“French Socialist economics” may seem like a contradiction in terms. But even the more radical in the Socialist Party are promoting a very concrete mix of Krugmanite Keynesianism and realist mercantilism that practically addresses people’s concerns about recession, offshoring, the banksters and cuts to public services. Whether or not one agrees with it, it deserves to be taken seriously.

Here is a translation of an in-depth interview on these themes with Arnaud Montebourg, the Socialists’ “most successful radical,” proponent of “deglobalization” and now a minister in François Hollande’s government.

French Socialism is now something that has to be understood and dealt with because, if nothing else, a self-styled Socialist now works in the Élysée and France, along with Germany, co-leads the flawed currency union whose contradictions could well drag the entire global economy into crisis.

But, “French Socialism,” the very words conjure up, especially in English, images of economic impracticality and incompetence.  Indeed, “Socialism” has been abandoned by the mainstream in the United Kingdom and is a swear-word in the United States (see the recent uncomfortable spectacle of liberal arch-pundit Jon Stewart explaining away his profession of being a “socialist” to current Fox News chief Roger Ailes in 2000…).

Much of this is exaggerated and misplaced. In French the word “Socialist” in most contexts has the same neutral connotation as any party label, e.g., “Democrat.” French Socialists certainly have a radical and often noble tradition with the Paris Commune of 1871, Jean Jaurès’ opposition to the Great War in 1914, Léon Blum’s 1936 Popular Front, and François Mitterrand’s failed 1981 economic experiment. But since at least 1983 the French Socialists have been a perfectly normal party of government, trading places with the conservatives every few years, with no particular hint of radicalism. Indeed, after declaring “war on the world of finance” as his “greatest enemy,” then-candidate François Hollande was roundly mocked for going on to tell the Financial Times that “I’m not dangerous”. He cited the Socialist’s previous bout in government under Lionel Jospin, which had engaged in significant privatization.

Hollande’s government is definitely, far and away, towards the moderate end of the spectrum. However there is also a radical edge to the Socialist Party.

In particular, there is Arnaud Montebourg. He is of interest for many reasons. For one because he finished third in the Socialist primaries last year, achieving this from a position of relative obscurity, while finalists François Hollande and Martine Aubry were aided by pre-existing fame and big party machines. Montebourg succeeded thanks to more radical rhetoric including a bestselling pamphlet entitled Vote for Deglobalization! French, Socialist, against globalization? All the alarm bells of the Anglosphere’s commentariat are ringing.

Montebourg also turned heads for accusing Angela Merkel of having a “politique à la Bismarck” (e.g. unilateral and nationalist) for which he was in turn accused of being anti-German. Though the words may have been risqué, he was then one of the first pols to reach what is now the consensus position: that German denial and brinkmanship are the principle reason for the continuing euro crisis today. (For example, in this the French Socialist and the Anglo-liberal publication of choice are actually in agreement. The Economist recently wrote in a flagship piece: “German brinkmanship is corroding the belief that the euro has a future, which raises the cost of a rescue and hastens the very collapse she says she wants to avoid.”)

More recently, Montebourg came to my attention for a debate with a journalist from the center-right newspaper Frankfurter Allgemeine Zeitung (video, French). The most stunning thing was to hear him say what has long been verboten in European circles in discussing the roots of the eurozone crisis and was very ably using many of the same arguments as Paul Krugman (sometimes explicitly citing him).

Montebourg also gave an detailed and fairly comprehensive interview with the FAZ, apparently only available in French, which I thought was so interesting it should be available in English. It expresses as clearly as you’ll find anywhere the ambition of the more radical French Socialists for “another world” and to break with the current neoliberal international consensus. To summarize:

• Environmental and social limits mean there will be less trade or physical movement (he might have added “but more communication” with IT). The place of production will become closer to that of consumption.
• Competition with China is unfair (because it is a dictatorship, has no social rights or environmental constraints, is a mercantilist power and currency manipulator…).
• All countries are engage in protectionism, except the Europeans (overvalued euro, low tariffs), and the European Union should respond in kind.
• The eurozone needs fundamental reform to be viable, notably by allowing the European Central Bank to stimulate growth and by recognizing that not all countries can be net exporters.
• The policies are more moderate than the headline rhetoric might suggest (for better and for worse).

I do not agree with everything that Montebourg says here and some of it is clearly wrong or hyperbolic (e.g. that a financial transactions tax could “have funded without any difficulty the repayment of the entirety of the public debts of the eurozone in a few years”…). However, this is the rhetoric of a politician, who is trying to get votes, build coalitions and govern, and as such should be compared not to Ivory Tower academics who can have the luxury of dispassionate analyses, but to other political actors.

In this sense, I think Montebourg’s rhetoric is positively clear-headed and reality-bound when compared to what is said by the allegedly “Serious” people in the European Council, the current Government of Germany, or the U.S. Republican Party. French Socialist economic policy certainly deserves to be taken seriously and not simply shunned or stigmatized out of hand.

