Cogito Ergo Non Serviam

French PM Quits, Reappointed in Economics Row

Yesterday was a busy Sunday in French politics, which for August is a genuine surprise. However, during the course of the day, Prime Minister Manuel Valls resigned over economic policy and performance. Then, President Francois Hollande reappointed him to form a cabinet "consistent with the direction [Mr Hollande] has set for the country." No longer part of that cabinet is Arnaud Montebourg, former minister in charge of the economy. He crossed a "yellow line" by saying German-dictated austerity needed to end. The wrong man stayed in office.

The performance of the French economy speaks for itself. Unemployment remains above 10% and growth is stagnant at best. The Great Recession is over, but apparently, no one told the French GDP or employment figures. Based on those simple statistics, it is clear that whatever policy the French government is pursuing, it is not working and must be changed.

Despite President Hollande's election as a socialist willing to spend more freely, France has followed Angela Merkel's Germany in being focused on austerity. Economics has taught, correctly, for almost three generations that austerity is appropriate only in boom times. The wrong prescription for the disease has brought the eurozone and EU to a depressing place. Youths in the periphery really don't have much of a future, and the old folks have no retirement nest egg because of the financial meltdown. This is not the time for governments to count pennies.

The BBC reports that "On Saturday, Mr Montebourg told Le Monde newspaper that Germany was trapped in an austerity policy that it imposed across Europe." Backing Mr. Montebourg were Benoit Hamon, the education minister, and culture minister Aurelie Filippetti. Mr. Hamon put is best when he said, "You can't sell anything to the French if they don't have enough income." He demanded an end to Germany's austerity for Europe.

What is particularly interesting is that austerity isn't working in Germany either. For years, Germany managed to grow its economy while keeping a lid on government expenditures by exporting to the other members of the EU. Now that those countries are having trouble, Germany is importing stagnation. The second quarter of this year saw Germany's GDP shrink 0.2%. A similar result for the current quarter would meet the official definition of a recession.

Mr. Hollande has let the dice fly with his purge of the rebels in the cabinet. About 20% of the electorate believes he can turn the economy around, so getting rid of the rebels was important politically. Since the next presidential election is in 2017, Mr. Hollande has time to prove the 80% wrong. However, what is more important politically is that no one emerges on the left to challenge him for the presidency. While marching over the edge of a cliff, the strong leader can brook no resistance.

As a matter of economic probability, the French economy will recover in time for the 2017 elections. Economies tend not to stagnate for years on end (Japan being a noted exception). However, if Mr. Hollande would start spending like a French socialist rather than paring budgets like a German conservative, France would recover that much faster.

The wrong man is out of a job in Paris today.

© Copyright 2014 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.



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