Friday, October 31, 2008

Who Pays?

As usual, Écopublix provides an illuminating analysis of the proposed social security financing bill. Noting the market power of insurance companies offering supplementary health insurance, Clément argues that the proposed tax on their profits is likely to be passed on in whole or in part to the insured.

Thursday, October 30, 2008

Plus Ça Change department ...

The result was the prodigious and noxious fecundity of the financial mind, which was so strikingly characteristic a feature of the administration of public funds during the final three centuries of the monarchy.

-- Alexis de Tocqueville, L'Ancien Régime et la Révolution, II.10

Cécile Laborde on "Catho-Laïque Particularism"

Once again, Cécile Laborde brilliantly dissects the "republican consensus" underlying recent administrative and court rulings in France and finds that it suffers from a "status quo bias."

Selective Immigration is Discriminatory

The HALDE (la Haute authorité de lutte contre les discriminations et pour l'égalité) has issued an opinion stating that the circular implementing the Sarkozy-Hortefeux policy of "selective immigration" is in essence discriminatory because it provides for hiring in certain positions on the basis of national origin without fair and open competition.

Paradigm Shift

It has been easy to mock Sarkozy in recent weeks for his battlefield conversion to dirigisme, state ownership, job subsidies, and so on, but even presidents are playthings of the gods, and the gods seem to have struck awe into minds far more consistently free-market-oriented than Sarkozy's. Witness this "remarkable" (to borrow Sarko's favorite adjective) article by Martin Feldstein in today's Washington Post. Feldstein not only calls for a stimulus package larger than the one proposed by the Democrats but also foresees a need for government intervention to put a floor under declining housing prices lest the unabetted free market "overshoot" on the down side.

We are all Keynesians now.

European Financial Stability Fund

An argument for a European financial stability fund.

And what's his game?

Dominique Strauss-Kahn, freshly cleansed of all sin, has told Le Monde that "vous ne savez pas tout" about who did what in saving the global economy from disaster. He was working hard behind the scenes, he says, and not just in the alcoves of Davos. Among supporting players Gordon Brown is mentioned several times but, unless I've missed it, Sarkozy is not named even once. At the same time, Brown has called for increasing IMF reserves and encouraging the fund to operate as a sort of global central bank, a move likely to enhance DSK's importance in ways that Sarkozy might find inconvenient. This little intra-European sideshow will be interesting to watch when the global financial meetings convene in Washington after the election.

What's His Game?

Patrick Devedjian says he wants Nicolas Sarkozy to resume his leadership of the UMP, thus displacing Devedjian himself. He omits to mention that Sarko had previously dispatched three "handlers" (Bertrand, NKM, Estrosi) to keep an eye on him and that he has not been in good odor at the château. Instead, he chooses to cast himself as the most loyal of Sarkozystes because the least personally ambitious. "I am not présidentiable nor was meant to be," he says (with apologies to T. S. Eliot). This is his not-so-subtle way of reminding Sarko, as if the president needed reminding, that a political party is not a band of brothers. With the persistent grumbling within UMP ranks rather louder of late, especially after the president's announcement of 100,000 new subsidized jobs and his opportunistic and perhaps temporary return to dirigisme, Sarkozy is surely aware that he needs to throw a few bones to the hungry young wolves. But that is what ministerial shake-ups are for, and the maneuvering is in full swing in advance of the remaniement expected early next year.

The other day, for instance, Alain Lamassoure happened to pass through Cambridge. Lamassoure, who was minister for European Affairs under Balladur, minister of the budget under Juppé, and advisor to Sarkozy on European matters during the campaign, was passed over for a cabinet position in favor of socialiste d'ouverture Jean-Pierre Jouyet, who has announced that he will be leaving the government in 2009. Lamassoure was careful to note in his Harvard lecture that "Nicolas Sarkozy is a remarkable man." No doubt he hopes that Sarkozy will note in turn that among those remarkably eager to serve him in this hour of need, there are others just as remarkable as Devedjian and perhaps a trifle less ironic in their zeal to flatter the prince.

Wednesday, October 29, 2008

Commodity Fetishism

The sale of a voodoo doll bearing the image of Nicolas Sarkozy has been found by a court to constitute neither an affront to human dignity nor a personal attack on Sarkozy. Sarkozy's complaint to the court in the name of protecting his rights to his own image was dismissed, and the doll can be sold.

This commodity fetish is probably less effective than a blog and certainly more expensive, so if the market were logical it would soon vanish from the shelves. But as everyone now knows, markets aren't logical.

Sarko as "Ideational Entrepreneur"

In the interesting edition of embedded below, Henry Farrell proposes thinking of Sarkozy as one of the few "ideational entrepreneurs" attempting to reshape thinking about the global economy in the current crisis (comment at around 16:30 of the video).

Brown Wants Global Bailout Fund

Gordon Brown has called for a global bailout fund, urged the Gulf states and China to contribute to the IMF, and highlighted the need for an EU fund to rescue floundering East European economies. Of course the Gulf states and China may take a hard look at this proposal, which is somewhat at odds with Sarkozy's first European and then French sovereign wealth fund, the purpose of which is to keep Gulf and Chinese capital out of Europe. The two European leaders' messages, taken together, seem to suggest that while outside capital is welcome, it should be donated free of strings and bring with it no control. Does anyone expect them to accept such terms?

ADDENDUM: Sarkozy has joined Brown in calling on the IMF to provide funds for Eastern Europe. Meanwhile, the IMF has made 25.1 million euros available to Hungary.

Tuesday, October 28, 2008


Judah Grunstein accepts my description of Sarkozy's recent behavior but believes that his defects and qualities coexist in roughly the right combination to provide a specific for Europe's chronic ills. I don't disagree with Judah's rather optimistic corrective to my jaundiced pessimism, but I'm not sure that the cure, if it occurs, will redound to Sarkozy's benefit. His activism has pointed up the need for greater European-level coordination, particularly in economic and foreign policy. It has not demonstrated that the best way to achieve that coordination is to establish a cult of personality around a willful national dervish. Europe needs a leadership cadre whose interests somehow rise above their national and regional origins. As the history of the United States has demonstrated, it is a tricky thing to maintain a balance between the interests of the whole and those of the parts. Two things are essential: offices at the transnational level that fulfill the ambitions of the most ambitious men, and a professional civil service capable of providing continuity and support to those striving politicians. Europe's civil service is too small and EU offices, in their present form, are too unrewarding to create the nucleus of a superstate. The move from the Confederation of European States to the United States of Europe will not be easy, and Sarkozy's abrasiveness is not likely to make it easier.

Lone Ranger without Silver Bullets

Sarko has rediscovered the joys of constant media exposure and an announcement a day, but while the Lone Ranger role suits his personality, he seems to be without silver bullets when it comes to unemployment. Today's speech on employment could have been delivered before the crisis struck. There will be more of the same (the fusion of ANPE and Unedic will have been twice-blessed and again wished godspeed, though it is now nearly a year old) and more of the previously denounced (the "social treatment of unemployment," that supposedly failed remedy favored by the "Socialo-Communists" and emulated by Chirac before being dismissed by Sarkozy, who has now proposed a bolus of 300,000 subsidized jobs to revive the ailing market). Of course, unlike loan and deposit guarantees and capital infusions to banks, hiring the unemployed and transforming the bureaucracy require actual outlays of cash, which is in ever shorter supply. So we look forward to the details. And lest I forget, there will be a push to liberalize the rules governing work on Sundays. That should fully absorb the reserve army of the unemployed, who can be put to work selling appliances to those who haven't earned anything during the other six days of the week.

The Napoleon of Neuilly

Charles Bremner reports that the Germans have taken to referring to Sarkozy as the Napoleon of Neuilly. I take it that this is not a term of endearment.

Whither Securitization?

If "securitization" of mortgage debt had become such an indispensable instrument of construction finance, you may be wondering whether anything will be built in the future. Housing starts in France have plummeted 23 percent. But here is a discussion of further "innovations" in financial innovation. The watchwords seem to be "transparency" and "simplicity," to which we are to return from opacity and complexity.

