Tuesday, August 9, 2011

Golden Rule

Sarkozy wants a balanced budget amendment to the Constitution, which he calls the "golden rule." The idea is daft, but nothing is too daft in politics these days, particularly when it comes to wrong-footing one's opponent. François Hollande has found a riposte, however: he wants to force the parties to indicate in next year's budget bill how they propose to return to a 3% of GDP deficit by 2013:

"La seule question qui vaille c'est qui va payer l'effort ? Est-ce que ce sont toujours les mêmes – c'est-à-dire une grande majorité de nos concitoyens – ou est-ce que ce sont ceux qui ont quand même beaucoup gagné grâce aux cadeaux accordés par Niocolas Sarkozy depuis 2007 ?" ajoute M. Hollande sur France Info.


Dick Sindall said...

Golden Rule? Daft indeed.

Mitch Guthman said...

And one might also ask from which body orifice was this 3% figure pulled in the first place? Is this a good policy for the EU in a time of severe recession? Or even a realistic policy? It was the same bunch of "serious people" blathering on about these arbitrary “targets” while resolutely ignoring the economic reality of large chunks of the EU that caused this crises and make it unrealistic to continue with the Euro.

I would go Hollande one better: Screw the EU. Let each French party put forward an economic policy for France and justify that policy. If Sarko thinks it should be 3% of GDP deficit by 2013 let him explain why that’s a good idea in addition to how it will be achieved, how much pain it will cause and to whom.

Plus, I would say the same thing to the French deputies as I say to American congressmen: There is no need for a “balanced budget amendment”. If you want a balanced budget, nothing is stopping you from actually proposing one. Just do your job.

bernard said...

As for the 3% deficit - and 60% debt ceiling - I can definitely answer. This comes from the time when the Maastricht treaty was being negotiated (1989-1990). Given the potential growth assessment at the time and other parameters entering what is called in the macro trade "the debt dynamics equation", a 3% ceiling would in theory lead to debt stabilising below 60% forever. Naturally at the time, French and German debt were way below 60%, deficits were actually small surpluses (there was an economic boom then before the first gulf war and the recession in the US hit), and therefore 3% looked like a constraint that would never bite. I guess times have changed. Potential output growth is not what it used to be, deficits have been way over 3% for, like, 8 years, debt is way over 60%. The constraint has now bitten and, like a hyena, it is not going to let go of S's bottom.