Opinions & Ideas

Category: France

EUROPE NEEDS A POLITICAL HEART TO SUSTAIN ITS ECONOMIC BODY

Next Thursday’s European Council is seen by some as crucial to the future of the European Union as a political project.

President Macron of France has raised the stakes saying that unless there is agreement on a fund of 400 billion euros to mitigate the effect of the lockdowns across the EU and the Eurozone, both the Euro and the EU itself will be in danger. He says that

 “If we can’t do this today, the populists will win, today, tomorrow and the day after in Italy, in Spain and perhaps in France”

He is right to issue the warning, but there is a real risk that this sort of rhetoric will create a self fulfilling prophecy. Expectations need to be managed and false dawns avoided. 

Some of the populist criticism of the EU is misdirected, and needs to be contradicted.

 In fact the EU, as such, has responded quite quickly to coronavirus. EU institutions, like the European Central Bank and the European Commission, have acted much more promptly in response to cononavirus crisis of 2020, than they did to the Banking crisis of 2008 and the sovereign Debt crisis of 2010. This is in spite of the  huge handicap of having to meet by teleconference.

A proposal for a Coronavirus Response Investment Initiative has already been approved by the European Parliament and the Council and is in force as of the 1st of April. This will allow the use of EUR 37 billion under cohesion policy to address the consequences of the COVID-19 crisis.

It is not the EU institutions, but the Ministers of some of the member states of the euro, who have been unable to make decisions.  They are the ones who were unable to decide on Eurobonds, or an acceptable substitute.  It has been Ministers of the member states, not officials of EU institutions who have made undeliverable demands of, and used unacceptable language about, one another. It is competing nationalisms that have failed us so far.

Indeed this failure of competing national narratives was predictable. CO2 does not respect national boundaries and nor do deadly viruses. They transcend national boundaries, so the response to them must transcend national boundaries too.

The opposition to mutualisation of debt in countries like Germany and Netherlands is almost theological.  Eurobonds are a good idea but they are just another form of borrowing. The interest may be a bit lower but it is still a debt. Eurobonds cannot be set up quickly, and speed is important. The bond buying by the ECB, which is already under way, has been much more effective. It has eased the financial pressure on Italy and Spain, and bought time for the EU to come up with a more comprehensive recovery programme.

 The key here is the Recovery Fund, which was agreed in principle by the Finance Ministers of the Eurogroup last week. This Fund is to be aimed at providing funding, through the EU budget, to programmes designed to kick-start the economy in line with European priorities and ensuring EU solidarity with the most affected member states. 

Such a fund would be temporary, targeted, and commensurate with the extraordinary costs of the current crisis, and would help spread them over time through appropriate financing.  

The Summit on Thursday next will need to decide on the legal and practical aspects of such a fund, including its relation to the EU budget, its sources of financing, and on innovative financial instruments, consistent with EU Treaties. This is a huge task because the EU budget at the moment is only 1% of EU GDP, and is already committed to other things(notably agriculture). 

One solution might be for EU to borrow additional money, on its own account on a long term basis, and that a new, but temporary, EU tax to be agreed to in principle to provide a reserve from which these loans could eventually be repaid. An EU wide carbon tax to fund this is one possibility.  Of course this would be difficult to accept, but extra borrowing that is not backed by pre agreed repayment capacity is difficult to accept too!

Meanwhile we must all realize that a breakup on the Euro would also destroy the European Single Market. That will happen unless voters in all EU states think as Europeans, not just as nationals of their own state. 

 Without the euro there would be competitive devaluations of national currencies, and these could lead to retaliatory trade restrictions, which would destroy the Single Market.

 Oddly enough, it is the countries that are most resistant to mutualising debt who benefit most from being in the EU Single Market.

 The German based Bethelsmann Foundation has said 

countries like Germany, France, Belgium, Netherlands and Denmark benefit more strongly than regions in the southern and eastern periphery of Europe

 from the EU Single Market. 

President Macron is right to say that the political legitimacy of the EU is being challenged. 

Why is this?

 The reasons are psychological as well as political.

 The voters of EU countries rarely get a chance think as Europeans. They are never asked to vote on purely EU issues, and are not confronted with realistic choices about what the EU might do, and what it might cost them.

 European Parliament elections are really national popularity contests about national attitudes. So the EU becomes remote. The EU is “someone else paying”. It is “them” rather than “we”. 

That has to change if the EU is to have the necessary strategic and political depth to deal with crises like the one we are now going through. 

If the EU is to survive as a political project, it needs  to create a European democratic constituency that complements the democratic constituencies to which national leaders appeal. The EU needs a political heart to sustain its economic body.

