Tuesday, January 14, 2014

Hollande's News Conference 2

The major announcement that Hollande made today was what he called a "responsibility pact" among the "social partners." What might "responsibility pact" mean, and why did its announcement cause Laurence Parisot to tweet joyously that enfin employer charges for cotisations familiales would be reduced by €30 billion over the next three years?

The answer is clear: the "responsibility pact" is the ingenious name conjured up by Hollande's spin doctors for a second wave of austerity. Employers are delighted to be relieved of €30 billion in charges. "Households," presuming that households have feelings, might feel somewhat less delirious with joy at the announcement that the €30 billion will not be shifted onto their shoulders. So, how will the cut be financed? By a massive reduction of state expenditure. Not just €30 billion but actually €50 billion by 2017. How? Hollande didn't say. But of course budget-cutting talk is cheap. One can always worry about the details later, or count, as Hollande is no doubt counting, on that elusive "expansionary contraction" that is supposed to follow declarations of virtue by formerly sinful politicians. "The Lord helps those who help themselves." Perhaps, but He has been remarkably unhelpful to Greece, Italy, and Spain. The UK's somewhat improved recent economic performance in the wake of draconian austerity is probably Hollande's actual inspiration, but France lacks Britain's financial sector, where most of the gains have been concentrated. So Hollande is probably investing in vain hopes, hoping that their vanity will not become fully apparent until another 18 months of inaction have passed, by which time his approval rating will have sunk into the single digits. But there is always consolation in la vie privée, about which the less said the better--or so we are told (see below).

This is a proposal that the American Tea Party would love. John Boehner would be falling all over himself to praise it. But how in the world can it be implemented in France? What does Hollande propose to cut? He didn't say, but the glum faces on any number of his ministers at various points in the proceedings suggest that discussions are already under way. The only one who didn't look glum was Montebourg, who seemed excruciatingly bored, perhaps because he is already planning his exit from the government and his repositioning as the anti-Hollande for a 2017 presidential bid. Of course, he will have to prepare for Valls, who will challenge him as Sarkozy-bis. Hollande is a dead letter. He is finished in French politics, and I don't care about the polls, reported in the Guardian, that suggest his extra-non-conjugal escapade with Julie Gayet has actually increased his approval rating ("Oh, those French!" clucks the English writer).

And while I'm on the subject of la vie privée, it's rather amusing that, when asked whether Mme Trierweiler is still la première dame de France, Hollande said he would take up the question at a later date but before his scheduled trip to Washington. The French, who profess to have no interest in the private lives of politicians but can talk about nothing else whenever a scandal hits the press (like people everywhere), have nevertheless adopted the habit of their much-reviled puritanical American cousins in creating an official position of "first lady," whose occupant is chosen not by the people but in consequence of the sexual choice of their elected leader. The people nevertheless pay for her staff of 4, she has an office in the Elysée, performs official functions, etc. So private life and public life constantly interpenetrate in this day and age, and yet this interpenetration is not to be discussed in public. Perhaps it would be more honest and aboveboard to concede that a president's private life is not and cannot be private in the conventional sense and then consider what implications that might have for a president who, as a candidate, promised that his behavior would always be exemplary. If a president wants his private life to remain private, then his partner should behave as Yvonne de Gaulle behaved and stay out of the public eye.


Mitch Guthman said...

I must say that I didn’t see this coming. It has been a long downhill journey from the heights of euphoria at Hollande’s election but, even so, what was announced today is beyond belief. I agree with Art’s analysis and I think this press conference was pretty much the final nail in the PS’s coffin. I fear that the PS is finished as a political force in France, probably for generations.

One question is whether a younger generation of committed activists will somehow emerge within the PS as a response to this insanity. The events of today should make everyone on the left question the wisdom of those who abandoned the PS rather than fight to save it. If the PS can be saved, I believe that the Parti de Gauche needs to dissolve itself and return to the PS so that the left can again be a presence within the party. The current situation demonstrates the failure of the strategy of the earlier separation.