Monday, October 27, 2008

Le Tout à l'Ego

Pierre Moscovici may have lost his bid to become the leader of the Socialist Party, but credit him and his two collaborators with a zinger to rank with Hollande's coup d'éclat permanent: see the title of today's Le Monde op-ed: "Nicolas Sarkozy en Europe: le tout à l'ego."*

Don't even think of branding Mosco a "sewer loser" or of descending to the level of "gutter politics." On the contrary, he seems "flush" with confidence.

(*Non French-speakers may wish to consult their dictionaries under tout à l'égout.)

Euro Bank Exposure to Emerging Markets

Tyler Cowen has a very interesting post on European bank exposure to emerging markets. Austrian banks, for instance, are exposed at a level of 85% of GDP, mostly to Hungary, Ukraine, and Serbia. Cowen's conclusion:

By the way, this is further evidence that the driving force behind the earlier boom was the global savings glut, and sheer giddiness, not the excessively loose monetary policy of Greenspan's Fed. The ECB has pursued a relatively tight monetary policy since its origin. It also will be interesting to see what trouble arises in Spain, since Spanish banking regulation has been considered a model of how to keep these problems under control.

End Run on Dati

President Sarkozy has invited the more moderate of two disgruntled unions of magistrates to meet with him, circumventing his own minister of justice, Rachida Dati. The Elysée is displeased not only with last week's massive strike of magistrates but also with the release of a convicted rapist owing to a clerical error on a court form and by the relatively mild ministerial response to this embarrassing episode. This latest move would seem to confirm the rumors that Dati has been steadily losing favor with the president and may be close to the end of her tenure in office, which has been turbulent from the beginning.

Munchau on Sarkozy's attempted "Coup d'Etat"

Thanks to Leo for the pointer to Wolfgang Munchau's piece on Sarkozy's proposal that he head the Eurogroup after France's EU presidency ends and why he might succeed despite Angela Merkel's opposition. In conjunction with this, read my previous posts on mounting tensions between France and Germany and France and the Czech Republic. It seems clear that, if the crisis does not fracture the EU beyond repair, it is going to lead to permanent institutional changes even in the absence of a new constitution.

Sunday, October 26, 2008

Paris-Prague: Ça chauffe aussi

Czech president Vaclav Klaus is accusing Sarkozy of trying to "siphon off" the powers of the upcoming Czech presidency. Worse, Klaus notes that the four powers that met privately to formulate a European reaction to the economic crisis--France, Germany, UK, and Italy--are the four who "wrote the Munich accords" that led to the Nazi invasion and annexation of Czechoslovakia. The absurdity of the analogy reveals the depth of Klaus's resentment and of the fissure that now threatens to divide "old Europe" from the new member states of the EU. Sarko had better initiate repair work soon before this crack widens into a rift. Trouble with Merkel, trouble with Klaus, trouble with Bush (first over Georgia and then after Sarko moved away from neoliberalism and toward state capitalism), and perhaps trouble as well with Gordon Brown. The French EU presidency has not gone at all as expected, and Sarkozy has been too busy putting out fires to stand back, assess the situation, and draw the consequences.

Dani Rodrik's Doomsday Scenario

Dani Rodrik sees this as the make-or-break week for emerging markets and their currencies. The IMF must act, he says, or we enter the first act of a doomsday scenario in which collapsing emerging market currencies trigger protectionist responses in the advanced industrial countries. A "vicious cycle of unemployment and protectionism" would ensue, à la the 1930s. Hence the just-in-the-nick-of-time salvation of Dominique Strauss-Kahn from the sequellae of his Davos dalliance may be something we all need to be thankful for.

Mirror, mirror on the wall ...

Mirror, mirror on the wall, who's the most competent of them all? Bertrand Delanoë? So say respondents to this poll. Whereas Ségo, who doesn't figure among the top 3 Socialists in the competence sweeps, takes top honors in the sympathique and "good listener" categories.

One wonders who pays for polls of this sort or what they think they've learned from them. I suppose it's just something to blacken newsprint with. It would be more useful to pay a good political reporter. What exactly does this reputation for competence rest on? Delanoë has the advantage of occupying a more visible executive position than his rivals. He has avoided scandal and been a competent financial manager. He has managed to mute factional squabbling in his city. And he has taken some very visible measures, such as Paris Plage and the Velib initiatives. He has, if not charisma, a rather personable charm.

Of course all this adds up to a rather thin dossier for a candidate for party leader or, eventually, the presidency. One doesn't know much about his thinking on matters of foreign policy, domestic economic policy, energy policy, defense, etc. His low-key campaign for the party leadership has been an exercise in positioning rather than philosophizing, except for one much-reported statement of compatibility between socialism and liberalism, which was in fact merely a distillation of all his other positioning moves rather than an extended meditation on the relation between the two terms.

If he becomes party leader, his affable, sometimes pointedly ironic style may prove more attractive than the rather ringard franc-tireur acidulousness of Hollande (his "coup d'éclat permanent" dart at Sarko could be turned back on himself: his tenure has been a coup de blabla permanent, a steady drizzle of similarly harmless darts, which bring a momentary smile to the lips but leave no mark on the mind). As for Delanoë, I'm not at all sure what he would add up to as a presidential candidate or how he would fare in a confrontation with Sarkozy.

DSK Survives

Dominique Strauss-Kahn has been slapped on the wrist by the IMF board but retains his position. If the Wall Street Journal, Russia, and other interested parties were attempting to engineer a putsch, they failed.

Will DSK's effectiveness be reduced? I think not. The severity of the crisis requires a competent technician at the helm, and no one doubts DSK's competence (though his work ethic has been questioned). Will it compromise any thought he might have of running for the French presidency in 2012? At this point, speculation on this matter is mere blather and froth. A week is a long time in politics. In the midst of an economic meltdown, 24 hours is a long time, and each weekend seems to bring a new round of restructuring of capitalism. 2012 is a century away.

But bloggers are licensed to blather, so ... if you push me, I'd say that Dominique Strauss-Kahn will never be president of France. Not because of this latest instance of philandering. I think he doesn't want the job badly enough. A sybarite and philanderer can become president of France: Sarkozy proved that. But he has to be the kind of sybarite who thinks of his future glory while shaving in the morning, while yachting in the Mediterranean, while dining at the trois-étoiles, and while disporting himself 'twixt satin sheets. DSK's mind wanders. He hasn't got the right stuff.

Bank Guarantees

At VoxEU, Viral Acharya and Raghu Sundaram, finance professors at NYU, compare the US and UK bank guarantees. The two plans are quite different, and the authors ask what will happen if the crisis deepens. The answer seems to be more panic and failures in the UK, and taxpayer-subsidized relative calm in the US. In the end, taxpayers in both countries will bear the cost, however.

In France, Sarkozy has offered blanket guarantees of everything related to banking: deposits, loans, what-have-you, but details, so far as I am aware, have been thin. So it would seem on the surface that France more closely resembles the US plan. My sense--possibly erroneous--is that the government of France has been profligate with promises and short on particulars. Now that various bailout plans are being analyzed in detail, it would be nice to know more about what the French have actually proposed. If anyone knows where to find this information, please let me know. As usual, the French media (at least the media I have seen) have not been much help.

Saturday, October 25, 2008

Ukraine Strains

France's minister for European affairs Jean-Pierre Jouyet announced the other day that France remained adamantly (and rightly--ed.) opposed to NATO membership for Georgia and Ukraine, so it is all the more interesting to learn of the allegation that a Ukrainian oligarch may have been funneling money to the Tory party in Britain. France's preference at this point is to put Georgia and Ukraine on the slow track to EU rather than NATO membership as a way of connoting general support for democratic reforms without unnecessarily antagonizing Russia. In the meantime, the two eastern countries can be treated favorably as "neighbors" of Europe. This prudent compromise course avoids both the Scylla of provocation (e.g., Patriot missiles and radars in Poland) and the Charybdis of capitulation to the reassertion of Russian domination in the east.

Frankel on International Financial Reforms

Jeffrey Frankel gives a realistic assessment of what might come out of the impending economic summit. To speak of a "new Bretton Woods" is, he believes, exaggerated.

Friday, October 24, 2008

How ya doin'?

Periodically I take stock of how the blog is doing. As you can see from the stat counter to the right, we're over 180,000 page views, averaging about 12,000 a month of late, down from the peak of 15,000, which came after Sarkozy's "casse-toi pauvr' con" remark: there's no accounting for taste, and there's no accounting for what causes Anglophones to seek news about French politics. When they do, if they search Google under "French politics," this blog comes up number one among 16,500,000 hits, ahead even of Wikipedia. I guess that's something. There are now over 460 Feedburner subscribers.

