Monday, March 24, 2014

What Happened to President Normal?

Remember when Hollande was first elected and he had his motorcade stop at traffic lights to show he was an ordinary, law-abiding citizen like M. Tout-le-Monde? When he traveled to a summit in Belgium by train? No more. Yesterday he took the presidential jet to Corrèze to vote in the local election. Peine perdue. The gesture didn't do much to buoy the party around the Hexagon. But rank has its privileges, I guess.

Krugman: French Labor Costs Are Not the Problem

According to Paul Krugman, the rate of increase of French unit labor costs has been about right; the problem is that Germany's is too low.

What Should the ECB Do?

Jeff Frankel has an interesting proposal: the ECB should go in for quantitative easing without skirting the EU constitutional treaty by buying US Treasury bonds rather than the sovereign debt of member states. The idea is that this would bring down the foreign exchange value of the euro.
The strength of the euro has held up remarkably during the four years of crisis. Indeed the currency appreciated further when the ECB declined to undertake any monetary stimulus at its March 6 meeting. The euro could afford to weaken substantially. Even Germans might warm up to easy money if it meant more exports rather than less.
Central banks should and do choose their monetary policies primarily to serve the interests of their own economies. The interests of those who live in other parts of the world come second. But proposals to coordinate policies internationally for mutual benefit are reasonable. Raghuram Rajan, head of the Reserve Bank of India, has recently called for the central banks in industrialized countries to take the interests of emerging markets into account by coordinating internationally.

How would ECB foreign exchange intervention fare by the lights of G20 cooperation? Very well. This year the emerging markets are worried about tightening of global monetary policy. The fears are no longer monetaryloosening as in the “Currency Wars” talk of three years ago. As the Fed tapers back on its purchases of US treasury securities, it is a perfect time for the ECB to step in and buy some itself.
It's an interesting idea.

Bérézina

As I survey the wreckage this morning, I wonder what comes next. Even if President Hollande tells himself that he is playing a long game, that the famous "curve of unemployment" has at last begun to creep upward, and that a feeble recovery is underway in Europe, he has to recognize that he has lost his wager with the French people. Nearly 40 percent abstained from voting, and abstention was particularly high in the working class and among the young. The PS may hold on to Paris by the skin of its teeth, and it will hold other important cities like Lille and Lyon, but its serene reign at the local and regional level is over. Just two years after the Right was driven from office, and despite numerous affairs and scandals that stain every aspect of its past and present, it can still claim to have mobilized more voters and greater enthusiasm than the now thoroughly discredited Left. As for the Front National, the evidence is clear: it is henceforth firmly implanted across France. It racked up truly impressive scores in a number of medium-sized cities. While it remains an anti-immigrant party, it is now more than ever an anti-Establishment party first and foremost, and the Establishment has been shaken to its foundations.

So Hollande faces a challenge. The "normal" presidency has failed. The attempt to "lead from behind" or from the shadows has failed. The continuation of politics by the means of soft and stealthy compromise that served Hollande only too well as leader of the PS has failed to produce a consensus at the national level. So, as Le Monde says in today's editorial, Hollande must change. Since he is not a stupid or unperceptive man, he no doubt recognizes the need. But is he capable of meeting it? And what can he do that will not reek of desperation?

A ministerial shakeup is no doubt in the offing, but if it is the usual reshuffle of the same old faces, it will accomplish nothing. Yet ouverture is unlikely to yield anything either: who from the Right would want to sign on to this sinking ship? To be sure, he might reach out beyond the political sphere to what is nowadays called "civil society." He could replace the hapless Ayrault with, say, a respected business leader like Louis Gallois. That would get the attention of the chattering classes, but it would further alienate the left-wing electorate, and the Right would deride the move as an act of desperation. He could make Valls prime minister, but Valls, although popular, is rather volatile, and it remains to be seen how he would perform under pressure. And what would he do? It's one thing to be a law-and-order interior minister, another thing to assume responsibility for a stalled economy, an area in which Valls has no demonstrated competence. Well, no use speculating: we'll see soon enough. But given Hollande's track record, the response is likely to fall short of expectations.