Friday, April 11, 2014

Hollande Approval at Scarcely Believable 13%

No "Valls effect" reads the headline: after the nomination, Hollande's approval rating has fallen again to 13%, according to this poll. This is scarcely believable: given the inevitable number of "low-information voters," you'd think that noise alone would boost anyone--Astérix, Mickey, a drunk Gérard Depardieu--above 13%. Of course it's not difficult to explain why there was no post-Valls bounce: the nomination surely pissed off the last remaining left-PS voters still willing to give Hollande the benefit of the doubt. And why would center-rightists approve of Hollande simply for nominating a PM they might like better than, say, Arnaud Montebourg?

But it's really rather alarming. Given the importance of the presidency in the French system, the slightest hiccup could precipitate something close to a legitimacy crisis. There is no cushion. And with the FN likely to score big in the next elections, what response can there be from the government. The remaniement option has been used up. There are no more chairs to shuffle, no lambs to be sacrificed. The president is exposed. Something had better turn up.

Is Deflation Looming for the Euro Area?

The signs are increasingly ominous. Here is Menzie Chinn's comment:

At this juncture, the distinction between the US as a monetary and fiscal union with high interstate factor mobility, the euro area as a monetary union with relatively low inter-country factor mobility, becomes important. While inflation is negative in the periphery countries, the deviation from the trend line is negative for the core (and large) euro area countries of Germany and France. The German deviation is about 5% in log terms. While the French deviation is smaller in absolute value, it contrasts with the pre-crisis value of essentially nil. If nominal debt had been accumulated with the expectation of the two percent trend in the price level, the very fact that the price level is lagging implies higher than expected debt burdens and hence more binding collateral constraints.
The IMF concludes:
Macroeconomic policies should stay accommodative. In the euro area, additional demand support is necessary. More monetary easing is needed both to increase the prospects that the ECB’s price stability objective of keeping inflation below, but close to, 2 percent will be achieved and to support demand. These measures could include further rate cuts and longer-term targeted bank funding (possibly to small and medium-sized enterprises). …