Tuesday, March 14, 2017

The EU in the French Election

A fragment of a longer piece I'm writing for The Tocqueville Review:

The most recent Eurobarometer shows that only 51 percent of the French feel “attached” to the European Union. Two French presidential candidates, Le Pen on the far right and Mélenchon on the far left, are calling for “Frexit” on the grounds that there is no other way to restore exclusive national sovereignty over budgetary and regulatory matters—sovereignty which they insist is both necessary and sufficient to resolve the problems that have bedeviled two successive French presidents. The Socialist candidate Benoît Hamon has taken up economist Thomas Piketty’s proposal for a Eurozone Parliament to bring greater democratic management (and legitimacy) to the common currency, but European commissioner for the economy and monetary affairs Pierre Moscovici has rightly criticized the plan as an impractical “dream”: “One has to start with Europe as it is, not as one dreams it ought to be.”

Indeed, opposition to “Europe” now functions as opposition to capitalism used to function in the past: it is a rhetorical badge of “radicalism,” proof that one is not in any way complicit with the existing “system,” the disappearance of which is taken to be the prerequisite for any improvement in the status quo. The particulars of the replacement are seldom specified or analyzed, however. This is radicalism on the cheap, predicated on the assumption that what is different can only be better. The inertia of what exists is minimized, and the transformative, disruptive power of the unknown and untried is magnified as only a projection on a tabula rasa can be.

In contrast to the radical options of exit or impossible institutional transformation, the centrist candidate Emmanuel Macron characteristically prefers the blandly enigmatic formula of “strengthening the Franco-German couple” that is at the heart of European construction. Critics denounce this as merely more of the same, “muddling through,” a recipe for continued dominance of German ordoliberal preferences for rules over discretion, austerity over stimulus, and for the famous schwarze Null, the zero-deficit nirvana that is supposed to give backbone to otherwise spineless politicians inclined to spend their way out of whatever troubles arise.

The possibility that some reforms work slowly—il faut donner du temps au temps, as François Mitterrand put it—is discounted, as is the possibility that a shift in the balance of power in Germany’s Grand Coalition, from Christian Democratic to Social Democratic dominance, might make Macron’s cautious gradualism a more attractive (because less risky) choice. Of course, it is too early to say whether polls showing Martin Schulz for the first time ahead of Angela Merkel in the race to become the next chancellor will prove prophetic. What is certain, however, is that if any of the candidates proposing a radical change in France’s stance toward Europe should win the presidency, the pressure in the combustion chamber of the European engine will build to dangerous levels. If it explodes, the radicals will be left trying to reassemble the fragments of the shattered system, for which the people they claim to serve will be clamoring loudly once it ceases to supply their needs.


Anonymous said...

Dear Art:
Bravo! You tear the "fig leaf" off the Frexit fantasists who believe EU "membership" (pun intended) needs to be wrapped in sovereignty. I look forward to seeing your full article in the de Toqueville review.
--From a center-right reader.

bernard said...

Part 1 of comment
You get it exactly right with this analysis in my view.
I just want to go back a little bit with a historical point on the Maastricht criteria which are so strongly criticized today from so many political angles. I have in mind the 3% deficit rule as well as the 60% public debt rule. These were negotiated essentially during the first half of 1990 by technicians (from central banks and treasury) before being validated by the political leaderships. In fact these criteria's numerical values were the result of a compromise negotiated mainly by the French technicians. The Germans at that time would have wanted tougher rules.
It is difficult to imagine this today of course, but at that time only two countries - I am writing from memory - had substantial public debt, namely Italy and Belgium, for different reasons.
In Belgium, the fundamental reason was simple (bilingualism) and essentially forced Belgium to have two civil servants for each job, French and Flemish speaking. Other member states were not about to insert themselves into this issue.
In Italy, having benefited from the joys of a fascist regime from the early 1920s to the mid 1940s, Italians had written themselves a constitution which basically institutionalized the disorganization of the central state. They for instance had a ministry in charge of deciding fiscal spending, a ministry in charge of fiscal receipts and yet another ministry in charge of bridging the gap.
Both countries were at over 100% public debt, were founding members of the European Commission and it was unimaginable to other founding members that they could be left aside from the Euro project. While it was not publicized at the time, it was understood from the start that an exception would be made for these two countries (financial markets took almost a decade to get this point which shows yet again that smart money is neither smart nor well informed much of the time).
Other significant members had low public debt, in most cases well below 60%. For instance, countries such as France, Spain, the UK all had public debt at or below 40% of GDP. I remember that, at the time of these negotiations, it was pretty hard to imagine a situation where debt would have grown so much as to surpass 60%. Little did we imagine...
This was the especially the case because an equation known among macroeconomists as the "debt equation" was telling us that a permanent 3% deficit in an economy growing on average at a 3% rate would lead the debt to GDP ratio converging towards an upward limit, situated precisely at 60%. So what we lacked in imagination, we made up with an internally coherent set of numbers. And this set of numbers actually was quite coherent with European post-war history at the time: a 3% growth rate for our economies looked perfectly feasible at the time and not especially taxing.

bernard said...

