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
Of course, YOU are proposing removing company’s contribution to pensions entirely.
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Find a link where I’ve said that. I’ve never said that. What I do think is that company contributions should go into a fund in people’s own name.
That way horrific things like ASW pension fund are avoided.
http://news.bbc.co.uk/1/hi/programmes/panorama/2484141.stm
Note, the government set up the rules that people who hadn’t retired could be robbed completely. This is outright theft approved by Labour who set the rules up. The Tories and Lib Dems have carried on with this policy by not changing the rules.
Now if the money contributed by companies is in your name, in a segregated fund, then it cannot be stolen unless the government takes it.
Anonymous
On your calculations. Median wage 2011 was 26K.
So someone who was 65 in 2011, started work in 1964.
Now using the index of average wages, they would have been on 706 in 1964 if they were on median wages throughout their working life. A plausible enough argument to show the sums of money. In practice they would have been on a lower salary at the start and more at the end. The nature of an ‘average’
http://www.measuringworth.com/ukearncpi/ has the data.
Go and check and see if you disagree. Then I’ll lead your though the next part, in detail
Year Average Wage
1964 706
1965 751
1966 798
1967 829
1968 895
1969 962
1970 1,080
1971 1,202
1972 1,351
1973 1,539
1974 1,809
1975 2,291
1976 2,651
1977 2,894
1978 3,269
1979 3,775
1980 4,542
1981 5,129
1982 5,613
1983 6,087
1984 6,452
1985 6,997
1986 7,551
1987 8,140
1988 8,853
1989 9,663
1990 10,601
1991 11,417
1992 12,088
1993 12,447
1994 12,900
1995 13,302
1996 13,777
1997 14,367
1998 15,098
1999 15,825
2000 16,545
2001 17,403
2002 17,953
2003 18,525
2004 19,331
2005 20,215
2006 21,164
2007 22,217
2008 23,019
2009 22,975
2010 24,000
2011 26,000
Anonymous
The median wage is a nice sleigh of hand, but is utterly distorted by high-paid individuals who can afford to save enough that the state pension is utterly irrelevant to them.
Using the poverty line would be a far better measure of the problems you’re trying to inflict on the poor.
Anonymous
You haven’t said anything on the topic, because of course it’s not part of your plan.
YOU set up the rules, as a member of the Feral 1%, yes. You’re constantly robbing people. The answer is defined returns, rather than it being dependent on casino banking.
Thatcher stole those from the nation.
And of course bankers can lose the cash that even the poorest have been forced to ante up for funding their operations under your plans. Not to mention the fees.
Anonymous
(Sleight)
Median wage isn’t a sleight of hand. If I had used average, then it would be distorting what people mean by the average income.
The statistical thing about wages is that they tend to conform to a power distribution, an example of which is the Pareto distribution
http://en.wikipedia.org/wiki/Pareto_distribution
The average or mean is much higher than the median, because it is distorted by high earners. So even George Bushes argument that something must be done about the half of the people who are below average is distorted.
So do you want to carry through with the calculations for the 19K a year, or are you going to post your own numbers as to what you could have got for your NI, if the government hadn’t taxed your contributions (if you think NI is a tax), or given it away (the Ponzi element).
It’s interesting to work out what you could have got and to see the true price of the government scam.