Wednesday, April 10, 2013

Austerity: The Battle in France Intensifies

Christian Noyer, the governor of the Banque de France, insists that the government must cut expenditures by 40 billion euros over the next two years. Meanwhile, two other ministers, Hamon and Duflot, have joined Montebourg in challenging the wisdom of Hollande's austerity policy.


brent said...

I sm puzzled by the fact that the left wing of the Socialist Party is joined in its dissidence by a figure not usually associated with the radical Left: US Treasury Secretary Lew.

Is Lew's mission the symptom of a large difference of macroeconomic opinion among players who share the same basic goals, i.e. stabilization of the existing global system? Or is the US's position structurally different from Europe's, so that what is good for it--debt-based growth-- is bad for the EU?

Art Goldhammer said...

Brent, If I may say so, you're puzzled because you're trying to understand the world by dividing it between capitalists and anticapitalists. There are many different kinds of capitalists, and many capitalist ideologies. Keynes has never had the influence in Europe that he had in the US. Demand stimulus in Europe would be good for the US economy, because some of it would spill over into demand for imports. Unfortunately, Lew is giving short shrift to the difference in market attitudes toward the US sovereign and European sovereigns. The markets (despite S&P) trust that the US will never default because it controls its own currency and printing press. European sovereigns do not, and the ECB, though in some ways as innovative as the Fed, cannot be counted on to bail out every country because it is dominated by German Ordoliberal thinking and fears of moral hazard. In any case, Lew's advice is mainly directed at Germany, and therefore it will fall on deaf ears, because the Germans will not change policy before their elections this fall, and probably not afterward either. For a primer on all this, see Mark Blyth's new book, Austerity.

PF said...

US policymakers are somewhat in a bind here because they've already shown since 2007 that their Fed, with Treasury cooperation, is willing to do whatever it takes to prop up the European banking system. They never asked for anything in return from Europe, policy-wise, when they did it. And in truth, it was in the US's interest in some sense anyway. But it does leave them in a bit of a negotiating dilemma, unable to even quietly threaten and create leverage to pressure the ECB and influential German decision-makers and politicians. Within the short-term horizon of the global financial crisis, European elites should feel deeply grateful toward and in hock to the US government, and both US and European elites should know it, but this dynamic has proven to be a wholly unactionable one.