The Economist’s War against France: Why the French economy remains superior to Britains

If you could only rely on The Economist’s covers and slogans to understand the world, you would be forgiven for thinking that France was some kind of sclerotic, impoverished, quasi-Soviet nation of losers, persisting in its misguided ways and refusing to heed Anglo-wisdom through Gallic delusion and sheer pigheadedness.

Indeed, every few months or so the venerable British magazine churns out a cover against France showing that the country is cluelesshas been taken over by Muslims, must elect a Thatcher, must elect Sarko (who then proved awesome and non-existent), is flaccid, is in denial, and must not elect this dangerous man.

Of course, some of these are just playful attempts to boost airport kiosk sales (the Eiffel Tower is too iconic to not use), but most of them are exactly what they suggest: frontal attacks against the French economic and social model in particular, and the welfare state and government intervention in general.

The Economist has been arguing the same things against France for years. Its prescriptions can be summarized: cut taxes, cut spending, privatize everything, deregulate, remove labor protections, crush the unions, etc, etc, the usual shtick. This has gotten so repetitive that it has been rightly mocked in the leftosphere, with one economist suggesting that these editorials could be computer-generated.

However, in other times, The Economists critique was more understandable. The defining assault remains that of spring 2006: “France faces the future,” helpfully illustrated with a blindfolded tricolor rooster.  The magazine could not help resorting to ridiculous caricature (it spoke of “[t]he delusion [of] preserving France as it is, in some sort of formaldehyde solution”) but the overall argument could appear defensible. As it wrote:

Part of the blame [for France's failures] lies squarely with President Jacques Chirac. He has presided for nearly 11 years, during which mass unemployment has never budged below 8%, Frances wealth per person has been overtaken by both Britains and Irelands, and public debt has jumped from 55% of GDP to 66%.

These were all true at the time and I think there is no better way of judging a countrys socio-economic model than by comparing its performance with that of other countries. But my, citing the United Kingdom and Ireland as models, that hasn’t aged well. Post-crisis, it is now clear that the successes of those laissez-faire paradises were largely based on the imaginary economy. The financial wizards’ bubbles burst, the taxpayer footed the bill, and the two countries remain in perma-recession and have surpassed Frances public debt.

The trouble is, The Economist is still at it, even after its economic models have been discredited by events. It is still there warning more-or-less-hysterically against French protectionism and the rather dangerous Monsieur Hollande. It is still arguing for Thatcherite reforms citing Frances weak growth, lack of competitiveness, denial about debt In short, that France should become much, much more like post-Thatcher Britain.

The thing is, we actually can compare countries, notably one which remains partly Statist and in which government spending is 56% of GDP, and another which has decimated its unions and given free rein to its banks. Its time to set the facts straight and show, stats and graphs in hand, how the post-Mitterrand French economy is crushingly superior to the post-Thatcher British economy.

GDP and productivity

Lets take the most basic measure of economic effectiveness: gross domestic product. The French have made a choice of reducing working time to a greater extent that most countries. However, GDP has largely been maintained because French productivity is among the highest in the world. British workers create 20% less wealth for every hour worked than French workers.

Now, the Frenchs preference for work-life balance does come at a cost. The British work more and so their GDP per capita was 12% higher than the EU average in 2010, while France’s was only… 8% above. (It’s not clear whether France’s relatively poor overseas departments are included by Eurostat, which would further drag down the French figures).

In short, despite all the harping about Frances low growth, Brits work 20% more than French people in order to achieve…  almost exactly the same level of wealth.

Debt and deficits

The second alleged problem with the French economy is debt. The Economists attack against the dangerous Hollande includes among its dark warnings the fact that [p]ublic debt is high and rising and the government has not run a surplus in over 35 years. Yet, when it comes to debt-driven growths, the French are decidedly typical, successfully matching Germany until recently:

The statistical anomaly of Ireland and Britains low debt has been shown to be an illusion. Once the boom-year private credit was seamlessly shifted to Joe Taxpayer, we find that Britain has almost the exact same level of debt as France at 85.7%. The British situation has continued to worsen. While France had a 5.2% government deficit in 2011 (including 0.7% of GDP in bailouts to other eurozone states), the UK had an 8.3% deficit.

