Friday, July 27, 2012

Le Grand Paris

Remember Sarkozy's plan for "Le Grand Paris?" If you don't, it's not your fault: it was one of those here today, gone tomorrow Sarkoplans. There was a big urban transport project embedded in all the airy imaginings of a new urbanplex stretching from Paris to the sea, however, and that hasn't died--yet. Cécile Duflot seems to have become its champion, after having been its enemy. But the budget crunch may do for the rail line as well.

Has Germany Changed Its Mind?

German finance minister Wolfgang Schaüble has more or less endorsed ECB head Mario Draghi's statement yesterday that the ECB "will do what it takes" to save the euro and, added Draghi, "believe me, it will be enough." The markets are apparently interpreting this as a promise by the ECB to buy beleaguered sovereign debt. Pierre Moscovici, while taking care to emphasize the "independence" of the ECB, said yesterday that it appeared direct market intervention was on the table.

So have we turned a corner in the euro crisis? Has the ECB decided to start the printing presses running overtime, and have the Germans decided to stop warning about "moral hazard," "encouraging profligacy," etc.? The proof will be in the pudding. But would you want to speculate against the possibility that the ECB might in fact be ready to use the big bazooka and not just run at the mouth? (On the other hand ...)

If the change of course has in fact occurred, we can retrospectively attribute it to two things: the imminent disaster that Spain faced this week and the report that austerity hasn't worked out so well for the UK, which turned in a dismal 0.7% GDP shrinkage last quarter. And even Germany has begun to feel the bite of the global slowdown. So the Germans may have blinked. And the Dow is flirting with 13,000 again. Everybody's happy, what could possibly go wrong?


Hollande the unflappable has kept his cool as the bad news poured in: first Aulnay, now Air France. Major layoffs will not make his life easier. Suspicious minds will naturally think that both firms, which have been in difficulty for quite some time, may have delayed their announcements until after the presidential election. In any case, the problem is now Hollande's to deal with. Michel Sapin sees unemployment back to 10% by the end of the year. Meanwhile, Hollande's pet project, the "generational contract," in which a firm will receive a tax exemption for hiring a young person to be tutored by an older employee nearing retirement, won't generate much employment, according to the OFCE. It's one of those symbolic gadgets that politicians like.

Not that symbolism is unimportant.  I've just read Franz Olivier-Giesbert's Derniers carnets. For Giesbert, symbolism is everything. Or, anyway, symbolism plus budget discipline and character, with considerable overlap in the latter two categories. The book has the usual Giesbert defects and qualities: astonishing quotes--so astonishing that one suspects half of them are made up, especially as certain tics of Giesbertian language appear frequently in the mouths of his subjects, portraits etched sometimes in acid and other times bathed in embarrassing sentiment, intense likes and dislike, and occasionally shrewd judgments. Surprisingly, Hollande wins his approval, perhaps in reaction against Sarkozy, whom he seems truly to detest while granting him high marks for political skill: "genius without talent," he says of Sarko, while Hollande has "talent without genius." A nice formula, even if it leaves all the important questions unanswered.

Still, one might make the case that Hollande's detachment is just the right attitude for the difficult times ahead. There will be no promises of fetching jobs with his teeth or bludgeoning recalcitrant opponents into submission. Indeed, those champions of the working class, Le Pen and Mélenchon, have been strangely silent since the election, despite the blows that have fallen upon their blue-collar constituencies. Perhaps they're waiting for the rentrée, on the theory that no one in France pays any attention to anything in July and August anyway.

Juppé and Bayrou also meet with Giesbert's approval. An odd trio indeed.

More on the European Auto Industry

In the wake of the PSA Aulnay plant's announced closing, we have been looking at the European auto industry. A war has erupted between Volkswagen and Fiat. Sergio Marchionne, the head of Fiat and president of the ACEA, the association of European auto manufacturers, has charged Volkswagen with being "too aggressive" in its price discounting. Marchionne claims that VW, which is selling 2 million vehicles a year in China, is using its profits on Chinese sales to capture European market shares from less well-placed European manufacturers such as Fiat, PSA-Peugeot, and Renault. VW is outraged by the charges and is calling on Marchionne to resign his ACEA position. What's interesting here (assuming that there is some truth to the charges) is the way in which all competition has become global. In an industry like automobile manufacturing, you can't concentrate on your local or regional market and hope to overcome the advantages of the global winner. Some years ago, Claude Bébéar, the head of Axa, the French insurance giant, warned his fellow French business magnates that they had only one choice: "Get big and compete, or find a niche." In automobiles, there are few niches.