Madame Merkel is pursuing a selfish policy

Frankfurter Allgemeine Zeitung: You are proposing “deglobalization”. What does that mean?

Arnaud Montebourg: Deglobalization is first of all a moderation of globalization. That is to say that we have to reach a regionalization of the world economy where the great continental groupings continue to trade, but are going to do so in a more reasonable way.

Because of the sharp rise of energy costs, transport costs, and environmental taxation, such as the carbon tax, the world is going to have to move towards an economic model where the place of consumption is going to be closer to the place of production.

We’re not going to be able to have companies who go to low-cost countries in terms of labor costs in order to reimport into the country where buying power remains high because of the good level of wages and of social protection. This model is not viable. The rise of moderating protectionism in the world is then inevitable.

FAZ: And this is desirable for you?

AM: Yes, it is desirable and necessary. Because a model which uses a very low cost of labor but no longer remunerates its employees cannot sell its production. Henry Ford used to say “I pay my employees well because I want them to buy Ford cars”. The opposite situation today is leading to the crisis of globalization, because wages in the world are insufficient to consume what economies produce.

Deglobalization is also desirable because globalization is a factor for excess and imbalances. The countries which are in surplus must serve as springboards for growth [relais de croissance] for the countries that in deficit and over-indebted. Otherwise the surplus countries will no longer be able to export to anyone anymore because they will have lost their outlets.

FAZ: Do you want to reform the WTO?

AM: We above all need to reorient the European Union’s trade policy. We cannot reindustrialize the European Union if we do not have the ability to protect ourselves. Presidents Kirchner in Argentina and Roussef in Brazil have decided to tax household goods entering the country, particularly Apple products. Apple [then] decided to build factories in Brazil and Argentina. It’s also what President Obama is doing.

FAZ: What does this mean for China?

AM: Europeans’ first duty is to unite in order to restore to normal the terms of the trade deficit with in surplus-China: France and Germany both have 20 billion [euro] deficit with China. China with its 2 trillion dollar surplus will not be able to continue taking our technologies, picking and choosing among European companies, offshoring our means work and taking our market shares by beating our prices thanks to an economic model based on quasi-slavery and dictatorship.

FAZ: Perhaps consumers like imports. This widens their choice and this lowers prices.

AM: It’s not consumers who must govern our countries. We have to think first of all about our producers rather than our consumers. Like the Germans do. It’s a compliment to the German economic model. We have savoir-faire to defend and to restore in Europe. Do we prefer defending the iPhone or our social protection, our salaries and our way of life?

FAZ: Can’t we defend ourselves by becoming more competitive?

AM: You will never be as competitive as the Chinese or the countries which practice with impunity social, environmental and monetary dumping.

FAZ: And with Research & Development and the production of high-end products?

AM: I am sorry, but we can’t all buy BMWs and Audis. We also need Clios and Twingos [successful small Renault cars]. We have to produce goods that are attainable relative the wages that we distribute.

FAZ: Today those countries are strong because they are open to competition, because this forces them make an effort.

AM: The European Union is a big market, competition within it is already very strong. It’s as though you were telling me that American companies are lazy because the American economy knows how to protect itself. This is not the case. They have 300 million consumers and they are ultra-protectionist, like the Chinese, the Indians, Canada, and the major countries of South America. All countries engage in protectionism – except the Europeans, unfortunately.

FAZ: Is not your scenario a bit alarmist?

AM: Europe as entered recession. Germany will follow soon, because the recession in Europe will impoverish its natural market. If there is no one left to buy its products in Europe, Germany will begin to sag like the others.

FAZ: What are the causes of the recession?

AM: The recession is caused by the austerity policy throughout Europe. The governments and especially Madame Merkel have the wrong diagnosis. They are not really treating the illness.

FAZ: What is the real illness?

AM: The differences in salary levels and levels of social protection between European countries. Germany’s policy of competitive disinflation over ten years has become a problem for its partners. The German surpluses are linked to external deficits in all the other countries. All the other countries of the Union have a deficit, except the Netherlands.

Currency [policy or devaluation] can no long address the unbalances because it is a single currency. And Germany’s policy of competitive deflation has had as a consequence to put thousands of Germans in a situation of loss of their social rights and the levels of their salaries.

FAZ: But there are more jobs.

AM: But they are working for nothing. Look at the “1 euro jobs”. They have work, but cannot get healthcare, they cannot live normally.

FAZ: Look at the high bonuses that Volkswagen workers receive…

AM: It is normal, Volkswagen has considerable profits.

FAZ: But these are the benefits of globalization.

AM: You take the example of Volkswagen. But I mentioned to you the 1.5 million Germans who have been removed from the unemployment rolls [e.g., benefits], people who are over 50, but who are not yet in retirement. I am talking to you of the victims of the Hartz IV program. These people are not benefiting from globalization.

