over into each of the others.

Anonymous said...

Art,

I do sympathize with the idea that France could set an example for other states and initiate a Europe-wide stimulus. However, because the gains to a European stimulus are likely asymmetric (i.e. Southern states benefit much more than Northern states who might actually lose a bit), the success of that strategy implies forcing the hand of Northern states and their people. I am just saying it is a huge bet with a severe downside.

Laurent

PF said...

You make quite a good case, but I fear France is also at the mercy of the political disorder in Italy and Spain, allies it would soon need if it made a concerted push against Germany. Even if there are certain political factions within the other Big 4 eurozone countries, none of them hold clear power in their respective countries. In some ways, France/Hollande lost a margin for maneuver as soon as neither Bersani nor Grillo won clear power and neither compromised enough to work together.

PF said...

* sentence should read: "Even if there are certain political factions within the other Big 4 eurozone countries *who'd be sympathetic to a French push for stimulus*,..."

Gero von Randow said...

Thing is, there's no austerity in France. You could be in favor of austerity or against it, but to urge the end of austerity in France is pointless - IMHO

FrédéricLN said...

I would agree, at least in part, with Gero von Randow. The only significant change in the direction of "austerity" is an increase of taxes for the upper and middle class (around +30 or 40 billions, I forgot, that is 1.5 or 2 points of GDP). Is this what a "keynesian turn" would change?

Imho, the French system is already ultra-keynesian (in the meaning of "spending borrowed money") : a highly expensive health system (yes, the US one is less efficient, but I think it's the only one in the world in this case), a rather expensive and now inefficient educational system, skyrocketing expenses of local authorities, high spendings for weapons we would never use,…

Imho, that's what should be change. Use public spending, and public jobs, in order to be effective, to fuel growth, to fuel better conditions for the people, and so on.

Well, I know it's easily written, and many tried in vain (esp. Michel Rocard). But it would also be more easily done, than getting out of the crisis with more of the same kind of spending. And I think that even if a government tried to spend more, people would demonstrate against that : it's a very widespread opinion that the public sector spends to much, that public agents go too much on strikes, etc.

Under this respect, I would compare France with UK in 73-74: breeding ground for thatcherism — that, imho, would easily be introduced by FN (UMP would never dare) and would be "un remède pire que le mal".

Art Goldhammer said...

Géro and Frédéric, A country that reduces its deficit by as much as France did while GDP growth is stalled is practicing austerity. And it hasn't been all tax increases: the size of government has been reduced. The Keynesianism I have in mind is not heedless spending of money to empty holes and fill them again. It is targeted at increasing France's potential and productivity. I grant that there is room to reduce government spending's share of the economy in France, especially by consolidating local governments, but this has proved to be politically difficult. Money can be spent usefully now, while interest rates are low, and so it should be.

Gero von Randow said...

Art, the country is just freezing its budget (more or less, plutôt less), the wages are not reduced (which is fine) etc etc - if this is austerity, how would you call what is happening in Spain, Portugal, Greece? And concerning another 'grand emprunt': you remember the Guaino/Sarko-truc? Didn't work either. Gallois is happy to help out some PME (which also is fine, sure), but the macroeconomics did not change. Keynesianism has it's season, for sure, and austerity is killing the economy in some coutries (I presume), but not in France.

Art Goldhammer said...

Gero, The difference between France and Spain, Portugal, and Greece is that France can borrow, because the ECB will accommodate its borrowing, whereas those countries cannot, because the ECB is trying to enforce draconian structural reforms. So France has some margin for maneuver on stimulus. Germany of course has much more margin but refuses to use it. So the only hope for Hollande to survive is to do it himself, with all the risk that entails, in the hope that it will unfreeze the current European stalemate and stagnation.

DavidinParis said...

Art,
several comments:
1-You state that France is in a bad mood. SInce when has France been otherwise (not counting the days when Absynth was still legal)?

2-Austerity and socialism do not go together. I agree that France needs a stimulus package. Oddly though, I see much renovation in Paris (look at the activity on the Quai near Alessandro III).

3-France should consider breaking its marriage with Germany. Germany has led Europe down a rocky road many times and Merkel's days are numbered anyhow.

All this stated, Hollande may do well to reform a new government but this stated, his time is limited and while the Vth republic guarantees he can stay until the end of his term, if something doesn't change soon, he may have to consider more drastic measures like stepping down although I do not know the mechanics of such a move.

bernard said...

Me thinks everybody would do well to calm down some. Hollande is exactly one year in his mandate and has another four years to go, with an absolute majority in parliament and in the senate.

Back in the early eighties, there also was a societal revolt of conservatives, in fact way more serious than this one which is led by an assortment of barjots and extreme right nutters, with what remains of a deeply divided UMP desperately trying to follow. Anywaythe revolt then was back in 1983 and, unless I am mistaken, President Mitterrand was reelected by the largest landslide vote in 5th and possibly other republic's history.

Four years is indeed an eternity in politics and the present discontent with Hollande is based first and foremost on the economy's dismal performance right now. Sure, the economy is in an even worse state than Hollande described during his political campaign, when his opponents shamelessly were blaming him for describing the economy as being in a bad state. The economy will hopefully recover at some point in the coming four years, or is someone prepared to bet against me on this one or perhaps hopes that it does not?

