Thursday, August 14, 2014

France Stagnates

The government has been preparing people for the bad news for weeks now, but the numbers are finally in: growth in the last quarter was zero, and France is on the verge of deflation. Yet Jens Weidmann, the Bundesbank's stern flagellator-in-chief, castigated France yesterday for its lackadaisical approach to the reforms he believes are necessary: hors de soi-même, point de salut. In other words, "Don't expect us to bail you out." When asked whether France is "the sick man of Europe," Weidmann said he didn't like to use that phrase but went on to prescribe a course of heavy-duty austerotherapy nevertheless.

Of course, German growth has flagged as well, and that indeed is part of the problem. Austerity has dried up trade, and the Ukrainian mess has cut into German trade with its eastern neighbors. If a deflationary spiral really sets in in the Eurozone, we are in for a very bad time indeed. Meanwhile, the French government has not given so much as a glimmer of a hint of an answer to its quandary. The Responsibility Pact has to be redrafted in the wake of the Constitutional Council decision. Taxes cannot be raised any further, because the population is already groaning under the weight of increases from the first two years of the Hollande era. Cutting spending is not an art that Hollande has mastered, even with the change from Ayrault to Valls. Tax receipts are dwindling as prices fall (the price of a cup of coffee in France is down 3% in the past year, or so says INSEE, if not le garçon de café).

Not good times.


PF said...

Stalling for the ECB stress tests and gridlock in forming a new slate of EC commissioners has delayed any effort to change the landscape of debate on ECB monetary policy to QE, eurobonds, or even exchange-rate targeting. And as the center-right leaderships of various eurozone countries have remained in lockstep, there's been little bold strategizing among the several but not insignificant center-left leaderships of the other eurozone countries.

Mitch Guthman said...

This is just more proof, if any was still needed, that Paul Krugman is right to say that austerity proponents such as Jens Weidmann are like medieval barbers who—when they noticed that their previously-bled patients had become worse—prescribed more bleeding. Worse, these idiots are driving us into the a deflationary spiral that will cause even more terrible economic hardship and perhaps even the kind of political instability that lead to the rise of Adolph Hitler.

Krugman has frequently observed that the many years of evidence demonstrating conclusively that austerity regimes don’t work hasn’t changed any minds in the austerity camp. But I agree with his explication of why this is so: Austerity isn't really about debt and deficits. It’s about using deficit panic as an excuse to dismantle social programs.

I consider it astonishing and shameful that the parties of the left are doing nothing to oppose this idiocy, except in France where the PS is actually as deeply committed as anyone to using austerity to destroy everything the left has achieved since the end of the Second World War.

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