A return to the fold may help to promote a younger generation of activists willing to fight for control of the party on a platform of defeating the scourge of neoliberalism and restoring the social welfare state. One can only hope that by reinvigorated efforts at the local and regional level, this new generation will quickly dislodge the current bunch of idiots and elephants. If a new generation rises and avoids being trampled by the elephants, perhaps the PS will again be able to legitimately contend for national elections at some time in the distant future, although, quite frankly, I don’t see how trust in the PS can ever be restored.

The return to the PS by the left and the rise of a new generation seems unlikely in light of the difficulties of dislodging Hollande and his gaggle of clowns in time to make a difference. I fear that the political and social environment in France is entirely against it. More likely, the base of the party will become ever more discouraged and ready to jump ship. The PS will almost certainly be massacred in the series of elections between now and 2017. The damage at the local level could be so devastating that the PS may actually join the FN in struggling to get the 500 signatures.

If the young, the middle class and workers abandon the PS, as I believe will happen, the future of French politics will be largely determined by where these people go. Some may go to the Parti de Gauche or even to the inert PCF but I fear that many will be lured to the FN by its message of economic nationalism and because it is now the only major party in France that is not committed to neoliberalism and is interested in improving the French economy. Hollande was the last hope for the left and the center and he’s just pissed all over them. It is a horrifying situation when only the devil is willing to offer bread and hope to the people who are starving and afraid for their future.

In any case, I think there is no reason for anyone to support the PS. Sarkozy is now (unless he shifts further right in response to events) rather bizarrely the most economically and socially liberal of the major candidates for 2017. His return to the Elysée Palace is probably the best we can hope for now.

Capitalrix said...

Talk to any specialist of French public finances, including from the left, and most will tell you that it's always been stupid to have family benefits paid by companies and, eventually, by the workers (due to unfavorable tax incidence).

Of course, those benefits need to be paid for in one way or the other, but one has to agree on the fact that cutting taxes, especially distortionary ones like family contributions, is prima facie the exact opposite of austerity.

FrédéricLN said...

I take Capitalrix's point, but also the core point in Art's post: Hollande just imitated his (likely) model Jacques Chirac, who promised many times to suppress the "taxe professionnelle" (paid by employers) as it was supposed to be employment-adverse, but never found how the money would be replaced. He also promised to cut the income tax by one third, and actually achieved a cutting by some %. Now Hollande pretends to reduce State "earnings" by approximately the same amount he added in 2012-2013 to taxes. That's imaginery at best.

The great thing in France, the government services perfectly know how to empty such decisions and transform them into "communication messages" without any relationship with reality. In the US, when the Reps massively cut taxes, well, the do! Not in France.

A proof hereof: Hollande announced €50 Bn savings in expenditure (2.5% of GDP), as Arts remarks it. Well, he already made the same €50 Bn announcement in November 2012. I will recommend my own post http://demsf.free.fr/index.php?post/2012/12/18/L-evaluation-pour-de-vrai-disent-ils-M-le-Commissaire , because, as you will see, it was sincerely hopeful.

Of course, all this announcements about what would be done "as soon as 2013" did not occur. I did not hear of 1 € saved by this evaluation program.

But M. Hollande told us this afternoon that €15 Bn had ALREADY been saved since 2012!

How? Well, it's quite simple. These €15 Bn have not been spent, while they might have been if they had been spent. (Please read again. I'm not fluent in English, but I think the sentence expresses exactly what it is around).

Now, just count : €15 Bn saved-by-not-spending-what-might-have-been-spent in 1.5 year = 10 Bn/year = 50 Bn in a 5-years term.

I seriously think the same method should be used at a wider scale. Yes, France can save €50,000 Bn. Just believe.

PF said...

Hollande's solution, apparently representing the PS, is entirely domestic -- negotiations between businesses and workers -- with a quietly-expressed international framing of improving competitiveness within Europe (globally too?). In other words, he entirely accepts the policy and ideological terms of the EU's current vision of austerity. Did he say anything about desired monetary policy? about intentions regarding banking reform? about future negotiations with other EU-member states? I'm guessing no. He either has no solutions commensurate with the problems, or he's already accepted the solutions of Merkel's pan-European allies.

Anonymous said...

