George Irvin ponders whether newly-elected French President Francois Hollande will be able to turn France around, much less the entire eurozone.
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Will newly-elected French President François Hollande be able to turn France around, much less the entire Euro Area (EA)? Professor George Irvin investigates
At the moment, the EA is stagnating, unemployment is rising and the entire banking system is dangerously fragile – in Nouriel Roubini’s phrase, we are watching a slow motion train wreck. How far genuine change is possible depends essentially on three factors: the reaction of the financial markets; how Hollande manages the new relationship with Germany and, more generally, whether ‘austerity’ is ditched and the EA goes for growth.
How will financial markets react to a socialist government in France? The knee-jerk reaction is to invoke Mitterrand’s experience in 1981-3 when financial turbulence forced the social-democratic left to change course within two years and into ‘cohabitation’ within five.
What is easily forgotten is that Mitterrand’s policy failed largely because inflation rocketed to double figures in 1983, a phenomenon unlikely to be repeated today.
True, Hollande has committed himself to a number of policies which will prove difficult to deliver: Generating growth and reducing unemployment and ‘sanitising’ public finances – significantly reducing the budget deficit over the next five years.
Equally, his rejection of Angela Merkel’s ‘Stability Pact’ – the pact requires a legal commitment to budget balance on the part of signatories – appears to put him on a collision course with Germany.
• Vive Hollande! M. Normal wins the day 8 May 2012
Nevertheless, a number of factors suggest Hollande’s government may succeed. For one thing, it is increasingly obvious that deep expenditure cuts lead back to recession, making unemployment and public indebtedness worse – as we see in Greece, Portugal and Ireland and will soon see in Spain too.
The message is simple: in a recession, fiscal rectitude is achieved through state-led growth – it is higher national income that generates higher savings, not the other way around. Even the IMF appears to agree.
For another, the Treaty is deeply unpopular – and not just in Greece, Portugal and Ireland. In Italy, prime minister Mario Monti has made it clear he thinks it foolish and that jointly-backed eurobonds constitute a better solution; Belgium’s Guy Verhofstatd agrees and even European Commission President Jose Manuel Barroso appears to support this position; while new Spanish prime minister, Mariano Rajoy, has already warned Spain will not meet next year’s fiscal targets.
In demanding the Treaty be changed, Hollande will have the support not just of the EA periphery but of some of its major players and many of its economic experts. One should bear in mind poll indications for Italian Parliamentary elections to be held next spring suggest a centre-left coalition will emerge.
Whether the Germans and their right-wing Dutch and Austrian allies could long hold out against a majority of the larger EA economies is doubtful. Federal elections must be held in Germany before next September; the polls point to the SPD entering power, and the right-wing Free Democrats (FDP) being annihilated.
There is a new twist too. In anticipation of the changed political conjuncture, Hollande and Merkel have finally agreed on the details of a Euro Area transactions tax (a form of ‘Robin Hood’ tax). A 0.01% tax on all financial transactions – approved by European Parliament 10 days ago – would raise €120 billion per annum, providing the financial basis for launching a huge EA infrastructure investment programme.
Merkel knows she needs to avoid market panic if Hollande wins, and further details of the new growth plan can be expected this week. In short, Sunday’s election result is crucial not just for France but for reviving Europe’ economic and political fortunes. Watch this space.
72 Responses to “Will President Hollande be able to turn France – and the Euro Area – around?”
Anonymous
How can I be proposing stealing cash from poor people when I’m proposing not to do that?
You want to take their money, to spend on yourself.
You also want to deny them compound interest. In the case of a median worker on 26K, you proposing giving them just over 5K a year, instead of the 19K (after a piss poor recent record on the FTSE, so imagine what would have happened if the FTSE had performed).
The money doesn’t go near the banks, it goes into stocks and shares. Investment. Money for companies.
It’s the feral government who is running up the debts you’re so keen on running away from. 230,000 pounds, rising at over inflation each year. Government is currently taking people’s pension contributions and spending it.
Pension fund in your name protects you from all apart from politicians.
Anonymous
Because you’re proposing to steal cash from from poor people, of course. That you’re lying about it is typical.
How you think I, someone who is a private worker not in receipt of benefits is going to “spend it on himself” is a typically self-centred reaction, you’re objecting to not being enriched.
You are making grandiose and utterly unsustainable claims about the amount of money they’d receive, when in fact you’d slash it dramatically, since it’s easy to dump only losses onto the “investors”.
It goes STRAIGHT into the casino banking system for them to lose, your lying is transparent.
“Pension fund in your name protects you”
It’s not a pension. Pensions agree to pay you money. It’s a robbery, which MIGHT pay you a fraction of what you paid in. Offering “pensions” which do not have a defined return should be illegal, carrying 5+ years for fraud.
Anonymous
So since the government under Brown and Cameron both changed the ‘defined returns’ on the state pension, are you proposing they are both jailed?
There are two factors to getting a retirement income in your name.
First the part when you aren’t withdrawing any money. The investment phase.
Second the phase where you are living off the income.
Here [apart from the government] you are effectively forced to get a fixed return for life. The government doesn’t do this with the state pension or state second pension. They change the rules because they can’t afford the payouts.
You are making grandiose and utterly unsustainable claims about the amount of money they’d receive
No. 19K for a median worker. Do the sums yourself. Put the numbers up, and then we can tell if you are correct or making it up.
You will need to know historical inflation and wages
http://www.measuringworth.com/ukearncpi/
You will need to know median wage
http://en.wikipedia.org/wiki/Income_in_the_United_Kingdom
You will need to know about annuity rates
http://www.annuitybureau.co.uk/
You will need to know how much the employee and employer pays in NI for the benefit of the person working
http://listentotaxman.com/
You will need the historical FTSE levels and you will need the average level of dividends on the FTSE – about 3%
Shamik Das
The big question: Will President Hollande be able to turn France – and the Euro Area – around?
http://t.co/0tL4yg01 #BBCqt
Quentin McCloud
The big question: Will President Hollande be able to turn France – and the Euro Area – around?
http://t.co/0tL4yg01 #BBCqt