Also note that the British economy’s growth has historically been driven by unsustainable private and household debt as well. British people suffer from credit-addiction and an aversion to saving typical of the English-speaking world:

The fiscal irresponsibility of Britons relative to continentals has led to a significant debt burden for them. In France, households have a 80% debt-to-income ratio, while in the U.K. this was 143%. The British model of bankster/consumer debt-driven growth is far less sustainable than the French model. Who, in this scenario, are the ones in denial?

Poverty and inequality

So far, we have seen the British economy being one in which, despite people working 20% more and despite massive household and public deficits, output is roughly equal to that of the French economy. But ultimately, an economic model must also be judged on whether it actually benefits citizens.

Here we can legitimately fault the French model for its chronically higher unemployment since the 1980s and which today stands at 10% to the U.K.’s 8.2%. However, the overall social picture for the U.K. is significantly worse. The country is one in which inequality, poverty and class barriers are among the highest in the developed world.

Despite the Labour reforms that significantly reduced child poverty, it still stands at 10.1% in the U.K., a third more than Frances 7.6%. A British childs success in life is among the least dependent on his own merits and most dependent on how rich his parents are (this can only get worse now that student fees are, incredibly, tripling to £9,000). France, with its still mostly-free and mostly-meritocratic education system, is one of the countries with the highest social mobility.

France is also relatively equal while the U.K. is among the most unequal developed countries. For regular people, inequality translates into less cold, hard cash. Net median household income in France was €20,000 in 2010, as against only €17,000 in the U.K. The typical British household is then 15% poorer than the French one.

Note that this also means that the poverty chart above understates the situation. The poverty rate is defined as people with less than 50% of national median income, which is to say that one needs to be 15% poorer to count as a “poor Brit” than a poor French.

Thank God the U.K. is not in the euro

French economic superiority is particularly noteworthy given its adherence to the euro. France has had to give money to other eurozone members, it has not been allowed to directly finance itself via the European Central Bank (instead it is dependent on the financial markets), and it has not been able to devalue its currency to make exports more competitive. The euro has thus proven extremely detrimental to the French economy in this crisis. As Der Spiegel notes, France has “an economic model killed by the euro”.

In contrast, the pound has been allowed to fall by almost a third relative to other currencies and the Bank of England has pumped untold hundreds of billions into the economy via “quantitative easing”. This, and the incoherence of the eurozone, has meant the U.K. has been able to get loans on the financial markets at relatively low rates around 2%.

The U.K., like Spain, is now back in recession. The two countries have about the same deficit but British debt is significantly higher. Had the U.K. been in the eurozone, its profile suggests it would have fit very snugly among the crisis-suffering GIIPS (GIBIPS?). It goes without saying that the evidence for French economic superiority would be even more glaring.

Why does The Economist hate France?

These differences are predictable. If you cut taxes on the rich, destroy workers bargaining power, abolish labor rights, cut social spending, and let the banks do as they please You get Britain. Thats what happens. You get poor people and banksters. But you dont, as the comparison between France and the U.K. shows, necessarily get a better economy.

Given these facts, the French would have to be out of their minds Thatcherize France and make its economy more like Britains. It would mean Frenchmen working longer, for less pay, and more debt. Though super-rich people would have more to be happy about.

But why does The Economist, relatively erudite as far as magazines go, keep singling out France for economic failure? Is it simply anti-France (the magazine felt the need to answer the charge)? The short answer is, put simply, yes. France-bashing is, I believe, a necessary part of The Economists ideology and business.