A Conference on the Future of Europe is to be set up to look at that in the next few months. The EU Heads of Government should send a signal that they intend to take the need for genuine EU wide democracy seriously. 

Rather than rely solely on the European Parliament, whose members are all elected in national contests, we need an EU wide electoral contest, if we are to create an EU wide identity and EU wide democratic legitimacy.  

One way to do this would be to have the President of the European Commission elected by the voters of the EU. This could be done either by using the Single Transferable Vote, with which we are familiar in Ireland, or by a two round system like the one used in French Presidential Elections. Voters identify with personalities as well as policy programmes and it is personalities who can create the emotional bonds between European citizens, that are needed to make European financial bonds politically viable. Another (weaker) proposal would be to elect some MEPs from an EU wide constituency.

Next week will indeed be crucial for the European Union. It needs to get the economics right, but itals needs to get the politics and the psychology right too. Leo Varadkar will have a vital role to play.

FRANCOIS MITTERAND AND THE SERPENTINE COURSE OF FRENCH HISTORY

I recently finished reading “Mitterrand, a Study in Ambiguity” by Philip Short, an English writer who lives in France. 

I only met Francois Mitterand once, shortly before his death, when he spoke as President of France at the celebrations in Moscow in 1995, marking the 50th anniversary of the end of the Second World War. His speech on that occasion was memorable for his clarity of expression and for the fluent case it made for European unity, a cause in which he deeply believed.

This biography is comprehensive and definitive. It deals with his complicated personal life, and with his childhood in a staunchly Catholic family in a part of France where the wealthiest families were Protestant. His family politics were to the right of the spectrum, as was Mitterand himself in his student days in the 1930’s. 

He lost his Catholic faith as a student, something which troubled him. But even to the end of his life he believed in the value of prayer, or at least of taking time for silent reflection.

His role during the German occupation of France was complex and compromising. He served in the Vichy regime, dealing with the problems of French prisoners of war in Germany, of whom he had been one himself. But he also took part in the resistance against the Germans.

He entered post war politics as a radical rather than a socialist, and served in many of the governments of the Fourth Republic.

His politics gradually evolved towards socialism. But  one of his  Socialist rivals, Guy Mollet said of him “Mitterrand did not become a socialist, he learned to speak socialist”.
Unlike many others of the left, he did not rally to General de Gaulle when the latter came to power in 1958. He was unwilling to play second fiddle. 

Nor was he much interested in economics. When he came to power as President of France himself in 1981, it was on a socialist programme, which some believe still contributes to France’s economic problems today.

He reduced the pension age from 65 to 60, introduced the 35 working week, added a 5th week of holidays for every worker, recruited thousands of civil servants to reduce unemployment, and raised the minimum wage. The costs involved led to payments crisis and he  had to switch to austerity within a year or so.

He was an introspective man, who maintained a carefully cultivated veneer of imperturbability. He modelled himself of the seventeenth century French politician, Cardinal Mazarin, who wrote in his “Breviary for Politicians”

“Be sparing with your gestures, , walk with measured steps and maintain a posture at all times which is full of dignity……Always keep in mind five precepts, Simulate, Dissimulate, trust nobody, speak well of everyone, anticipate before  you act”

Mitterrand so admired Mazarin that he called his youngest daughter, Mazarine, after him

But one can think of one Irish politician, of Mitterrand’s era, who may also have studied Mazarin’s “Brievary”!

This is an excellent book and I strongly recommend it.

THE LONG HISTORY OF DISTRUST BETWEEN EUROPE AND THE MIDDLE EAST……. WAS THE BREAK UP OF THE OTTOMAN EMPIRE SUCH A GOOD THING AFTER ALL ! ?

I have just finished “A Line in the Sand, Britain, France and the Struggle that shaped the Middle East” by James Barr (Simon and Schuster). It is a great read. 

It deals with relations between France, Britain, and the Muslim world, a topic that has become tragically topical in recent days.

France and Britain were allies in the First World War, but bitter rivals, when it came to dividing up spheres of influence in the hoped for break up of the Ottoman Empire, something both correctly anticipated would be a result of an Allied victory in the War. The wishes of the local population, whether they were Muslim, Christian or Jew, were not considered to be a deciding factor at all. At most, they had to be “managed”.

While the First World War was still on, France and Britain drew up the famous Sykes/ Picot agreement in 1916, which allocated present day Syria and Lebanon to France, and allocated an area stretching from present day Israel, through Jordan, to Iraq, to Britain.