Ooh la la, je crois que tout le monde va un peu vite en besogne ici. It's a little premature to be pronouncing people politically dead in elections that won't happen for another 3¼ years or to be pounding nails in parties' coffins. Listen folks, President Hollande has announced a significant change in economic course and toward a 'social-libéralisme' and an affirmation of France's role in Europe that many who read this blog - including the 'animateur' of the blog himself - should identify with. Where he goes with this, who knows? We'll have to wait and see. As for saving the suffering French taxpayers €30 billion, well, there are all sorts of places in les dépenses publiques where money could be found, e.g. in les allocs - which should be phased out - and les administrations centrales (even economists on the left acknowledge the excessive 'lourdeur' of the state administration). One thing is for quasi sure, which is that there won't be austerity going into 2017. Hollande may have made mistakes and misjudgments, but he's not *that* stupid or clueless.

I've been critical of Hollande and circumspect as to his future chances - as anyone who reads my blog knows - but think he did a not bad job today. I'm not overly optimistic for him but am not ready to write him off just yet.

On 'la prèmiere dame', France has one in thing in common with the US - but that it does not with its European partners - which is that the executive is an elected President of the Republic. We don't talk about First Ladies in parliamentary systems. Presidential systems - or hybrids, like France - are different.


Mitch Guthman said...

@ Frédéric,

My objection isn’t to the tax cuts per se, but rather to the fact that the tax cuts will apparently be "paid for" by spending cuts that will be counterproductive in the current economic environment. The efficacy of government spending as opposed to tax cuts is beyond dispute. Trading spending for tax cuts is terrible policy if you are trying to stimulate the economy in a zero bound environment.

The tax cuts directed at businesses will do even less to revive the troubled French economy. Decisions about whether to hire new workers or build new capacity are largely unaffected by these taxes. Lowering the taxes as proposed by Hollande might put more money in the pockets of some businessmen (which might eventually trickledown) but there is no reason to believe that this money will be used to hire new workers or build additional productive capacity.

Why? Because businesses won’t hire new people or build new productive capacity until they have nearly reached the limits of its already installed productive capacity and are sure that there will be sufficient demand to justify hiring more people and building more plants in the future. In short, since France’s present economic difficulties are the result of a dramatic drop in demand, only the return of demand will stimulate the economy and start businesses hiring and expanding again.

Europe has tried imposing austerity as a response to a recession and the result has been catastrophic. Cutting government spending isn’t always a good idea and, while it may feel prudent, in the current economic environment it is stupid can reckless beyond belief.

@ Capitalrix,

I think the more important point is not whether the current system is a good one in the abstract but rather whether the specific changes announced will have a beneficial effect in reinvigorating the French economy. I say that’s unlikely because the lost tax revenues must be offset by reductions in public spending at precisely the moment when increases in public spending is what’s needed.

Also, the simulative effect of cutting taxes is generally held to be pretty weak and tax cuts which are “paid for” by boots in economic activity caused by visits of the Confidence Fairy have almost none. By contrast, the promised cuts in spending required to offset the reductions in tax revenues and for purposes of this “pro-business” approach will simply be an even greater burden on a French economy which was weak to begin with because of the previous round of austerity. Hollande’s proposal is simply a neoliberal suicide pact

FrédéricLN said...

@ MItch Guthman: I agree with most of your points, but my main objection is elsewhere, I think:

* the promise of €50 Bn spending cuts, which is supposed to balance the "cotisations" cuts, being fictitious, there is nothing to balance the cuts, but debt — we would structurally pay €30 Bn welfare allowances borrowing yearly €30 Bn more, which is economic, budgetary and social nonsense;

* the 1 millions jobs expected to be the benefit, will not and cannot come (in such a large number) from that "cotisations" cut, as you explain it; Mr Hollande says he relies on commitments by employers, but who will take such commitments? Almost no one (but SNCF or EDF), as you say and Mr Gattaz also said this morning. That's "social-démocratie" at its worse: living in a fictitious world where "partenaires sociaux" would decide, around their round table, how the companies will win new contracts, discover new products, develop new software and so on.

I attended a think tank meeting last week where someone put it quite clearly: recovery of the French economy is basically a micro-economy issue; our political leaders, who never saw a business running nor where staff members in a non-political job, only rely on macro-economy — I grant you that they understand it a sometimes very biased way. But basically, macro-economy is not the point.

Capitalrix said...