And then I was pleased to read yesterday on one of my favorite blogs, Crooked Timber, that French Politics is "one of the treasures of the blogosphere." Thanks, Henry. Of course the pleasure was spoiled somewhat by this (predictable) comment: "I am trying very hard to resist making a comment on the suggestion that there is anything about French politics that is a 'treasure.'" Dear Antti Nannimus: if you can't find the treasure, learn to cherish la nostalgie de la boue.

In any case, I persist, and as always I welcome your suggestions of things I ought to have looked at but haven't.

State Capitalism, Left-Wing Version

An interesting portrait of Benoît Hamon with, for good measure, an assessment of the internal shifts in the Socialist Party in the wake of the crisis. This article also appears on Marianne2, where the characterization of Hamon as a "Sarkozy of the left" is hardly calculated to do him any good. But the description of Hamon's new state capitalist ambitions, including a sovereign wealth fund à la Sarko and the constitution of something like a "French Gazprom," shows him stealing a march not only on Sarkozy but also, the author (Malakine) somewhat perfidiously adds, Vladimir Putin.

France-Germany: Ça chauffe

Angela Merkel wants a meeting with Sarkozy. Her spokesman, Ulrich Wilhelm, has let it be known that in the German chancellor's view, any attempt by a French sovereign wealth fund (announced by Sarko yesterday) to prevent an acquisition by foreign capital must be compatible with internal EU regulations. Furthermore, if there is to be a new "economic government" of Europe, the "natural president" is Luxembourg's Juncker, not Sarkozy. Two shots across Sarko's bow.

Anyone who saw Juncker on France2 the other day in an interview with David Pujadas will recognize that Juncker is of the same opinion. He treated Pujadas' aggressive questioning about Luxembourg's fiscal paradise status and lax banking regulation as though Pujadas were a French skirmisher striking out in advance of an invading army. And he may well have been. What better way to exclude Juncker from the job of economic crisis czar than to link him to the failures at the heart of the crisis? (Past associations haven't slowed Henry Paulson down, though. Sarkozy should keep this in mind.)

Thursday, October 23, 2008

Swedish Comparison

Ecopublix offers a careful comparison of the Swedish economic crisis of 1992 with today's crisis.

France, Inc.

Sarkozy has announced the creation of a French investment fund with a capital of $200 billion. He is also temporarily introducing a limited suspension of the taxe professionnelle (thanks for the correction, Kirk).

Call it an investment fund or sovereign wealth fund. Call Sarkozy a socialist in wolf's clothing (as one MEP did the other day). Mock his inconsistency or praise his political versatility. In fact he's merely doing what leaders of all the advanced industrial countries will be doing shortly, if they are not doing it already: trying to minimize the damage of the recession by turning on massive government investment. This can do a lot of good, especially if it is seen not solely as countercyclical spending but as a chance to do something about decaying infrastructure and make foundational changes with a chance for long-term impact. In France it's hardly unprecedented for major capital spending to be directed by the state, whether under the Commissariat au Plan, through state-controlled or -influenced enterprises, or directly by the Ministry of Finance. Sarkozy always danced nimbly between the neoliberal and state-capitalist camps. If the last two decades were the neoliberal decades, the coming two are likely to consecrate the hegemony of state capitalism. Sarkozy has been quicker than most to draw that conclusion and try to get ahead of the tsunami. Let's see what happens next.

Wednesday, October 22, 2008

Rocard Décomplexé

I generally like franc-parler in politicians, usually a mealy-mouthed class, but Michel Rocard is so unbuttoned these days that one worries about his equilibrium since his cerebral incident last year. In an interview he muses on the causes of the current economic crisis, leaping from collateralized debt obligations--sound enough--to the US departure from the gold standard in 1971! Then he says that he wishes Milton Friedman were alive today to witness the devastation he wrought. If he were, then he could be haled before the International Court of Justice and tried for crimes against humanity!!

One can wish that Friedman hadn't been quite so influential, but this seems a tad hyperbolic.


The hyperpresident that was seems to want to become the once and future Europresident, that is, the durable leader of Euroland, which he believes needs permanent leadership at the head of state--and not just the minister of finance--level. Naturally he sees himself as filling the role perfectly and would like the other member states to pony up capital for a European Sovereign Wealth Fund whose mission would be to prevent other sovereign wealth funds from snapping up European firms at bargain prices in the coming period of recession.

All the earmarks of authentic Sarkozyan policymaking are here: the idea is bold; it circumvents existing constitutional roadblocks (or in this case, the absence of a constitution and therefore of a stable European executive, which itself is a roadblock to decisive action); it was announced without prior consultation; it is an affront to other powerful players (Angela Merkel foremost among them); and it is an inextricable mixture of good ideas (continuity of policy and centralized decision-making are probably needed in the present crisis if not always) and bad ones (the sovereign wealth fund idea, which Germany has already rejected, is traditional French-style "economic patriotism" writ large and dressed up as an antidote to economic collapse, which it is not; the absence of democratic controls at the EU level would pose a serious problem).

Still, Sarko's excesses have the virtue of getting the pot boiling. Something may come of his proposal, though it will no doubt have to be much modified before it becomes acceptable to all the veto players. The sheer chutzpah of appointing himself economic czar of the Eurozone takes the breath away, but his instinct that, if not a czar, then at least a coordinator with clout is essential is probably correct.

Maybe DSK will be the man for the job if the IMF decides to sack him (I think they won't).


There's a new book out about Claude Guéant, the secretary-general of the Elysée whom some call "the vice-president of France." The review on emphasizes Guéant's working-class roots chez les Ch'tis and his meritocratic ascent: bac, scholarship to the U.S. for deserving student, Sciences Po, ENA. At ENA, for his required work internship, he chose the mines of the Nord, returning to his roots. Upon graduation he entered the prefectoral corps, at the time a not particularly prized assignment. The choice surprised some of his peers, but it seems to have served Guéant well. He remains a man of the shadows, exercising his considerable influence well out of the limelight, and the review doesn't tell us much about how he goes about his business behind the scenes. It seems clear, though, that Sarkozy relies on him heavily.

Tuesday, October 21, 2008

"Economic Government"

President Sarkozy has called for an "economic government" for the Eurozone. "If the European Central Bank must be independent," he says, then "it must be able to enter into discussions with an economic government." Like so many of Sarkozy's proposals, the grand and the vague are present in equal doses, and it is easy to suspect ulterior motives. To be sure, some continuity and greater coordination than exists at present might be useful features of economic policymaking in Europe, and Sarkozy's belief in the need for a counterweight to to the ECB is well known. Enlargement has made the coordination issue acute, and the leaders of large economies, especially the old French-German tandem, might well wish for a central economic institution in which influence would be apportioned by GDP rather than population or nationality. The current crisis has highlighted the need for rapid response, just as in the foreign policy realm. It will be interesting to see if Sarko's proposal gains any traction.


Several commenters to my previous post about DSK's troubles at the IMF suggested that the disclosure of the investigation was a deliberate attempt to oust him from the post because he favors stricter regulation of international finance. I was initially skeptical. But now it seems that the Wall Street Journal really is out for his scalp. They have broken a second story about supposed nepotism in the appointment of a young intern--a matter too trivial to have spilled ink over, one would have thought. They are also raising the issue of a double standard (h/t Boz), asserting that while they see nothing in DSK's behavior that would warrant removal, the same can be said, in their opiniion, of Paul Wolfowitz's behavior, and he was removed, so DSK should go too. Although such partial logic is characteristic of the WSJ editorial page, it is hard to avoid the inference here that they wouldn't be devoting so much attention to the matter if they didn't feel there was something at stake in pushing the Frenchman out. There is also the question of the timing of the article, since several journalists, including Charles Bremner and Jean Quatremer, have said that they were alerted to the accusations against DSK by the woman's husband months ago and chose not to write about it. The WSJ would have heard the same rumors and sat on the story, presumably not considering it important enough to bother with until the presence of a pro-regulation IMF head became a more salient concern.

