Dont look now, but we may be returning to the good old days of the Bush administration, when French fries were freedom fries and everything Gallic was subject to disparagement by the American right wing. Provocatively, Frances Socialist party has chosen a genuine European-socialist candidate for president, François Hollande, who is not only favored to win this springs national election, but who is determined to offer an alternative to the grim Continental austerity regime so admired on this side of the Atlantic by fiscal hawks of the conservative persuasion.
In a series of January speeches, Hollande, poised to become his countrys first Socialist president since François Mitterrand ascended to power over 30 years ago, outlined a populistic, left-leaning program sharply at odds with the dominant Euro consensus of Germanys Angela Merkel, Frances Nicolas Sarkozy (Hollandes election opponent), and Britains David Cameron. It calls for renegotiation of the recent economic compact that commits EU members to severe spending caps and constitutionally enshrined balanced budgets, replacing this German-inspired fiscal straitjacket with a more-growth, less-austerity policy geared to reversing chronic stagnation.
Most strikingly, Hollande issued what amounted to a declaration of war on global finance, asserting that finance must be in the service of the economy to create wealth and not to enrich itself on the real economy. He proposed separating the speculative, or investment, activities of banks from their lending arms (a French Glass-Steagall Act), outlawing toxic financial products, banning French banking activities in tax havens, and creating a state-owned bank to support strategic companies.
Other Hollande economic initiatives would eliminate stock options for all French companies except start-ups, cap executive bonuses, stop unfair competition from cheap foreign goods by means of social and environmental rules, and use additional taxation to fund needed stimulus spending and reduce Frances budget deficit. Tax-wise, Hollande advocates raising the top French income-tax rate (presently 41% for those earning over $195,000 US) to 45%, increasing levies on financial income, ending exemptions from the annual wealth tax, and adding a 75% surcharge on yearly household incomes above $1.3 million.
Expressing a combination of shock, dread, and admiration, The Economist, preeminent Anglo-American organ of free trade, marveled, Mr. Hollande is running not just against Mr. Sarkozy and Mrs. Merkel, but against the markets as well. And theres good reason for him to do so. The grand austerity experiment put into effect since 2010 by Europes ruling conservatives is, like the European Union itself, fraying at the edges. The notion that merely cutting government spending and eliminating deficits will produce economic recovery the same idea advanced by Americas GOP has proven false.
Europes failed states (Greece, Ireland, Portugal, Spain, and Italy) have been severely punished in the name of this specious doctrine. Greece, for example, was temporarily bailed out by the European Central Bank and the IMF in exchange for abolishing thousands of public-sector jobs, gutting its retirement system, selling off immense public assets, and re-writing its constitution to ban future government debt all to satisfy lenders, public and private, and remain in the EU; it has ceased to exist, for all practical purposes, as a sovereign nation. Other bailout recipients have suffered through similar tortures on the Merkelesque fiscal rack, but recovery from recession remains as elusive as ever.
The so-called free market is the crux of the problem. Unregulated or under-regulated cross-border financial activities brought on the worldwide banking crisis that led, in turn, to the worldwide recession. To combat recession, governments employed deficit stimulus spending, the time-tested Keynesian response.
But here the free market intruded again. Deficit spending entails borrowing, and in Europe, bankers began radically raising interest rates on long-term government bonds, doubling or tripling them for the weakest, most vulnerable countries. Greeces borrowing rate went from 3.6% pre-crisis to 4.8% in 2009, 9% in 2010, and 13.5% in 2011; its now approaching 18%. Portugal and Ireland are currently paying 9%, three times the prevailing rate of a decade ago.
Borrowing at higher rates begets more debt and deficit, which leads inevitably to pleas for bailout assistance in meeting unrealistic EU economic guidelines. And bailouts, finally, are accompanied by grinding fiscal sanctions that renew the cycle of despair and exacerbate it. Unemployment rates tell the story: Greece and Spain are hovering near 20%, Portugal and Ireland near 14%, and the EU as a whole near 11%. This is the downward spiral Frances Hollande seeks to counter by challenging the Merkozy view of the world.
The leadership of one European country, however, has no doubts about the EUs consensus approach to Europes hard times. In the UK, David Camerons center-right coalition government has been waving the bloody flag of austerity since its election two years ago, implementing the nastiest, most hard-right economic program since Margaret Thatcher a generation ago. This is important for American opinion because we cling to a supposed special relationship with Britain and tend to lionize British conservatives (Churchill, Thatcher) as positive role models.
So heres the relevant news: austerity is working no better in the UK than on the Continent. Unemployment in Camerons Britain is higher than in Obamas America and is expected to climb higher yet in 2012, reaching a 15-year peak. Economic growth, projected by Conservative party planners to be 2.3% in 2011, fell instead to 0.9%. Inflation, 5% at years end, rose at twice the rate of wages.
Britains national deficit has not fallen, despite unprecedented spending cuts, and its national debt is reaching a recessionary high. British living standards, already in decline, are expected to decline further. On the other hand, CEO pay is at record levels, especially for the nations bank executives.
Heedless to all this, Camerons Chancellor of the Exchequer George Osborne, the Dickensian author of British austerity, blithely admits he cant eliminate the UKs structural deficit by 2015, as promised, and offers only more pain extending the fiscal-retrenchment drive to at least 2017 in the face of ongoing mass strikes and widespread misery.
Across the English Channel, François Hollande has what seems to be a better idea. Assuming he defeats Nicolas Sarkozy for the French presidency, Americans should be prepared to pay close attention.
Wayne OLeary is a writer in Orono, Maine, specializing in political economy.
From The Progressive Populist, May 1, 2012
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