@FredericLN: I certainly agree on the fact that 50 billion euros in spending cuts is not attainable, but in this respect, it is fair game in view of the negotiations to come to initially announce a number that is too high.

Regarding the evaluations, I am not surprised to see that few things have come out for now from the evaluation exercise launched in late 2012. But frankly, the opposite would have been surprising: good evaluations take time.

You also mention that micro-economy matters most and I cannot agree more. Again, in this respect cutting the cotisations familiales is a good microeconomic move: it is simple, it makes economic sense, and it is first-order. In those respects, it is much, much better than the CICE or the subsidies to overtime work, to take the most recent examples in the field of labor taxation.

PLM said...

"recovery of the French economy is basically a micro-economy issue"... Precisely less than ever before, in an economy crushed by a lack of aggregate demand.
Hollande is not seeking to revive growth in the short term. He knows that the measures he is advocating, if implemented, will be a further drag on the recovery. As an énarque trained in the 70s, he knows his Keynes enough for that (as is clear from the sciences-po classes he gave). And his staff is fully aware (more than most of us) of OFCE papers on “Failed austerity in Europe“ (http://www.ofce.sciences-po.fr/publications/si2013.htm), or INSEE conjuncture notes that suggest “a slowdown in early 2014 as a result of the lack of dynamism of the various components of demand” (http://www.insee.fr/en/indicateurs/analys_conj/archives/ve_122013E.pdf). Hollande himself debated several times with Thomas Piketty, and is fully aware of his proposal that a combination of an exceptional tax on capital (for instance, on assets above € 1 million) and a moderately higher inflation would easily reduce the debt below 60% of GDP.
So we are facing a political project of deepening the neoliberal structural adjustment. To what extent it will be implemented remains to be seen.

FrédéricLN said...

Sorry, PLM, I disagree with the relevance of your analysis framework regarding France.

We are a small country within an open, global economy. You can compare us to Illinois or California.

There is no lack of aggregate demand at global level. There is a French failure to address this demand. Even in our former "chasse gardée" (private garden?), Africa, our market share has been divided by 2 during the last 10 years only.

That is the issue. That's what Mr Hollande's announcements did not seriously tackle, imho.

PF said...

I partly see your point, but I think you exaggerate when you say France is "a small country within an open, global economy," with the seeming implication that this leaves it overwhelmingly at the mercy of forces it cannot manage. Another legitimate characterization would be to say that it's economy is among the top ten largest in the world (rankings usually list it around 7-9), and it's one of the two key partners in a major international institution that defines one of the largest economic spaces in the world. It's far from helpless or powerless when it comes to trying to assert influence and maneuver within the European or global economy. Indeed, part of the reason it spent decades pushing forward the construction of the EU was in order to gain significant control over its European and global future.

FrédéricLN said...

@ Capitalrix: on your point // cutting family-benefits-"cotisations": "it is much, much better than the CICE or the subsidies to overtime work, to take the most recent examples in the field of labor taxation", I totally agree.

@ PF: I agree with your legitimate characterization. By writing that France is a small country in an open world, I would absolutely not mean that France is powerless. Only that France is competing with others, and that, in a global economy, winner takes all, because marginal production costs are near to negligible — meaning that, if France is less effective than others in production, marketing or sales, France may well sell 0. As powerful as our country is.

Already in 1983, when (technological) globalization was far less advanced, Jacques Delors pushed a meaningful motto "À 5%, la France est dans la course" (with 5% inflation or less, France [will be] in the race [again]). The issue was macro-economic then, our industries performed at high level — Renault issued it first car in the USA, the Alliance, in 1982, and Airbus released the A320 in 1984. But inflation undermined investment, and nationalizations (? english ?) often led to bad investments, such as in the Bernard Tapie group.

President Hollande seems to believe 'social-démocratie', namely negotiating jobs with the employers' Union, is a franco-French way to reach a good economic and social balance.

I agree with Mitch Guthman that "businesses won’t hire new people or build new productive capacity until they have nearly reached the limits of its already installed productive capacity and are sure that there will be sufficient demand to justify hiring more people and building more plants in the future", I just don't think any business can wait and sleep until demand comes to it. Businesses should create, discover, cross the world, cross ideas and demands, improve processes, and so on, until they reach the demand that exists all over the world towards what France can deliver — that's something I believe in :-)

bernard said...