French observers should refrain from attributing these charges to "American puritanism," however. In fact, DSK's frasques have barely made a ripple in the US press. The public is indifferent, and virtually no one outside the Beltway knows his name. This is a purely inside play.

Monday, October 20, 2008

Retirement Reform

The Bozio/Piketty plan for retirement reform, which I discussed here briefly some months ago, has now been published in revised form, as discussed here. An on-line version is available here. I hope to be able to report on the plan before too long. In the meantime, if any of you have a chance to read it before I do and want to comment, I'd like to hear your thoughts.

Five Billion to Towns and Cities?

Five billion euros have been promised to towns and cities to cover speculative losses, as nearly as I can make out from this rather ambiguous article. These funds appear to be not loan guarantees but exceptional credits to enable the recipient towns to meet expenses. If so, the prospect of future tax reductions, once the centerpiece of Sarkozy's economic policy, would seem to be dimming. It would be nice to have more details about how these losses were incurred.

Paying for Higher Ed

The Institut Montaigne has published a report by Nicolas Colin, who argues that higher education in France should not be free. He tries to make the case that higher ed paid for out of public funds primarily benefits the middle and upper classes, yet most of the return on the investment in education is privately appropriated by the beneficiaries. I think that the conclusions Colin draws are wrong, but his arguments are worth pondering and suggest the need for reforms in the allocation of educational resources. But this is too large a topic to tackle in a blog post.

Bretton Woods bis?

And yes, while speaking of Sarkozy's recent revitalization (see previous post), I mustn't omit this weekend's get-together at Camp David, where Sarko, Barroso, and George W. Bush shared a dinner of roast lame duck and black-eye peas. "Sarko wrests a summit from a reluctant Bush," the headline writers want to scream. The Europeans, they say, want a "Bretton Woods bis." The only problem with this formulation is that the situation is quite different from what it was in 1944, when the United States was on the verge of emerging victorious and rich from a war that left much of the rest of the developed world prostrate and poor. Many years had passed since the collapse of the global economy in the 1930s. Bretton Woods was thus an opportunity to take stock, to consider the failures of the past with suitable perspective and in a world ripe for a new order.

The current crisis is still unfolding. Its causes are not fully understood. Agreement on remedies is unlikely in the short term. And what is needed now are emergency measures, not overambitious makeovers. Sarkozy's activist instincts served him well in putting together a European bank rescue plan, but his summit proposal thus far seems long on showmanship and short on substance. Even Bush seems to recognize this, and I rarely give Bush credit for anything. Hence his footdragging. In any case, it would be absurd, not to say impossible, to make any commitments until a new administration is in place in the U.S.

Digital France

Remember the good old days when Sarko was making two, three, four announcements a day of new programs, tearing up the tax code, taking on the unions, comforting the assaulted and bereaved, and liberating hostages from the infidel? It was a whirlwind of activity, a blogger's dream. Then he remarried, got sober, was sandbagged by crises from Tbilissi to Wall Street, and sought solace in the calm of the Elysée. We didn't see as much of him.

But today he is back with a plan for "digital France." Compared with liberating the slumbering worker to work more in order to earn more, this initiative, the fruit of Eric Besson's elucubrations, seems a trifle underwhelming to warrant the full presidential Monty, but dog-and-pony opportunities have been in short supply, so on fait feu de tout bois. Digital television is coming to France. Broadcast frequencies will be liberated and can therefore be auctioned off to mobile Internet service providers--a one-time windfall to a state badly in need of same. There will be more high-speed Internet access as well. Who can complain about that?

No doubt the adepts of the ubiquitous "precautionary principle" will find grounds for bringing out their worry beads yet again. New antennas will spring up in neighborhoods not yet bristling with cell-phone towers. People whose noggins functioned well enough with television signals coursing through their brains will feel headaches coming on at the thought of their neighbors' e-mail doing the same. Scientific research will be brandished by six angry characters in search of an authority. Sociologists will write about new social movements. Orange and SFR will replenish their coffers. Monsieur Bouygues will find ways to favor the president with his largesse. Crisis or no crisis, life goes on.

Sunday, October 19, 2008

Heads Have Rolled

It comes as no surprise after the rather hammy public displays of anger by both Sarkozy and Lagarde: three top executives of the Caisse d'Epargne have resigned in the wake of the revelation that the bank had lost 600 million euros in speculation on derivatives in recent weeks. Since this is where most of the French keep their nest eggs, the staid substitute for the coffee can in the back yard, this was no way to bolster confidence in the banking system. So off with their heads. I'm sure everyone now feels "safe as houses," as the saying used to go.

Saturday, October 18, 2008

DSK in Trouble

Dominique Strauss-Kahn, now head of the IMF, is under investigation for improper conduct in connection with a sexual relationship with a subordinate. FP readers will recall that DSK was rumored to be the mysterious politician "G" to whom Yasmina Reza referred in her book about Sarkozy. At the time of DSK's appointment to the IMF, rumors abounded in France that he would soon run afoul of stricter codes governing workplace behavior in the United States. Apparently the rumor-mongers were right. Recall, too, that the Financial Times opposed DSK's nomination on the grounds that he lacked the "temperament" for the job.

Jean Quatremer, one of the original rumor-mongers, returns to the charge here.

Friday, October 17, 2008

Inside the NPA

Brent Whelan, who contributed the post on the Besancenot rally earlier this week, has launched his own blog, and in his latest post he takes us inside a meeting of the local NPA committee in the 14th arrdt.


I quote verbatim from the blog Ceteris Paribus:


Extrait de l'éditorial du Washington Post soutenant (non sans réserves parfois idiotes) Barack Obama :
A McCain presidency would not equal four more years, but outside of his inner circle, Mr. McCain would draw on many of the same policymakers who have brought us to our current state. We believe they have richly earned, and might even benefit from, some years in the political wilderness.
Et ça donne, en traduction dans Le Monde (un habitué du genre) :
Le Washington Post précise que, selon lui, une présidence de McCain n'équivaudrait pas à quatre années supplémentaires d'administration Bush mais qu'elle profiterait aux mêmes décideurs. "Nous pensons qu'ils se sont enrichis, et qu'ils ont même tiré bénéfice de ces années de désert politique", peut-on lire dans cet éditorial, qui sera publié vendredi dans l'édition papier du journal.
Nous pensons pour notre part que plusieurs heures de lecture d'un dictionnaire anglais / français seraient une punition largement méritée - et peut-être même profitable- pour le journaliste qui a commis cet affreux contresens

The Man in the Street and the Market

The following is a guest post contributed by Lisa Pham, an Australian writer who is currently studying journalism at Sciences Po in Paris.

“I have no faith in the stock exchange, and this crisis proves I’m right.”
By Lisa Pham in Paris
October 15 2008

As the sun warmed the Parisian streets, market goers were making the most of their Sunday morning. Marché d’Aligre is one of the cheapest fruit and vegetable markets in the French capital, with buyers queuing up for bananas, fresh cauliflower and ripe tomatoes.

In a week that saw the Paris Bourse experience its worst ever single-day loss, the impact on daily living costs for French people has not yet been felt.

“We don’t yet know how the government is going to react,” says Vincent, a 40 year-old employment researcher. He keeps his money in three different bank accounts: ING Direct, Caisse d’Epargne and Banque Populaire. “I have no faith in the stock exchange, and this crisis proves I’m right,” he says.

For 49-year-old Alain S., an engineer, the plummeting shares have little impact on his routine. He and his wife are at the market doing their weekly shopping. “We don’t have any shares, so we’re not worried,” he says.

Vincent M., a student, shares this sentiment. “I know it’s being talked about a lot, but I feel like the situation doesn’t concern me directly just yet.” The long-term effects of the financial crisis are unclear, in particular whether price hikes should be expected. “I have simple habits,” continues the 21-year-old, “so not much will change.”

Many market goers are hesitant to comment on the situation because they feel like they don’t understand what’s happening. Nevertheless Mohamed, a 36-year-old electrician, is nervous about the future. His wife even more so. “We don’t have much money,” he explains. “We have some savings in the bank and my wife says that we have to withdraw it all.”

Their fear is reminiscent of the Great Depression of 1929, when customers took money out of all their accounts because they were worried about the banks becoming insolvent. This, however, only deepened the economic damage.