Part 2 of comment

So two elements of this equation, the growth rate of the economy and the debt to GDP maximum, looked pretty reasonable and not hard to achieve.
What about the public deficit ratio of 3%? It also looked easy to achieve, looking back at history (and outside the obvious war time deficit conditions of course). As I recall, the only country which would have some difficulty fulfilling this was thought to be Germany, as it was about to engage on a massive spending effort to repair and upgrade the Eastern Länder following its reunification in 1990. And of course Italy. But Romano Prodi and his Bologna boys were on their way to political leadership and it was generally thought that they would get the Italian deficit under control, which they did. The moral of this story is that the Maastricht criteria, when they were negotiated, were only binding in theory: in practice, no one expected them to become binding as they became from the early years of the 21st century. The major culprit here is not the numerical level of the criteria at all as many critics seem to think. What really happened is that economic growth rate started falling almost as soon as the negotiation was over - an example: France had its first ever actual post war recession in 1993 -. Economic growth rates fell from 3% towards 2% in the nineties and they fell towards 1% in the first decade of the 21st century, heavily influenced by a trend decline of labour productivity, and to a lower extent by a decline in the growth rate of the labour force. The "natural" decline of labour force growth has been mitigated in a number of countries by an increase in the number of labour force age immigrants, otherwise the phenomenon would have been even worse, with even worse consequences.
In fact, there does not seem to have been such a rigid link in the long run between the unemployment rate and average economic growth: taking the example of France, the average unemployment rates in the second half of the eighties when growth was a good 3% (and Maastricht criteria did not exist...) do not differ much from their average value in the nineties when growth was more like 2% and they do not differ much from their value in the first decade of the 21st century when growth is more like 1%. The value seems more or less stable at somewhere between 8% and 9%.
Obviously, during the blessed few years when economic growth goes above average, unemployment falls and during recession years, unemployment rises. That is purely short run. In the long run, the unemployment rate of France looks stuck at 8% to 9% for France over the past three decades. This is of course the fundamental fact of the French economy and it has absolutely nothing to do with the Maastricht criteria or some Brussels carcan. It more likely has much to do with the internal functioning of the French economy and, specifically, its labour market rigidities.

bert said...

It's always difficult, when crucifying yourself upon a cross of gold, to get the last nail in. Persistence is the key.

Lapinot said...

It looks like it was a fairly damp squib for Geert Wilders' PVV. Maybe the pull of extremists elsewhere will be less than feared.

Alexandra Marshall said...

I am nowhere near ready to stop fearing Euro extremists. What has changed on the economic or policy level in Europe to make us think the same thing won't happen next time, but with even more fury? Until the direction of the EU changes significantly, the fear is justified. From what I read there's been a general rightening of discourse in the NL. A gentle push towards mainstreaming Wilders ideas. Sound familiar, Fillon/Sarkozy? I don't see that as an unqualified win.

The next wave of leaders in Europe needs to get really serious about austerity, integration and transparency, or we'll be right back where we were. This is actually the one good thing about Brexit. Without the UK siding with Germany over permanent austerity (and dare we hope, with Schultz taking over? Too soon, I know...) there may be somewhere some push towards sanity. THEN I will stop worrying about fascism sweeping Europe.

Lapinot said...

Oh certainly. Not an unqualified win, just better than it might have been.

And I agree with the need for reform to prevent us ending up back in the same place.

On a more hopeful note, though, I'd add that the longer we get to see Trump blunder about, and the longer Brexit doesn't provide a return to the broad, sunlit uplands of Farage's dreams, the worse it will be for such candidates in other countries.

bert said...

A small pushback on the idea that austerity was held in place by an Anglo-German axis, Alexandra. In the UK, austerity thinking dominated in the 2010 coalition government and remains dominant in the 2015 Tory majority government. But their influence inside the eurozone was completely marginal. In fact that overstates it: the Brits weren't even in the room. By contrast, the single biggest policy mistake in the short history of the euro was the decision of the head of the ECB - a Frenchman - to raise interest rates in 2011.

His name by the way is Schulz without​ a 't'.
Similar to Schuld - the German word for 'debt', 'blame' and 'guilt'.

Anonymous said...

Interesting article in La Tribune, arguing that the only parties that saw significant gains in Parliament are pro European and anti austerity.