And this contributes to macroeconomic imbalances. We are financing German growth with our imports, but why couldn’t we ask Germany to increase its salaries to develop its internal consumption and prevent the recession from worsening in Europe?

Our social protection and our wages serve as outlets for the German economy, even as the German wage level should be stimulating the rest of Europe and serve as a springboard for growth. This is incidentally what we proposed in the common text of the French [Socialist Party] and the German [Social Democratic Party]. This means better cooperation between surplus and deficit countries.

FAZ: How do you want to reduce the imbalances?

AM: We have an external deficit of 70 billion [euros]. We are going to have to consume less German products. We are going to try to replace them with French products. At the same time, you will have to increase salaries to consume more French products. Otherwise these imbalances will end up breaking up the eurozone. Germany cannot have a kind of prosperity [that is] to the detriment of its partners and neighbors which are its primary customers. Otherwise it is sawing off the branch that it is sitting on.

FAZ: But you cannot force French consumers to no longer buy German products?

AM: We are going to ask Germany, in exchange for our cooperation and our friendship, to have another wage policy. That is to say to share a part of the burden.

FAZ: In Germany, it is not the government which decrees wage policy.

AM: I know, but there is no minimum wage in Germany. It should be created as in other European countries. It would be necessary. We would need to guarantee social minima. This is present in the agreement the PS signed with the German SDP, on 21 June 2011.

FAZ: Merkel and Bismarck, you put them in the same bag. Do you still have this opinion?

AM: I believe Madame Merkel’s policy is selfish and purely national. She is only interested in the interests of Germany and is contributing unfortunately to its weakening and isolation.

FAZ: Germany is participating in all the actions, in the bailouts of Greece and other countries. Since always Germany has been contributing more and more to the European budgets. Is that selfish?

AM: The German right is selfish in its economic strategy. That is to say that it reduced its costs in a unilateral way. It eliminated nuclear power in a unilateral way to turn towards Russian gas and has imposed in a unilateral way the wrong answer to the crisis.

The German government is not following a viable model in the long term. Even Madame Lagarde, who heads the IMF, said so recently. And yet Germany has a European responsibility. Because it is the leading European economy. If Germany wants to conserve the euro, it has no other choice than to have a European policy.

FAZ: Many Germans believe that Germany no longer has much influence in Europe.

AM: The European Central Bank functions according to exclusively German objectives, copied from the Bundesbank. The euro and its exchange rate, which is overvalued, function according to German interests. Also, the conception of competitiveness is not our own. That is a great deal.

We are asking for a rebalancing on all the fundamental economic parameters: labor costs, currency, protectionism, energy policy. Either we make Europe with reciprocal concessions, or the German right has decided to impose its ideas on all the others. But this will not last.

There are countries which cannot stay in the eurozone at this price. The consequence will be that the eurozone will not be able to survive. The history of European construction is the history of compromise. We are being asked to align ourselves on the interests of the German right. This will not be possible.

The victory of François Hollande, if it were to come [interview on 27 March 2012], will be the sign that the French do not want to have their policy dictated by the German right which is putting Europe in danger.

FAZ: A lot of Germans want to abandon the euro.

AM: Some French as well. But we Socialists want to save the euro. We will only be able to do so through reciprocal concessions. And Germany, which is in a position of strength, should accept concessions. It’s up to it to make them this time.

FAZ: And if Germany does not make them?

AM: Then we will unfortunately lose the euro sooner or later. This will start with a small peripheral country which will leave then public opinions will realize that countries can recover quickly through competitive devaluations. Germany will be surrounded by these countries and isolated in Europe.

FAZ: Germany has lived with a strong Deutschmark in the past.

AM: Everyone would lose out with the end of the Euro, Germany too. I want us to look for the common interest.

FAZ: How do you see the role of the ECB?

AM: We want to change the mandate of the ECB. That it not only fight against inflation but also stimulate growth, like the Federal Reserve does in the USA. And that the ECB accept talking with heads of State and Government to find balance points [sic].

FAZ: What should be done against public deficits?

AM: The states are not all poorly run, because some of them are indebted because they rescued the banking system. If we had put in place the tax on financial transactions, this would have funded without any difficulty the repayment of the entirety of the public debts of the eurozone in a few years.

FAZ: But the states have for years lived above their means and created deficits before 2008. And now investors can stop financing these deficits, as in Greece.

AM: Greece is a separate case which was not dealt with in time. Let’s not forget that Spain had a surplus before the crisis. The Greek debt is a drop of water, a molecule in the ocean of debt, compared to the 4.599 trillion euros that have been swallowed up by the bailouts of the financial sector.

But for other countries, investors have never stopped financing states’ debt. The solution is to take the part of the public debt due to the bailout of the banks, to put it in a common pot and have it financed by the financial sector.

FAZ: But at the same time you want the banks to finance the real economy. How is this possible?

AM: It is the banks that put us in this situation. Let’s start by finding those responsible where they are.