Does Mohamed trust his bank? “Not at all,” he replies staunchly. Fearing unemployment and inflation ahead, he and his wife are trying to pay more attention to what they spend. Shopping at the Sunday market is cheaper than at grocery stores.

Similarly 54-year-old Fateho, who works in opinion polls, is being careful with her money. “I’m looking for the cheapest things,” she explains, “I check out each stand when I’m at the market. I’ve decreased my spending habits and I’m trying to cook more at home.” While she says she has confidence in her bank, it’s a little shaky. “Touch wood!” she jokes.

For Cristina, a 31-year-old teacher, it’s too soon to predict what consequences the financial crisis will have on the French economy. If prices increase she’ll inevitably change how she spends money, but if not, she thinks it will be the same. “Maybe less travelling,” she admits.

Thursday, October 16, 2008

SocGen Affair

The October 20 issue of The New Yorker has a long (and frankly somewhat tedious) article by James Stewart detailing what is known to date about the Kerviel Affair. It is not available on line, unfortunately.

The Lehman Myth

The idea has taken hold in France--promoted first by Christine Lagarde and now relayed by Le Figaro--that Lehman was deliberately allowed to fail in order to set an example for the financial industry and put an end to the "moral hazard" critique addressed to the Fed, and, furthermore, that if this had not been done, the whole crisis of the last few weeks could have been averted. If Ben Bernanke is to be believed--and I, for one, believe him--this is not what happened. Here is a relevant excerpt from his testimony, which can be read in its entirety here:

Q: Many market participants I talk with think that the way Lehman was allowed to fail caused substantial damage to confidence and to the access to credit of other financial institutions. Do you think that criticism has some merit, and if so how might it have been done differently, and could it be done differently if there were a similar situation under the TARP?

Mr. Bernanke: So, Lehman was not allowed to fail that in the sense there was some choice being made. There was no mechanism, there was no option, there was no set of rules, there was no funding to allow us to address that situation. The Federal Reserve's ability to lend which was used in the Bear Stearns case, for example, requires that adequate collateral be posted so that we are not taking credit risk, we are lending against collateral. In this case that was impossible. There simply wasn't enough collateral to support the lending. From the Treasury's perspective, unlike the FDIC, deposit insurance fund, there were no funds, there was no option. We worked very hard over one of those famous weekends, with not only some potential acquirers of Lehman but we called together many of the leading CEOs of the private sector in New York to try to come to a solution. We didn't find one, and therefore we were unable to do what we wanted very much to do, which was to prevent the failure of the company.


Will the EU turn to Keynesian stimulus to stave off depression? Two articles appeared this morning, highly contrasting in tone, suggesting a divergence of views. Die Zeit portrays Sarkozy as in favor of an energetic next step, with Merkel still holding back, albeit now praising the rescue package about which she was formerly reticent. The picture is again one of Sarko leading, prodding, full of vigor and eager to do something, while Merkel remains cautious. Meanwhile, Le Monde says that the Eurogroup has "rejected" a stimulus plan but cites only the opinion of Jean-Claude Juncker, who appears not to have noticed that the Stability and Growth Pact is now a dead letter. His position--"Where will the money come from?"--harks back to the earlier clash between him and Sarkozy over the French budget deficit. Sarkozy, who always chafed against the limits imposed by the SGP, now plainly regards the emergency as having rendered them obsolete.

Indeed, Sarkozy recognizes what Merkel seems to have shut her eyes to: Europe, having offered massive guarantees to both depositors and lenders--guarantees that will remain credible only as long as they are not sorely tested--must now ensure that borrowers do not fail, that investor confidence does not crumble, that what Keynes termed "animal spirits" do not flag. Of the more than one trillion euros pledged thus far, only a small fraction involves up-front expenditure: the equity infusion to banks. The rest is in the nature of insurance, a sort of gigantic credit default swap, which, like too many other CDSs, cannot possibly be paid in case of systemic failure. Thus governments have now committed themselves, pace Merkel and Juncker, to making sure that systemic failure does not occur. The question is what form the stimulus will take, not whether it will occur, and it would be good if Europe could achieve coordination on that point as rapidly as it came to agreement on the insurance policy that made such coordination as inevitable as it is essential.

How "New" Is the New Anticapitalist Party?

To follow up Brent Whelan's first-person account of an NPA rally featuring Olivier Besancenot, here is Rue89's report on what's happening behind the scenes at the Nouveau Parti Anticapitaliste. The headquarters have been freshly painted, recruitment is up (especially among young public sector workers--recruits in the image of Besancenot), but the sudden "crisis of capitalism" has revived the revolutionary hopes inherited from the LCR. This is still a revolutionary party, says one spokesman. The Socialist Party is sufficiently worried about the NPA's improving prospects to have put in place an "LCR/NPA watchdog committee" headed by Daniel Vaillant, deputy mayor of the 18th arrdt. and Jospin confederate.

Hooting and Hollering

One feels a certain impatience with politics as usual when a real crisis is threatening to transform the world as we know it, but faiblesse oblige. Some fans at a soccer match hooted La Marseillaise. Sarko won't stand for it. Any more booing of the national anthem, he says, and the match must be canceled (at the risk of provoking a riot, no doubt, but the police are of course at the ready to crack heads and turn farce into tragedy). The Socialists, who refused to vote for the emergency bank rescue bill lest they be seen as holding the president's coat, don't mind holding his coat, shirt, hat, trousers, and shoes on this issue of evidently overweening national importance. Le Figaro is apoplectic, Le Parisien sees an "affair of state."

I am reminded of the 1968 Olympics. American athletes raised their clenched fists on the victors' stand in Mexico City, and to judge by the reaction in the States, you would have thought World War III had broken out. The root cause was the same. Minorities, feeling mistreated at home, seized one of the few occasions when their expression would have unquestionable public visibility to manifest their existence and their discontent. Having no use for the proprieties of normal political discourse, they were only too glad to be rapped on the knuckles by sputtering elders. The anger was proof they'd gotten under the skin of the martinets, which is precisely where angry young cut-ups want to be. Outrage and overreaction are hardly remedies, as anyone who has ever dealt with an adolescent (or been one) knows.

The politicians ought to stop their useless scolding and get back to the urgent business of the day. If the United States can stop talking about flags pinned (or not) to the lapels of candidates, France can stop yapping about jeering at soccer games.

Tuesday, October 14, 2008

The Socialist Abstention

The Socialists abstained on the bank rescue vote today. This despite Hollande's statement that the plan was "technically sound" and Jean-Marc Ayrault's declaration that he couldn't imagine his party voting against the plan. Later he said he meant this literally: the party didn't vote against, it abstained.

One could imagine a defense of abstention, but not the one the Socialists gave. They complained that the plan contained no provisions for responding to the impending recession. I suppose that someone at rue Solférino thinks this makes it seem as though the PS is defending "workers." This is to take voters for fools. People may be wary of a plan that they don't fully understand (does anyone?), but they know the difference between an emergency and legislation-as-usual. Hollande and Ayrault essentially conceded that the situation was urgent, so that the party's abstention can only be interpreted as a refusal to share responsibility for navigating in the storm. This is a decision that will haunt them for some time to come.

Big French Banks Claim No Need of Capital

France's biggest lenders--BNP Paribas, Crédit Agricole, and SocGen--say they don't need any infusion of new equity from the government. In the U.S., some big banks did not want to participate in the Treasury plan, but Paulson insisted on the grounds that if some banks held out, participating banks would be stigmatized as less sound, precipitating runs on their funds. Will this logic obtain in France? Or were Paulson's fears misplaced?e


Following up the previous post, I offer the following hypotheses to explain why a divided, decentralized Europe achieved a coordinated policy response more quickly and easily than the centralized United States.

1. To borrow a page from Alexander Gerschenkron (Economic Backwardness in Historical Perspective), there are sometimes distinct advantages to being late. Europe, which at first thought it might be largely spared in the current maelstrom, had the opportunity to observe U.S. (and British) mistakes in dealing with it.

2. Europe had the advantage of a convergence point modeled on the actions taken by Gordon Brown. Brown initially made the same errors as Paulson but did not share Paulson's ideological priors: (partially) nationalizing the banks allowed a New Labour politician to indulge Old Labour instincts.

