Wednesday, July 10, 2013

Andrew Watt Blasts French Investment Plan

Second, the program is laughably small. Details are vague, but it appears the program is to be spread over “a decade”. Makes 1.2 bn euro a year. That is less than 0.06% of annual GDP. S’il vous plait. Soyons serieux!
Third, and perhaps most dammingly as far as the evaluation of EU economic governance is concerned, the program is not to start until 2016. This is because of the government’s commitment under EU rules to reduce the budget deficit below 3% by 2015. As Prime Minister Ayrault phrases it “Investment and budget responsibility go together”. This is Orwellian in its linguistic reversal of fact and logic and monumental in its economic stupidity. France’s economy is in recession. Unemployment at record levels. Interest-rates are at historic lows. Monetary policy is constrained. The situation is crying out for government to borrow to invest. Instead the French government’s commitment to European fiscal rules, which do not properly distinguish between current and capital spending, are forcing it to delay the program until 2016, when the deficit will be smaller.

4 comments:

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FrédéricLN said...

I agree with the post, but delay is in the nature of investment/infrastructure plans, and small size is in the nature of "addenda" to existing plans (the "Grand Emprunt"). If our problem in France was the lack of infrastructures, we would know since years. It's rather about the lack of effective entrepreneurship, of efficiency in public-run institutions, of investment in real economy within large companies — all of which State money can't buy.

Mitch Guthman said...

FrédéricLN,

I also agree that Andrew Watt is right. It is amazing that Hollande cannot, after this number of years, so that France needs stimulus and growth instead of the idiotic austerity that Europe’s elite favor in spite of overwhelming evidence that contractionary policies cause the economy to shrink.

I think you are wrong, however, about the solutions. There are many stimulus projects that can be done immediately and with little overhead. Moreover, even if one wished to limit stimulus spending to infrastructure improvements, if Hollande had begun one year ago when he took office there would be many projects now ready to begin right now.

President Hollande and Harlem Désir are now saying that the recovery is just around the corner but it’s been just around the same corner for years now. I do not understand why they are saying this unless the economic plan of the PS is simply to wait for the economy to hit rock bottom. That’s not much of a plan and the way things look right now, we could easily be in for another two or three years of this before things really start to pick up at all. Plenty of time for a real stimulus package to work.

Obviously, the best time for such a plan was when Sarkozy was in office. But as Andrew Watt points out, now is an excellent time for France to borrow some money and build on the things that will bring her a better future. Apparently, Hollande can't see that but hopefully the next president might. That day can't come soon enough for me.