Wednesday, May 15, 2013

Inside the Paris-Brussels Accord

The EU recently granted France a two-year respite in its drive to reduce the budget deficit to 3% of GDP. How did this come about? Le Monde has a very interesting background piece today. It reports that the steady French push for more pro-growth measures since Hollande's election met with backing from, most notably, the IMF, Barack Obama, and even European Commission experts, all of whom argued that a further recession in France (now confirmed by the latest statistics) would be more harmful to European prospects than continued depression in smaller economies. The main opposition came from the staffs of Rehn and Barroso, who argued that such a double standard (lenience for big countries, harsh austerity for smaller ones and even for the large southern neighbors Italy and Spain) would spark political difficulties. It seems that the outbursts against Germany by several Socialist Party figures also helped persuade the EC that something had to give.


Mitch Guthman said...

On their own, both positions make perfect sense and each can be true. Indeed, I personally agree both that austerity in a time of recession and falling demand is insane and that a double standard would create political turmoil in those countries experiencing harsh austerity (imposed from abroad). All logical and supported by historical examples, most particularly that of Germany.

What's interesting to me is that Rehn and Barroso, having acknowledged that austerity was crashing France's economy and reducing revenues while actually increasing debt, somehow couldn't follow the chain of reasoning to the obvious conclusion that imposing crushing austerity in the middle of a recession would lead inexorably to a European-wide economic and political crisis and is a bad idea.

Anonymous said...

The twin pillars of le projet Europe follow other rules, it seems to me.