3. A near-consensus had emerged among economists that something like the Brown plan--government purchase of an equity stake in banks plus loan guarantees--was much superior to the Paulson plan. The backing of experts mattered, though the experts often hedged their positions with considerable doubt and uncertainty, and how could they not, since so many facts remain unclear.

4. Europe's problem is more narrowly circumscribed than America's. In addition, the clash between Merkel and Sarkozy probably helped the Brown plan, since it came from neither of them. Furthermore, Merkel's initial opposition to coordinated action seems to have collapsed when she realized the size of the Hypo Real Estate failure--a German problem that might be too big for Germany to solve.

5. The existence of so many transnational banks subject to regulators in different countries (Fortis is a case in point) made some kind of coordination inevitable.

6. For Europeans, (partial) state ownership of banks is nothing new.

7. European politicians of all stripes are more deferential to economic technicians than some American Congressmen, so the possibility of a legislative revolt against the emergency measures by the executive was limited.

8. Europe's crisis is not complicated by the politics of a presidential election.

9. The political leadership in the UK, France, Germany, and the EU is more competent and economically literate than the U.S. president and is not handicapped by lame-duck status, although it is noteworthy that Brown and Sarkozy were able to lead forcefully despite low approval ratings and that Merkel came round despite losses by the right in recent regional elections.

ADDENDUM: I should say that the U.S. might have come to the new Treasury plan without the European example; things were already moving in that direction. But once Europe decided to guarantee deposits and interbank loans, the U.S. really had no choice; assets would have flown to safety in Europe without similar guarantees here. I suppose this could have been done without the equity infusion, but that would have been foolhardy. The fateful step that has yet to be taken is the acquisition of voting shares in the banks; the preferred shares to be acquired under the Paulson plan will be non-voting. And the exit strategy remains to be defined, so the U.S. government may be in banks far longer than it will remain in Iraq.

Some or all of these points may be wrong, but they provide a basis for discussion.

A good narrative of the process leading to accord can be found here.

Prisoners Escape their Dilemma

The sudden rescue of the banks and miraculous rebound of the Bourses contains an element of mystery. How is it that Europe, with its divided leadership, was able to achieve coordination so quickly, whereas the U.S., with decisive power concentrated in the Federal Reserve and Treasury, has struggled for months to do the same and has finally arrived, it seems, only by copying the European model? To be sure, the fundamental problem was, and remains, more concentrated and intractable in the U.S., where the housing bubble was most severe, where interest rates were kept low for so long, and where the solution will therefore require more than just a recapitalization of the banks and guarantees of deposits and interbank loans. Still, the contrast is remarkable, and the process that led to this weekend's actions will no doubt occupy political scientists for years to come.

Monday, October 13, 2008

A Trillion Here, a Trillion There

Le Monde's proofreaders note that all this talk of trillions and billions has tripped up some journalists and their translators, since the English "trillion" is not the same as the French "trillion." Here is their summary:

  • MIllion anglais = MIllion français
  • BIllion anglais = MIlliard français
  • TRIllion anglais = BIllion français, mille milliards de picaillons !
I am reminded of the late Everett Dirksen, mellifluous if reactionary senator from Illinois, who used to say, "A billion here, a billion there, pretty soon you're talking about real money."

That was then; this is now.

Plus for Brown and Sarkozy, So Far

In the handling of the fianncial crisis so far, Gordon Brown and Nicolas Sarkozy appear to be winners. Brown's plan to assume an equity stake in banks is being adopted all over, even in the initially reluctant United States. And Sarkozy's insistence on a joint plan has carried the day in Euroland over Merkel's objections. Sarko is approved by 53 percent at home for his handling of the crisis--a remarkable 20 point premium over his normal approval rating. Compare with Bush, whose bad marks on crisis management have pushed his already low ratings to their nadir.

Sunday, October 12, 2008

Le Cent Quatre

The following is a guest post from Leo:

As promised, here's a quick report.

First, it's still work in progress. On day one of public opening, just one workshop in public use, but unfortunately, the artist had not arrived yet...

The place won't be humming until next Spring.

A memento of past "laicité" wars, it was built in the 1870's (on the site of a former slaughterhouse) as the warehouse for the Paris Catholic diocese funeral organization. Was seized by the City in 1905 after the separation of Church and State "to provide decent funerals for citizens irrespective of their creeds and financial means". It was not a funeral parlor, but a big industrial facility where hearses and horses were parked and caskets were manufactured and stored. Ofically, the City lost its funeral monoploy in the late 80's (of course, as often in France, the monopoly had effectively disappeared a long time before).

It is located near railroad lines which were useful to carry the timber used in the casket making process. Located in the 19th arrondissement, it is surrounded by housing projects and is close to an area that recently made the headlines after the Paris prosecutor declared an war against local gang warfare. Clearly, not your typical bourgeois area, we will be thrilled "de nous encanailler" when we visit the shows and attend artist performances.

The architecture is plain vanilla end of 19th century industrial of no special character. I have seen several similar projects in various European capitals (Brussels, Rome, Vienna...). However, the money spent (> € 100 Mio) shows, with quality fixtures and material.

You can see a few pictures on

Besancenot on the Stump

The following is a guest post from Brent Whelan:

Last night I met the phénomène Olivier Besancenot face to face. I greeted M. Besancenot, shook his hand, and then watched him fire up a packed hall of 500 shouting, cheering supporters. It was the full Besancenot-effect, and I came away thinking that history may have some chapters left after all, and this man may write one of them.

The meeting took place in Évreux, an obscure little one-street town on the eastern edge of Normandy, at the Zenith, a large movie theater rented out for the event. When I arrived OB was standing in front of the theater chatting with a few supporters, while several camera crews circled around him and four burly handlers eyed him protectively. He is a small man, fine-featured and impeccable in pullover and jeans; he could be a real heart-throb if he wasn't so serious.

Politely excusing himself from his supporters, he turned to the micros and proceeded to give one of his unbelievably rapid-fire interviews, every word precise and logical, like a prof de lycée
giving a lecture to his class—double speed. Having seen a number of such interviews on video, I expected the speed, but not the emphasis—even in this dispassionate and expository mode he makes every word felt. But he also maintained a cool, business-like demeanor.

When the interview ended, I made my move. I went up to him, told him I wished to greet him, shook his hand, and remarked that I had come from the United States to hear him speak . This remark must have sounded particularly absurd here in Évreux, and the only response I got was a quizzically upraised eyebrow as his handlers spirited him into the hall.

I went in, grabbed a spot and watched as every seat filled with people of all ages and conditions, a huge event for this little town. The program was carefully choreographed to reflect the NPA's desire to form a broad coalition of people from many movements outside the traditional labor base of the Trotskyists. OB came out and sat with 5 or 6 others in armchairs at the front of the hall. Each of the others spoke briefly about her or his personal activism: an anti-nuclear environmentalist, a nurse/labor organizer, a former Socialist Party organizer, a member of a support team for undocumented workers, and—most movingly—a hoarse auto worker who had come directly from the picket line at the Renault factory, where several hundred workers are losing their jobs "so the shareholders can have their dividends," as he put it.

When OB finally stood up to speak, he seemed quite literally to arise from this collectivity of bruised and embattled citizens. As he warmed to his speech, a quite different side of him began to emerge: animated, even radiant, a man who loved being here, speaking to his people. He was funny and charming, this OB, ridiculing Sarkozy and Christine Lagarde, the finance minister, pulling scraps of paper from his blue jeans to read excerpts from their speeches. "Ne pa—ni—quez—pas," ("Don't panic") he mockingly quoted from the overreactive president's advice to his constituents. "Doesn't that always make you more anxious?" And he made one-liners out of the cabinet's substitute phrases—e.g. "negative growth" or "prolonged period of soft economic performance"—in place of the banished word "recession." This was OB's bravura performance as the "mailman from Neuilly," a folk opera about the local boy who scores first on the exams and outwits the profs, and uses his gifts to tell the people's real true story. The hall loved it, and loved him, and you could see in his shining eyes that he loved us back.

At a certain moment, though, this witty and sarcastic OB turned into a quite different speaker, this one angry, insistent, prophetic. He denounced the greed of the few, and the magnitude of the profits they "suck like blood from the economy," leaving "pas un radis" (not a red cent) for healthcare and education and social solidarity. Again and again he pointed to lay-offs and unemployment, and demanded decent-paying jobs for everyone able to work. Finally he called for nationalizing the entire finance sector, not just the "rotten fruit" but the whole orchard, a "service public financier."

