Thursday, March 29, 2012

The Economist's "Denial"

The Economist claims that France is in denial:
It is not unusual for politicians to avoid some ugly truths during elections; but it is unusual, in recent times in Europe, to ignore them as completely as French politicians are doing. In Britain, Ireland, Portugal and Spain voters have plumped for parties that promised painful realism. Part of the problem is that French voters are notorious for their belief in the state’s benevolence and the market’s heartless cruelty. Almost uniquely among developed countries, French voters tend to see globalisation as a blind threat rather than a source of prosperity. With the far left and the far right preaching protectionism, any candidate will feel he must shore up his base.
But The Economist exaggerates. In the previous paragraph, for example, in the previous paragraph, it says:
Exports are stagnating while they roar ahead in Germany. France now has the euro zone’s largest current-account deficit in nominal terms.
But who measures current account in nominal terms? In percentage of GDP, the deficit is 2%, having drifted steadily downward from a surplus of 2% a decade ago. This is not a good situation, but it's hardly as catastrophic as The Economist claims, and France is by no means in the same position as Greece, with little to sell that the rest of the world is buying. The path to balance is clear.

It would be more accurate to say that Europe is in denial and that France just happens to be the country holding the next election, so the denial of Europe's problems is momentarily manifest there. Should French politicians be talking more about the problems of the Eurozone? Of course, but since both major parties are deeply divided, they cannot, and since both face opposition from strong anti-Europe parties on their wings, they would rather avoid the issue altogether. The Economist would like to throw gasoline on the brazier, but concrete suggestions about how to reform European institutions would be more useful. The fact that even a high-stakes gambler like Sarkozy hasn't proposed anything is an indication of how daunting the task is. The Economist, in its usual brisk, no-nonsense, just-get-on-with-it style, seems to think that it's all just a matter of putting one's head down and chugging off in the right direction.


FrédéricLN said...

I agree on the point that the crisis is shared by many countries. But the trade balance of the €zone as a whole excluding France, is positive… France actually faces severe issues, with a snowball effect since 2003-2004. Many people just don't believe the country can be saved as a whole, and choose to "take their profit" (that's a common point with Greece). What the country needs is the very opposite behaviour.

The Economist also points that one of the 10 candidates does *not* share this denial. After all, we need only one President, not 10!

TexExile said...

That's what you get for reading the wrong end of the magazine, Art. No one ever learned much by reading Economist leaders. And I say that as a lifelong reader of that august publication.

The key, in my view, is to read the magazine from back to front. The obituary is almost always worth reading. Books, arts and letters, too, then the science section, which I generally enjoy. And so on, proceeding gradually forward from back to front, while reading the sections in reverse order (Schumpeter, Lexington, Bagehot and Charlemagne at the start of their respective sections, etc).

I also try never to miss the letters page. And I try never to read beyond it towards the front of the magazine.

Even when I agree with the conclusions, I often find that the editorials annoy me. The quality of the leaders is almost always lower than he quality of most of what follows them in the magazine.

Merlin said...

I believe the CA deficit is closer to 3,5 to 4% of GDP than 2% and more importantly drifting upwards. This is more an issue than debt, because this is funding by fickle foreigners.

The issue for Sarkozy is the same as for Hollande. Fixing the probleme will require hurting is core constituency of protected "middle class".

At least I believe he understands. I am not sure Hollande does. Probably because it means deep cuts in Public expenditure of at least 5 % of GDP. I would not want to be public servant in the next ten years.