Monday, July 9, 2007

Money Matters

Back in the day when Republicans were conservatives tout court, without modifiers such as "neo" or "social," the worst insult they could hurl at Democrats was that the measures they advocated would "debauch the currency." It seems that the finance ministers of Euroland fear in Sarkozy a similar threat of debauchery, so the French president will hasten to Brussels for the third time since his election to persuade them of his probity and sobriety (articles here, here, and here).

He won't have an easy job of it. His statements on the currency sound as though they might have come from the Delphic oracle: "We [Europeans] can't continue to be the only ones to have a currency that isn't serving the ends of growth and employment." Sarko has repeated variations on this basic theme any number of times, often coupled with dark allusions to manipulations of the dollar, the yuan, the yen, and even the pound sterling. Europe is being had by a bunch of coin-shaving riverboat gamblers, he seems to be saying, and the bankers of Euroland aren't even aware that their pockets are being picked.

Finance ministers and bankers consult their own haruspices, however, and are prepared to grill Sarkozy in order to learn exactly how he interprets his oracle. Peer Steinbrück, the German minister of finance, warns that "if France were to abandon the medium-term objectives that we've all agreed upon, there may be a problem." Portuguese finance minister Dos Santos says that "if a country doesn't respect its commitments, that raises not a legal problem but a political one."*

Behind these ominous pronouncements lies the utter ambiguity of Sarkozy's allusions to the currency, coupled with the undeniable implications of his government's declared intentions. Under the Stability and Growth Pact, Eurozone member countries agree to keep deficits under 3 percent of GDP and a debt-to-GDP ratio under 60 percent. France is already at 65 percent, and Sarko has granted himself until 2012 to return to budget equilibrium rather than 2010 as France had previously agreed. Meanwhile, new spending measures already announced promise to add more than 12 billion euros to the deficit.

So Sarkozy is embarked on a course similar to that of Bush, as if he accepted Dick Cheney's now famous dictum, "Deficits don't matter." Is that what he means by "a currency serving the ends of growth and employment?" He forgets the third element of the trinity, price stability, without which growth measured in nominal terms may be illusory and higher employment may be paid for in terms of falling real wages and hence a decline in standard of living. He seems also to be aiming at the trade implications of the euro's strength against the dollar, but exactly what he would like the ECB to do about this remains unspecified. In any case, these are theoretical worries, and Sarko has said that he is "not an intellectual" and doesn't give a fig about theoretical concerns; he is a man of action, determined to get things done and the economy moving. Exactly what he will say to the finance ministers and central bankers to allay their worry that he is a debaucher of the currency remains to be seen. He is taking his own lawyer-turned-finance-minister Christine Lagarde with him to help make the case, but her views on the economy are even more mysterious than Sarkozy's.

I expect Sarko to extol, as is his wont, activity over theory. The "credible commitment" of the European Central Bank to price stability is not his concern. A common misinterpretation of Sarkozy is to take him for a laissez-faire liberal. In fact he is a laissez-moi faire liberal, which is quite the opposite. His will not be a "night watchman state." It will rather be the state as rugby coach, on the model of Bernard Laporte, who is soon to join the government: fort en gueule, constantly prodding, exhorting, and pushing players to the limit. How the bankers in their pin-striped suits will react to the energetic rugby man in his colorful shorts and permanent lather should be interesting to watch.

* (LATE ADDENDUM): But note that German vice-minister of finance Thomas Mirow says that DSK is an "excellent choice."

1 comment:

Anonymous said...

very cute, laissez-moi faire liberal is a) on the money and b) damn likely.

he is definitely the gallic pingpong ball, bouncing everywhere with at least words that are consistent (those numbers you mention which may come back to bite him in the ass at la rentree chaude when & if those living en dessous du seuil de pauvrete notice that it was just pingpong & not action).

your prolific posting is impressive as usual.

the article in el pais was interesting too, their tone being slightly different from the NYT.

you rule.