I could try to itemize the many changes OB rang on these themes—he spoke for nearly an hour without a moment's lapse or lull—but I'll just say that it was galvanizing. All over the hall teenagers, distinguished-looking older people, people of all sorts were laughing and cheering and shouting out, and quite a few rose to their feet in tribute as he finished.

We were warned that the meeting would end promptly, as OB was tired and had to go to work the next day—he really does deliver the mail in Neuilly. As his handlers slowly moved him out the door and toward the parking lot, I got another close look at him and saw yet another side of this remarkable man, no longer lit by klieg lights, no longer radiant. His face was sweaty, and he was a bit slumped, clearly drained from the performance he had just turned in. He seemed as small as his actual size, an ordinary person like the rest of us, shouldering an enormous load. It no longer looked easy, much less glorious, being Olivier Besancenot. He is the lifeblood of this new party and the movements it embraces. Without him there would be no party, and everyone knows it. So his handlers gently detached him from his admirers, eased him into the back of a sedan, and drove off with him, to rest, to prepare to do battle another day.

Palling Around

France will not extradite Marina Petrella to Italy. Her lawyer says that Sarkozy's decision was motivated by "reason and heart." I can think of two other motives. Carla Bruni was opposed (her sister Valeria visited Petrella in the hospital). And Sarkozy may well be aware of the backlash in the United States, even among conservative intellectuals, against the effort to use the violent political past of a Sixties radical to mobilize vitriol and hatred.

In some respects, Sarkozy's political persona draws on elements of both American neoconservatism and American populism. But France is different, and in the end there was more mileage to be gained by playing the humanitarian card rather than by following Sarah Palin down the road to neo-McCarthyism. Sarkozy knows which country he lives in.

Late confirmation of my hypothesis: Carla and Valeria went to the hospital together to inform Petrella she would not be extradited. Interestingly, the Bruni-Tedeschis are in France because their family fled to escape the violence of radical groups in the 1970s.

Saturday, October 11, 2008

The Arcades Project

A "mixture of the Villa Medici and a Berlin squat," runs the description in Libé. The chimerical object in question is the new artists' residence and exhibition space at 104, rue Aubervilliers. To judge from the picture, it looks like a sort of po-mo homage to Walter Benjamin's "Arcades Project." How about one of you Parisian readers hopping over there and writing an architectural review? It's been a while since I've had a guest post. Let me know what you think.

View Larger Map

Thursday, October 9, 2008

Crisis Handbook

VoxEU has produced an instant book of essays on the evolving crisis. I found Barry Eichengreen's piece particularly informative.

Waste Treatment and Toxic Assets

Le Monde has an interesting short note on a banal waste treatment consortium in Yvelines. Like many such public works projects, it floated two bond issues to finance its operations. Then, in order to meet its operating expenses in a changed financial regime, it enlisted the services of a financial consulting firm, which advised it to take a position in international currency swaps, a complicated financial instrument that the facility's board no doubt did not fully understand. But they had paid for what they thought was competent advice. For a while all went as planned, but then came the crisis, and now this waste treatment facility has on its hands what the financial world has come to call a "toxic asset," which it does not know how to incinerate.

One small example among millions, no doubt, but it has the illustrative value of showing that the problem cannot simply be reduced to "subprime mortgages" or "the US housing bubble." Things are crazier than that. Just how crazy we're only beginning to discover. Read today's excellent NY Times article on derivatives and the determined opposition to regulating them, led by Alan Greenspan, yesterday's unassailable gnome. Another excellent article on the crisis is this one by Martin Wolf.

French Nobel

J.-M. Le Clézio has won the Nobel Prize for literature.

The earlier award for medicine to Luc Montagnier and Françoise Barré-Sinoussi has already aroused some controversy.

On the ECB Rate Cuts

On the subject of the ECB rate cuts, I received two informative e-mails from a knowledgeable reader who must remain anonymous for professional reasons. Here is what he says (quoting from press releases):

"Last night, the ECB switched the way it conducts its weekly auctions from variable to fixed-rate tenders. The effect of this in practice, as discussed on the next page, is equivalent to cutting interest rates by almost a further 75bp on top of the 50bp cut announced earlier in the day.

"Having participated in the coordinated central bank action earlier yesterday and cut rates by 50bp to 3.75%, the ECB followed up with further policy moves later on in the day, which in practice has the effect of cutting rates by almost a further 75bp on top of that. This relates to the way monetary policy is implemented in practice.

"Until now, the ECB conducted so-called variable rate auctions, whereby each week, it decided and announced the total amount of liquidity it was going to provide to the banking system as a whole. To obtain a share of this liquidity, banks entered bids in an auction, whereby they stipulated the sum they wanted to borrow from the ECB and the interest rate they were prepared to pay for this. The minimum bid rate in this auction was the official rate. The ECB then filled the bids top-down, allocating funds to the bank that bid for the highest interest rate first and so on, until its total liquidity provision target was met. This meant that, in practice, the actual rates at which banks borrowed was generally higher than the ECB's official rate. In normal times, that gap was around 6 or 7 basis points. But the extraordinary surge in money demand by banks means that at the last auction, the gap between the official rate and the (average) actual rate was 74bp.
"Yesterday evening, the ECB announced it was switching to conducting fixed-rate tenders instead. This means that the ECB is prepared to provide however much liquidity banks want at exactly the minimum bid rate. In effect, this therefore makes borrowing for banks much cheaper, eliminating the gap between the official and the actual borrowing rate.

"On top of that, the ECB narrowed the window for lending and borrowing outside the auction process in the discount facilities from +50bp/-50bp relative to the official rate. In practice, this matters much less, although it will help banks' profitability a little."

From Citi:

Furthermore, from today onwards the ECB reduced the spread between the interest rate of the marginal lending facility, where banks can receive overnight credit from the ECB, and the ECB target rate from 100 bp to 50 bp. Hence, the rate of the marginal lending facility dropped from 5.25 yesterday to 4.25 today (50 bp rate cut plus 50 bp spread cut).

Yet another "stealth" cut. The question is: why did they not trumpet these two additional changes?

Wednesday, October 8, 2008

A propos ...

A propos the previous post, Esther Duflo argues that too many of the best and brightest have gone into finance, that the result has not been socially beneficial, and that the reallocation of human capital in the wake of the collapse will on balance prove positive.

Arindrajit Dube goes farther: he contends that the high remuneration of financiers accounts for much of the increased return to education that has been observed over the past two decades. This would be a significant finding if true, but the proof is not yet available.

We Hear Ya, M'Lord

It seemed to me a good time to reread Keynes' General Theory. I am not one of those who abandoned Lord Keynes during the lean years of monetarism, rational expectations, and all the rest. He has always remained a hero of mine, not least for his dry wit. Yesterday I came upon the following delightful passage:

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. ... These tendencies are a scarcely avoidable outcome of our having successfully organized "liquid" investment markets. It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges. That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the the fact that to the average Englishman Throgmorton street is, compared with Wall Street to the average American, inaccessible and very expensive. ... The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.


You heard it here first (see my predictions over several weeks):

La Banque centrale européenne a décidé, mercredi 8 octobre, d'abaisser son principal taux directeur à 3,75% contre 4,25%, en raison de la crise financière. Simultanément, la Réserve fédérale américaine et la Banque d'Angleterre ont également annoncé une baisse d'un demi-point de leur taux directeur. Après ces annonces, le CAC 40 est aussitôt repassé dans le vert. (AFP)Plus d'informations sur Le dans quelques minutes. -

Tuesday, October 7, 2008

"We are not amused!"

"We are not amused," Queen Victoria used to say. Another Brit, Charles Bremner, the Times of London correspondent in Paris, scans the celeb layout of Nick and Carla at the Carlyle Hotel in New York and reacts in similarly censorious fashion:

Having luxurious fun in New York, the source of the financial mayhem that has hit Europe, is surely not a great idea. It hardly matches the censorious terms with which Sarko damned Wall Street greed in a speech in Toulon two days after his return from New York. It is especially surprising since the president ordered his ministers last month to stop appearing in glamour shots in the celebrity press. "In times like these, I don't want to see pictures of anyone at fancy events in dinner jackets (tuxedos) and long Dior dresses," he was reported to have told the cabinet.