Britain wanted its chosen area, particularly Palestine, as a shield for the Suez Canal (a vital link to British India). It also wanted access to oil in present day Iraq. The French wanted access to the same oil, and saw itself as a protector of Christian interests in Syria and Lebanon. The crucial question was territory, rather than people.

But the British also wanted Arab support to defeat the Turks, so it promised support for an independent Arab state of Greater Syria ,which included areas it had agreed could be under French influence, and thus was in conflict with their agreement with the French.

Furthermore Britain wanted Jewish support in the US to push the US Administration to help the British war effort. In pursuit of the latter goal, they agreed in 1917 to a “homeland” for Jews in Palestine, in the Balfour Declaration.  This, of course, ran totally counter to Arab interests…..and led eventually to the present state of Israel on formerly Arab lands. Again the views of the local inhabitants counted for little.

These contradictory promises, made in desperate efforts to win the war, were to poison relations between all the parties for years to come. They lie behind the violent distrust that was  manifest in the vile murders in Paris last week.

When France and Britain came, after the end of the First World War, to occupy their respective areas under their 1916 deal, with the backing of a League of Nations mandate, they each faced revolts from the local populations. But there was no “European solidarity”. The Anglo/ French rivalry was such that they each gave support to the other side’s rebels!

This rivalry continued into the Second World War, and Barr argues that British support for the ejection of France from Syria in 1944/5, so poisoned de Gaulle’s relations with Britain, that it contributed to his vetoing British membership of the Common Market 20 years later. 

France also gave strong initial support to the Zionist resistance to continued British presence in Palestine in 1947/8, in revenge for the support the British had given to the ouster of France from Syria in 1945.

As we can see in the Middle East today, and also in Bosnia, we have yet to escape from the consequences of the break up of the multi ethnic Ottoman Empire, and the ignorant response of European nations to this event. Because the Ottoman Empire had fallen behind materially, it was wrongly and patronisingly assumed to have no valid lessons to teach about how to manage the intermingled ethnic and religious populations of the Middle East.   
The Ottoman system of government, while discriminatory, enabled populations of very different ethnicities, and opposed religious outlooks, to share the same cities and villages, as they did in many parts of both the Middle East and the Balkans under Ottoman rule.. This Ottoman model of qualified tolerance was bound to come under pressure once Ottoman power was removed, and free rein was given to the view that “self determination” for a single predominant ethnicity or ”nation” was the natural order of things, a view which became fashionable which before , during, and after the First World War in the western world, including in Ireland as we know only too well. 

This book shows how selfish and ill informed European interventions between 1916 and 1950, cast a long shadow today. 

THE EU IS A UNION OF RULES…NOT A UNION OF FORCE

CHANGE THE EU TREATY RULES ON DEBTS AND DEFICITS, IF NECESSARY…. BUT DO NOT BEND THEM 

The European Union is a union of sovereign states, who are sovereign in that they are entirely  free to leave the EU. This freedom to leave means that the EU is not a “super state”. There is no coercive force, no EU army, to force Britain or any other country to remain in the EU. Britain enjoys a freedom, within the EU, that colonies did not enjoy within the British or other European Empires.
 
Britain is thus entirely within its rights in considering the option of leaving the EU, although that does not mean that such a course would be wise.

The EU does not exist on the basis of coercion. It exists on the basis of common rules, or Treaties, applicable to all, interpreted independently by the European Commission and the European Court of Justice,  that EU have so far countries freely abided by, even when particular decisions were not  to their liking. If countries started systematically ignoring EU decisions, the EU would  soon disappear.

One set of particularly important set of EU rules are the ones that apply to budget deficits and debts of EU countries within the euro zone. These rules have been incorporated in EU Treaties and in Treaties between Euro area states. One of the provisions is that if a country has an excessive deficit, it must reduce that deficit by an amount equivalent to 0.5% of GDP each year until it gets its deficit below 3%.

France and Italy, big states that were founder members of the EU, have both produced budgets for 2015 that do not comply with the rules.

Initially the European Commission objected, and both countries have adjusted their budgets a little.  But, even after these revisions, the budgets are still in breach of the EU rules.

Some will argue that it is the rules that are at fault, not France and Italy. Inflation is negative, so debts increase in value, while prices are falling.

Countries are caught in a debt deflation trap of a kind that was not envisaged when the rules were drawn up.  But that is an argument for changing the rules, not an argument for ignoring them or pretending they have been complied with when they have not been.

