Friday, September 9, 2016

The PS and the EU

I have a new piece in Foreign Policy giving some of the historical background of the current EU crisis.

5 comments:

bernard said...

Published as two comments due to this 4096 character limit.

An interesting article except for its title which is a bit overdone - though knowing journalistic habits, I wonder how responsible you actually are for the title.

I am not certain that Delors led the "remain" camp in 1983. In fact I've heard different several times, namely that Maurois, then a much misunderstood prime minister, led that camp along with Attali and that Delors was a lot less convinced and forceful then he later said he had been. Further, the fact that Delors would two years later be named to head the EC was not a promotion, it was an exile. It was customary until the 1990s at least to get rid of annoying politicians by promoting them to a commissioner role at the EC (and not just in France).

Another point is that financial markets hardly existed at that time: they were just, just awakening in the USA at that time from a great slumber provoked by the lessons of the Great Depression in the 1930s. European governments including France did not borrow from markets at that time at all, they borrowed directly from households by issuing "emprunts", and capital accounts by and large were not yet liberalised. External crises occurred mainly from the trade account, with a large opening deficit impacting currency reserves such as occurred in the UK in the mid-seventies. The external crisis in France started a little bit differently, from currency flight to Switzerland as soon as the summer of 1981 - currency reserves fell to close to zero during that summer - and evolved in classic fashion due to an attempt at significantly reflating the economy while Western economies plunged into recession, thus leading to a rapidly opening trade deficit which eventually could not be financed, and also obviously to a "too much money chasing too few goods" type of problem.


Financial markets in their modern (or late 19th century) acception did not appear in France until the second half of the eighties, and their embryionic existence started only in early 1986 with the creation of the MATIF (France's futures market for government bonds), just before the legislative elections which saw the socialists swept away from power (these were great times as the market was so small you could easily game it.

bernard said...

There is another element that you have not mentioned in your article, which I think is also important. I think that you are right in saying that Mitterrand had essentially a geopolitical outlook leading him to place a strong emphasis on what could bind France and Germany for historical reasons, while Delors had a mainly economist mentality.

But equally important I think was a change in French technocracy. Until Mitterrand was elected in 1981, most promising ENA students - the school for top French technocrats - would incline with conservative parties as this was the only way to gain a good career later. There were a precious few exceptions of course such as L. Fabius who rapidly became Mitterrand's right hand (or was it left hand?) and one single clandestine communist party member at the time (he became open with the nomination of communist ministers in may 1981). However, by the mid-1980s the left had been in office for 5 years, administering the proof to current and future ENA students that you could belong to the left and still have a career future. And so you started to encounter increasing numbers of "left leaning" technocrats. However, as for instance the history of Trichet examplifies (he started in a far left party, the PSU), it turned out that the technocrat aspect was more overwhelming than the left leaning aspect was for most, and the kind advice they gave to politicians - remember the hilarious British shows "yes Minister" and "yes Prime Minister" - became more and more mainstream and a product of their education at ENA.

And, because a counter-revolution to Keynesianism had started in the 1970s in American academia, partly in reaction to "dumb" kenesianism (as opposed to "smart" keynesianism), it came to pass that keynesian ideas gradually stopped being taught by-and-large in higher eduaction including France's ENA of course. A new mantra was born which did not tolerate the previous intellectual consensus and became all powerful once the historic ennemy (the soviet bloc) collapsed. Any kind of State intervention that was not directed to legally organising markets was deemed to distort markets, leading to sub-optimal outcomes. Until the crash of 2008-2009.

Which brings us to now. As you know, American intellectual currents percolate quite slowly towards France on the whole. It is thus unsurprising that the renaissance of Keynesianism in the the USA has barely touched French shores yet and those very few French keynesians who haven't committed suicide yet are still considered heretical by mainstream French academia. Incidentally, it is hilarious really to see them being bunched up together with so-called heterodox economists when you know that the emergence of Keynes and his ideas was likely the single most powerful answer to communist ideas in the 1930s, but don't get me started or I'll argue that Obama was really a former Indonesian guerilla. But eventually in some years, what has been taking place in the US academic institutions since 2009 will percolate into French academia and eventually as well into French or European policy making. It's not too far off. It's already there at the ECB, the European institution which is most awake and nimble on its feet and does speak english. But, for the rest, that process could use a good translator from english to french, not just from french to english.

Art Goldhammer said...

Bernard, All good points, and I had nothing to do with the title! No time now, but maybe later. Thanks for your comments.

FrédéricLN said...

What an interesting piece, and great double-comment from Bernard ! My memories of the 1983 turn sounds like yours, with maybe slightly different words at some places —
"a program of wage increases, working time reduction, and nationalizations, intended to share more of the country’s wealth with the working class and reassure communists voters", instead of "a program of nationalizations and economic stimulus intended to revive the country’s flagging economy";
"no government was powerful enough to create new jobs despite a sinking economy" instead of "no government was powerful enough to challenge financial markets head on";
"had become ineffective" instead of "were a symptom of backwardness".

Re Bernard's comments, Prime Minister Mauroy, Finance Minister Delors and 'Ministre du Plan' Rocard were absolutely in line, since day one (May 1981) and despite coming from different "courants" within PS, in getting desperate with the announced failure of Mitterand-nomics. While Laurent Fabius shared Mitterrand's major concern for "the balance of power", as you write, Art.

I agree in full with the portrait you give, Art, of "l'acte unique européen", i.e. Delors's policies in 1984 and later. I guess Delors himself might learn from that and answer that yes, that was the core of it, even if decision-makers like him would not have said or understood it that clearly at the time.

I might wonder whether "the idea that state budgets should be balanced in almost all circumstances" was as (only) German as you suggest? After all, the "3% of GDP" threshold (Maastricht criterion) was imagined, as you know, at French Ministère du Budget in May 1981; not in order to restrict deficit, but just the opposite, in order to make a huge deficit sound good (oh, below 3%!) while public opinion would have found it frightening (oh, 100 billion francs deficit!) as told by its author in http://www.leparisien.fr/economie/3-de-deficit-le-chiffre-est-ne-sur-un-coin-de-table-28-09-2012-2186743.php

And, well, I would insist that there have been almost no "damaging austerity policies" in France after the 2008 crisis (contrary to many other European countries), but instead, a meaningful increase in public spending and the number of public jobs, a large "stimulus" package towards industries, a very fast increase of public debt, plus saving the banks, all of this driven by the very leaders of the finance industry who had preached beforehand for sound public accounts. That is about numbers ;-)

The bottom line is, I fully agree with "In 2016, however, deregulation represents not “modernization” but more of the same failed neoliberal policies that led to the economic crisis in the first place." Maybe Macron is more than that — maybe much of a political entrepreneur looking for outcomes that can be achieved, rather than a dogmatic. After all he reported for the Attali committee, whose "decisions" (i.e. proposed agenda) were a colorful list of "n'importe quoi" (also, but not only, a "neoliberal" agenda — there were also Sovietic-like "decisions"). If he could undersign that, he is the versatile guy.

FrédéricLN said...

oops, Mitterrand with two r-s.