Wait No More

In recent weeks rumors have been floated that Sarkozy might invite Dominique de Villepin to join a new government, perhaps as minister of finance, in an effort to cope with the unfolding crisis. A few days ago, Claude Guéant denied these rumors with a seemingly definitive and authoritative voice: "Out of the question!" Today the parquet of Paris announced that it has decided to press charges against Villepin for his involvement in the Clearstream affair and is referring his case to the judges.

Guéant of course knew this was coming. So, no doubt, did the people who started the rumors about tapping Villepin as a savior/fall guy in the financial crisis. Maybe it was Villepin's lawyers, or Villepin himself--a sort of Hail Mary pass, suggesting to Sarko that he could score a coup de théâtre by calling off the prosecutorial dogs and inviting Napoleon's ghost back into government to confront the invading Anglo-Saxon assets at Waterloo.

Ain't gonna happen. So much for Napoleon Redux at Waterloo II. Now Napoleon le Petit bis is left to face Madame Merkel at the remake of Sedan.

A Confession

A while ago, I published a short note about justice minister Rachida Dati's pregnancy. Shortly thereafter, I noticed in my blog logs a substantial number of hits from Google searches looking for "Rachida Dati + pregnancy + Arthur." I was flattered that so many people were turning to me by name as a source of information on the latest, er, developments in France, but it turned out they weren't searching for me at all. They were searching for a TV personality named "Arthur," rumored to be the father of Dati's child. I had not previously known of my homonym's existence, but for a while his notoriety increased the popularity of my blog. Now, it seems, he has denied being the father of the still unborn Dati, as have José Maria Aznar, Eric Besson, and Bernard Laporte.

How does that saying go? "Victory has a thousand fathers, but defeat is an orphan." For the record, O! intrepid Google searchers, I'm not the father either.

Monday, October 6, 2008

Munchau on Euro Bank Rescues

Wolfgang Munchau comments on the need for a European bank rescue plan and has praise for Sarkozy:

Nicolas Sarkozy, the French president, was therefore right when he appeared to back a €300bn rescue fund. Regular readers of this column will probably recall my somewhat constrained enthusiasm for his economic policies. But this had the makings of a good plan. He ended up distancing himself from it, when it became clear that Angela Merkel, the German chancellor, would not support it. But he was right and she was wrong. Of course, a European plan should not have been a copy of the bail-out that was finally adopted by Congress on Friday. The US plan failed to address the problem of an undercapitalised banking sector. That issue is even more important in Europe where many banks have an extremely weak capital base, with leverage ratios of 50 or more.


Judah Grunstein discusses allegations of high rates of absenteeism in French units scheduled to deploy to Afghanistan.

The New Spengler

Nicolas Baverez, the author of La France qui tombe (2003), was once among the leading apostles of a neoliberal cure for all of France's ills. Despite the victory of the candidate who most fully embodied his vision of France's future, Baverez's pessimism has taken a decidedly dark turn. Read the opening paragraphs of his forthcoming En route vers l'inconnu and see if he doesn't remind you of a latter-day Oswald Spengler. The parallel is not really terribly amusing, for if Spengler's theories were wildly wrong in detail, they were alas all too accurate in their general tenor of doom and gloom circa 1930.

The New Political Ecology

FP contributor Éloi Laurent has a new book, co-authored with Jean-Paul Fitoussi, entitled La nouvelle écologie politique: Économie et développement humain. Éloi can also be heard on the France Culture program L'Économie en questions.

Sunday, October 5, 2008

Rescue of Hypo

Germany has come up with 68 billion euros in an 11th-hour rescue of Hypo Real Estate.

No Euro T-Bill Equivalent a Problem

From Tyler Cowen:

Other news is that the German government-led bank consortium to rescue Hypo Bank has fallen apart, not a good sign. The German government has today moved to guarantee all "private savings deposits" [private Sparanlagen], also not a good sign. Which other countries will now follow suit? All of them? Europe as a whole lacks a safe asset as focal, liquid, and available as T-Bills and now that is becoming a problem.

Free Journal On-Line

The journal Pouvoirs: Revue française d'études constitutionnelles et politiques is now available on-line. (h/t Science politique en ligne).

Eating Iran for Lunch

It seems that Bernard Kouchner, speaking in English to the Israeli paper Haaretz, misspoke: he intended to say that Israel might "hit" Iran, but the interviewer heard him say that Israel might "eat" Iran. A war of words then erupted over this warping of words.

Perhaps Kouchner should do an ad for Wheaties: "Hit your Wheaties, kids!"

Two Europes

The Times:

Though they did not agree on a broad bailout along the lines of the $700 billion package that President Bush signed into law on Friday, the leaders of France, Germany, Britain and Italy pledged to prevent a bankruptcy on this side of the Atlantic like the one that brought down the Lehman Brothers investment bank in New York.

Yves Smith:

Hypo Real Estate, Germany's second largest real estate lender, teeters on the verge of collapse. The bank has a €400 billion balance sheet, which would make for a failure of a similar scale to Lehman's (Hypo's footings are roughly $550 billion, while Lehman's were $660 billion as of its last balance sheet date).

Although a private deal seemed to have been put together last week to save Hypo, it fell apart yesterday. Smith, who, it should be noted, is among the more consistently pessimistic commentators on the crisis, along with Nouriel Roubini, sees the end of the euro if Hypo goes down. Here's a French take.

Saturday, October 4, 2008

Fillon Paddles While Rome Burns

Asked if he was miffed not to be included in today's summit meeting in Paris, Fillon noted--rightly--that it was not the place of the prime minister to attend this sort of meeting. But then he added, incredibly enough, that "of course I wouldn't have missed this event, the inauguration of a water sports center in Sablé [the town of which he used to be mayor], for anything in the world."

Really, Monsieur le Premier Ministre? Why undermine the perfect reasonableness of the first part of your statement with such a preposterous fib?

The Constitution Is 50

The Consitution of the Fifth Republic is fifty years old. Today, Le Monde publishes an interview with Jean-Louis Debré, the head of the Conseil Constitutionnel and son of the father of the Constitution, Michel Debré (does that make Jean-Louis the half-brother as well as the steward of the Constitution?).

Debré ponders the vexed question of the elusive balance of powers between the executive and the legislative branches. Except that he doesn't put it in quite those terms. He refers, rather, to the "government" and "le parlement." "Bear in mind," he says, "that the law is the means available to the government to translate its political priorities into juridical terms."

This formulation provokes a number of reflections on the peculiarity of the French system. First, note the implicit hierarchy. In French constitutional thought, the "state" is such an abstract category that it barely appears, or appears, rather, only in its metaphysical coupling with the "head" of the national body, le chef de l'État. In practical matters we have only the government, which is an entity separate from the Parlement, and the administration, which is strictly subordinate to the government. It is the government that governs, according to Debré, whereas the Parlement merely "translates" the will of the government--personified in ministers who command departments of the administration--into "juridical terms." The Parlement does not deliberate or initiate or execute. Its function is one of legitimation, according to Debré: its members are there not to represent their districts, he says, and he goes on to deplore what he sees as an unfortunate evolution of Parlement in this sense, so that its members become representatives not even of their districts but of mere "cantons," and therefore subject to the influence of "special interests," such as lobbies, which also weigh upon the actions of the "administration." In Debré's mind, only the "government" is exempt from such influences. It is the repository of the "general interest," as opposed to "particular interests."

It is of course easy to detect in this portrait the influence of a hyper-Jacobin reading of French history, but it is rare to see it spelled out in quite such stark and uncompromising terms. Compare, if you will, the American Constitution, in which executive, legislative, and judiciary are three co-equal branches, which together constitute the government of the United States. It is interesting, perhaps, that when the French wish to refer to the collection of entities that constitute the political life of the nation, they speak not of "l'État" but of "le pouvoir." In English, "government" is often the best translation of le pouvoir, yet the term "government" connotes a constitutional legitimacy that the bald evocation of le pouvoir does not. For the French, there is always something starkly de facto and therefore temporary about le pouvoir, whereas "government" in English carries a connotation of de jure constitutional legitimacy, of contractual consent under a covenant binding on the people.