But changing the rules would require EU Treaty change, and nobody wants to change the Treaties, because a Treaty change would have to be unanimously agreed among all 28 EU states. Other states fear that would be an opportunity for Britain to use the lever of blocking  a Treaty change to revise the fiscal rules, with  which it might otherwise agree,  simply as a means of getting  a concession of British demands for

+  a restriction of free movement of people within the EU,  
+  vetoes for a minority of national parliaments on EU legislation and
+  the  scrapping the goal of “ever closer union” within the EU.

This is a form of blackmail, but it has happened before in EU affairs.

But if the EU is unable to change its Treaties, because of blockages like this, the EU will eventually die. Necessary EU Treaty change cannot be dodged indefinitely. The EU will atrophy if it cannot change its Treaties, in the same way that states would wither, if they could not change their constitutions from time to time.
 
In a recent commentary, Daniel Gros of the Centre for European Policy Studies has criticised the European Commission of Jean Claude Juncker for failing to either 

a.) Insist that France and Italy stick by the existing fiscal rules or, if not
b.) Call for a revision of the rules to take account of the exceptional deflationary conditions that exist

He  is right .

FRANCE….SOLVING THE PROBLEMS OF THE EUROZONE’S SECOND BIGGEST ECONOMY

I attended a conference last week that looked at France’s domestic economic situation and at the impact that has on France’s global and European role.

According to budgets they published this month, France and Italy are failing to meet the Euro area requirements for reducing Government debts and deficits to sustainable levels.

If France, as a big country making up 20% of the Euro area’s  GDP, were to be exempted from the EU debt and deficit rules, in ways that were not open to smaller  euro area countries, this would do great damage to the credibility of the euro, and potentially this could drive up to the interest rate euro area governments must pay to borrow. It is thus very important to Ireland that France overcome it’s problems.
In recent years, France has lost competitiveness, and it is consequently running a balance of payments deficit. In other words its people are spending more abroad, that than they are earning from abroad.
The French economy is projected to grow by only 1% in 2015, as against a projected growth of 2% in Germany and Spain, 2.7% in the UK, and almost 3% in Greece and Sweden.
The loss of competitiveness of France is due to several factors

+  Fewer people  are working fewer hours. For example, of people between 55 and 64 years of age, only 44% are working in France, as against 73% in Sweden, 65% in Japan, 60% in the US and  58% in the UK.

+  There is substantial youth unemployment, because young people find it hard to get on the career ladder because of an over regulated labour market that protects existing jobs at the cost of discouraging the creation of new ones. Last year 80% of all new jobs created in France were on temporary contracts.

+ The bigger a company grows, the more rigid are the rules that apply to it in terms of the right to hire and fire.  So, while France has some of the most successful big companies in the world, it lacks a large corps of middle sized export oriented companies, like Germany has.  90% of all French companies have fewer than 10 employees and they have strong incentives to stay small.

+ Monopolistic practices exist in a number of sectors controlled by the state and in some private professions. The vested interests protecting these monopolistic practices are very strong. These inefficiencies contribute to the loss of exports by French companies.


There was a strong sense among the participants at the conference that the current Socialist Government of Manuel Valls was making a serious effort to tackle these underlying weaknesses, but that the dividends of some the reforms, while very substantial, would be slow in coming, perhaps not in time for the 2017 elections.

There is a risk Prime Minister Valls will lose his majority because of defections in his own party. Meanwhile the opposition UMP is split on personality questions. The Front National is making huge strides in the polls, but its economic policy would break up the EU and introduce heavy state controls which would be incompatible with France’s global economic success.

Faster growth is crucial, and the margin between success and disaster is very narrow.  If the French economy grows at only 1% per annum over coming years, France could be on the road to default and a social crisis, but if it can manage a growth rate of 1.6% or better, it will work its way out of its difficulties. 

The stimulus for French growth will have to come to come both from inside and  outside France. French people save a lot, and if they could get the confidence to spend a little more of their savings, that would help. Likewise if Germany, which has been neglecting its infrastructure, stated to invest more that would help French exports.

The trouble is that French and Germany economists and politicians have very different intellectual assumptions, and dialogue between them can become a dialogue of the deaf.

Meanwhile, partly because it was wise enough to stay out of the Iraq debacle in 2003, France alone of the western powers, has the confidence to intervene directly in places like Mali, Libya and the Central African Republic.
France retains a strong nuclear deterrent and a civil nuclear industry that does not do the sort of climate damage that other  EU countries’ energy industries do.

Politics are important. Its Presidential system enables France to be strong and decisive in international affairs.
But that strength does not extend to domestic economic policymaking, where factionalism and introspective thinking are preventing the creation of any kind of “Grand Coalition for Reform”, of the kind that has enabled countries like Germany and Mexico to deal decisively with long standing blockages to growth.

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