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.