FredericLN and others,

Since we are talking about the early eighties, let us go back to the seventies, which is when I first started to learn economics.

1. At that time, I learned in class that a very small number of very large French companies - you just quoted three of them - were doing most of French exports. I was told then that this was a serious problem and that this made France very different from Germany and its Mittelstand where a very large number of medium sized companies - and large ones as well of course - made most of Germany's exports. This allowed Germany to have business exports and France to have State exports so-to-speak. Obviously as well at time, I thought that everyone could speak English, not having set foot yet myself inside a French company (speaking English may be helpful for selling product outside France some of the time). At that time, France had been continually ruled by conservatives for several decades (I will not attempt to characterize pre-1958 times, too many governments, too little time).

2. Then came the 1980s and France was ruled by socialists for 14 years more or rather somewhat less. Then came the 1990s and France was ruled by conservatives for 17 years less an interlude of mixed socialist-conservative rule lasting 4 years. And now, France has been ruled by socialists for the past 2 years, with conservatives literally in denial that they were in office for such a long time - who, us? -.

3. Generations pass and move on. Thus, now my son is learning law and bits of economics and in fact was telling me the other day how much of an advantage he's got simply from being bilingual and please go back to point 1, change dates. Nothing whatsoever has changed in the past 40 years. Well maybe this: Dassault father was better at exporting his planes under State umbrella than Dassault son presently is. But then I did learn in the seventies in my physics class that entropy can only increase.

Then, likely, go back to point 2. and move on to point 3. and so on.

I am a socialist and I am telling you all that this has nothing to do with politics or politicians or policies and everything to do with companies and businesses, ie. with La France Profonde, which as we all know never changes, which is why so many people enjoy a holiday in France where the Camembert is still so delectable.

FrédéricLN said...

@ bernard : quite the same story in my case, postponed by ten years, and replacing "socialist" by "democrat". My only relief is to know we democrats (or, the center) haven't been in charge of policies since 1981, so I won't plead guilty for the three lost decades. And my daughters aren't bilingual actually, despite Art's help (private thanks!).

Stability, conservation (either by the "conservative" or by the "defending-past-social-conquests" left) are great outcomes of sound policies. But in times of technological, therefore structural (social, institutional), revolution, stability is not enough. Camembert can save us only if visitors in France get short-messages on their phone telling them how near the best Camembert is, if earthlings with a mobile phone can order Camembert for their tomorrow's party by clicking on the farmer's site (carbon dioxides emissions being saved…), and so on.

In the late 80's, I used to live in an African country, there just wasn't any Camembert available. La Vache Qui Rit was the only cheese travelling so far — because it's safe at ambient temperature, even subtropical. France exported Peugeot cars to this country.

Now and since twenty years, the country basically buys Toyota cars, and Mercedes. Wine actually (but perhaps more often Spanish or South African, than French — I should check). Camembert ?

About external trade, I'll add a reference to Michel Volle's post http://michelvolle.blogspot.fr/2013/05/la-veritable-dette-de-la-france.html ; Michel insists on another KPI, the balance of payments. Under this perspective, I should not talk of three lost decades but only 10 or 15 lost years: the balance sunk in 1980-82, improved from 1983 to 1986 and again from 1992 to 1998; then sunk quite constantly, by an average €6-7 Bn/year (±110 €/capita and /year). According to the Banque de France's latest monthly report (nov. 2013) https://www.banque-france.fr/uploads/tx_bdfstatistiquescalendrier/Balance-paiements-de-la-france-11-2013.pdf , 2013 might be a bit better than 2012, and come back to 2011's levels. But foreign investments in France diminish, and French investments abroad increase, which may be good in itself, but perhaps also reflect a reluctance to invest in France.

bernard said...


Thanks or this. I had no idea that Michel Volle, someone I liked very much than lost trace of in the late eighties, was still around. Internet is great that way. Funny you should mention him and trade together. He and I discussed the BOP crisis of 1981 within a high level party political basis, searching for a quick fix...

FrédéricLN said...

@ bernard: I read your comment with 2 years delay. Still relevant!

Michel published some stories about the Mauroy years. He also publishes a good deal about present economics, esp. around http://www.iconomie.org