Monday, April 8, 2013

Gift to Hollande Meets Sad End

Grateful Malians gave François Hollande a camel as a token of their appreciation for sending French forces to Mali. At first, Hollande planned to have the animal sent to a French zoo, but this proved impracticable, so he left it in charge of a Malian family. Unfortunately, the camel has now reportedly been slaughtered and eaten:
The young two-humped animal, a gift to Mr Hollande for liberating Mali, has been killed and put in a stew, according to Jean-Yves Le Drian, France's defence minister.

Mr Le Drian was informed of the camel's demise by officers tracking Islamic terrorists in the former French West African colony and broke the news on to the Élysée Palace, according to Valeurs Actuelles magazine. (h/t RM)

Krugman: The ECB Is Backstopping France with its Printing Press

According to Paul Krugman, the ECB has assumed its proper role of lender of last resort with regard to France, because it realizes that without France, the euro will fail. Consequently, French borrowing costs have fallen sharply. Krugman sees an opportunity for genuine Keynesian stimulus. With the restiveness in the ranks of the PS discussed in a previous post, Hollande might want to consider availing himself of this opportunity. Even a tepid stab in this direction would be a bold declaration of independence from Germany and a chance to regain the initiative and do something about rampant unemployment. It is hard to imagine the cautious Hollande taking such a step, however.

Chart of French 10-yr borrowing costs

Heuliez Goes Under for the Third Time

Heuliez, an auto body manufacturer that has been trying to diversify into other lines, filed for bankruptcy for the third time. You will recall that back in 2010, when we were all still Keynesians, Ségolène Royal boasted of having saved the firm, which is located in her region (Poitou-Charente) by investing state funds. This latest failure is an object lesson in what can go wrong with such industrial policies.

Of course, it might have worked out. A large pending order from Volkswagen might have saved the firm, but it didn't come through in time. Still, in a time of general overcapacity in European automobile manufacturing, the decision to prop up a failing firm must be weighed very carefully. One of my steady criticisms of French policy is that too much state money has gone to failing firms and too little to promising startups, R&D, and infrastructure. Given the constraints on state budgets, every grant requires close scrutiny. To be sure, Obama saved the US auto industry, but the US market is very different from the European market, as French policymakers should know.

Socialist Troops Are Restive

The Cahuzac affair has triggered a public airing of socialist complaints about Hollande's economic policies that were hitherto circulated largely in private. The complaints are coming from all wings of the party, including the majority, and if any one theme unites them, it is that current policy offers no clear strategy for reigniting growth. It's a good thing that the questioning of austerity is not simply abandoned to the extremes of left and right, but it will take some leadership and some work to fashion a coherent critique out of these intraparty murmurs. Let's hope that the right person steps forward. He or she is likely to be someone not associated with the current government.