The law on same sex marriage is now passed and is the law of the republic as in several other countries. Its opponents may hope and shout that conservative parties will nullify it if they come back to office, they are seriously mistaken and might do well to study legislation and the constitution some. This type of law is irreversible as any constitutionalist will tell you. So even conservative parties have an incentive to gradually and discreetly move away from this lost fight even if their interest is to create difficulties for the majority (that's likely actually why they were not really at the forefront against it).

As for the government itself, certainly there will be a need to change it to a more efficient government but if anyone thinks a change of government is going to be forced by a Barjot, they are sadly mistaken and ought to tell us what they've been smoking. My guess is that this will really happen when the economy is about ready to turn around, perhaps at some point in 2014.

I can't wait to see Auteuil-Neuilly-Passy on the barricades looking for inexistent pavés to throw, with millions of household help workers on their side. Or did someone perhaps forget that mai 68 was at least as much about worker strikes as it was about students having a sexual revolution etc. The workers were what frightened the Gaullists and rightfully so, not the students. And in actual historical fact, it is with worker unions that De Gaulle's Ministers negotiated in May and June 1968, not with the students really. Conservatives might want to listen to Jacques Chirac on this as he kknows a thing or two about it and is not quite as senile perhaps as the sarkozistes have portrayed him.The response to students issues was put in place by Prime Minister Chaban Delmas in the fall of 1968 only. Prognosticators of a conservative mai 68 might wish to learn a bit of history.

To be sure, the prospects towards 2014 elections do not look good as they never do for mid-term elections where people can and do vent with no risk of precipitating a "crise de regime". Check out the history, guys! To be sure as well, these uncertain prospects for mid-term local elections are likely making mayors etc very worried and/or nervous at this time and of course, most large towns and all regions but one are governed by the socialist party. These local and regional officials are almost another "Courant" inside the party and it is a real internal political problem for the majority. Did Mitterrand, Chirac or Sarkozy win mid-term elections.

As for the suggestion that Hollande resign, I could not agree more. We need Barjot for president so that the timeless French "Angst" can be immediately dissolved in out-of-control hillarity! Copé would be good for that too.

FrédéricLN said...

Thank you for all replies and comments. Art, I take that point that a smaller government (less public jobs) would really be a sign of austerity — I just don't see it coming. And Hollande announced the opposite during the 2012 campaign.

The local authorities increased their staff by 1.6% yearly (!!!), not taking into account the transfers from the State, between 2004 and 2010 — which are the latest figures.

Reagarding the "Grand Emprunt" stimulus, the money is just starting to be spent, so, it's stimulus time. http://www.bfmtv.com/economie/louis-gallois-nous-allons-verser-4-milliards-deuros-an-via-investissements-davenir-497606.html

And I think many debaters (in France at least) forget to look at "le nez au milieu du visage", the most obvious facts and figures. Is austerity truly the best word to qualify a government that throws through the windows (the French expression!) around 13 billions of euros (0.6% of GDP) yearly in excessive payments to pharmaceutical firms (out of which 6-7 billions of importations) — Mr Cahuzac explained very clearly this incredible mechanism in a 1999 paper Le Figaro recently highlighted. It's not new, but's it's every year more!

Or a government that builds and buys heavily armoured tanks for I wonder which conflict with USSR, a "Charles de Gaulle" aircraft carrier we can't imagine a use of, and so on. They did not decide it, but when bankruptcy is at hand, wouldn't it be time to look for *useful* spending?

I know that nobody here advocates for useless spending ;-) but I worry that some people, at least in France, may argue that "crisis time is not time for such action". Actually, I would rather think that crisis time is the only time when an Administration could take such action.

If (global) investors could figure out that, during the next years, French public effort (the 54 or 55% of GDP) will be focused on effective spending, on growth, efficient education, efficient health system and so on, I'm sure they would invest in France rather than anywhere else. If any money owner (investor, taxpayer) could be sure to get the value for money, our problems would be over.

And French people (not only FN or UMP voter, but many Hollande voters) are convinced they don't get the value for money. I think the basic reason for the so-called French pessimism is here: the younger generation thinks the France ship is too badly governed. And look for a more convincing boat.

But let me specify: I (or Bayrou) wouldn't support any cut in wages, social allowances, housing investment, and so on. And wouldn't support an "easy schumpeterian" view that the destruction of jobs would be somehow creative. The real tragedy with the crisis is the loss of human resource - knowledge, organisations, cooperations; hear (my schoolfriend) Olivier Passet on http://www.xerficanal.com/emission/Olivier-Passet_Destruction-de-competences-industrielles-en-France-l-etat-d-alerte_828.html?

FrédéricLN said...

After all (thanks for the discussion) I feel fully in agreement with the conclusion of your post, Art:

"a crisis not of governmental excess but of private sector irresponsibility for which government has assumed responsibility without acknowledging the true source and nature of the crisis, or the validity of a Keynesian remedy if coupled with a new strategic vision of active industrial policy."

— we just differ on which interpretation / part of Keynes' works apply (I would perhaps insist more on ROI-safe investment, less on spending). But it remains keynesianism as preferred to "(naive) schumpeterianism", and underlying how important it is to build a confident and cohesive (solidaire) society, AND to maintain the capitalistic / material and immaterial assets inherited from the past, if we want to foster sustainable growth (a socially, economically and environmentally sound growth era).

And I would just emphasize that "industrial" in the last part should be taken in the American meaning of "every activity sector", not just factories (that wouldn't account for more of 5-6% of employment in France right now ; the "industrial" sector as whole, design/after-sales included, for 11-12%).