The Economist is liberal and laissez-faire capitalist, fine. People pay money to read it in order to feel smart and informed, yes. But its particular market – rich businessmen, powerful policymakers and other people of high-value to advertisers – doesn’t like information that clashes with its world-view (no one likes cognitive dissonance). In this case, the mostly Anglo-American readership of The Economist believes in (Anglo-)American power and the free market. Period. (This goes some way to explaining the magazines other particularly absurd positions, such as its consistent Iraq War advocacy and bank deregulation fetish.)

But what are laissez-faire capitalists to make of France and of the French? The very existence of these cheese-eating Statists and economically-successful skeptics of globalization is a threat to The Economist’s fundamental beliefs and its very raison d’être. Facts be damned, that nation must dragged through the mud and fully discredited. Sleazy, sure, but it has no other choice.

Why I write (or: Too much BS)

Books are like lobster shells, we surround ourselves with em, then we grow out of em and leave em behind, as evidence of our earlier stages of development. ― Dorothy L. Sayers

The above quote, which I love, is even truer of blogs than it is of books.

While I’m relatively consistent in my world-view and politics, the same is not true of the style of my blogs. This new one has some novelties: its own domain name, a new comment system, share buttons, and English/French bilingual functionality (took the plunge, God save me from bugs).

Before there was Letters from Europe (the posts of which have been ported here), France/Islam, and my first blog (which changed named about once every two years, including Craig’s Corner, Tomes and Bones, The Free State, The Permanent Revolution…). But what unites all my blogs? In truth, this:

In short, I just get an itch when I hear people spout BS. It can just be on the Internet but the itch gets exponentially worse when it’s supposedly “Serious” people with, you know, a TV show or a newspaper column. And, obviously, I get a kick out of countering these untruths and enlightening the world with raw, undiluted facts.

As a result, over the years I’ve taken aim at warmongering American neoconservatives, race-baiting French Islamophobes, welfare-destroying neoliberal Eurocrats, economy-tanking German ordoliberals, and shamelessly-lying British Europhobes.

So far, so good, right? Well, the trouble is this can end up being a bit aimless and pointless.

Why self-censorship is unacceptable

I like to think I’m open-minded (when I applied to work in Brussels, I sent CVs to all French and British MEPs who were not Fascists, Communists or Tories (snark)). I like to think I change and develop my views based on facts, and that my criticisms against all sides are evidence of this. But you also risk alienating everyone and this kind of free writing is to some extent incompatible with professional life. Really, the string of thoughts the more opinionated of us leave across the Internet can appear like a trail of toxic slime to political employers.

Much of what I have written could disqualify me from joining the American/European foreign policy, government or intelligence “communities”. But then I think I’m simply too free-spirited to be paid to lobby people or recite talking points. The idea of censoring myself or forcing my brain to believe Authority-approved untruths is viscerally repulsive to me.

Somehow War Nerd still managed to get hired by these guys to teach in Iraq.

This applies to media too, by the way. For example, is there anything more pathetic or ambition-killing for a young journalist than to see the New York Times’ Jerusalem bureau chief forced to apologize for tweeting:

What do #Israel and #Iran have in common? Jailing journalists, according to [the Columbia Journalism Review] http://www.cjr.org/behind_the_news/which_countries_jail_the_most.php

What is the point of wanting to be a writer if you can’t say the truth? Once upon a time, these kinds of compromises may have been acceptable. Before the Internet, media bureaucracies were gatekeepers, the only way to have your text reach someone else (and this was still very limited in terms of life-expectancy and readership). Today, every single blog post makes your text accessible to the entire globe (universal), archived and retrievable on demand (eternal) and free of charge. What would writers of the past have given for such freedom? Today, with this gift, to become compromised and to censor oneself strikes me as simply cowardly.

And the nice thing is, most people actually appreciate the truth. Matt Taibbi of Rolling Stone and Glenn Greenwald at Salon.com have built their writing careers and massive audiences on saying what Establishment journalists can’t. The truth resonates, and every writer is free to build up his audience and his reputation based purely on his time and ability.

Serious work vs. “Serious” people

Every line of serious work that I have written since 1936 has been written, directly or indirectly, against totalitarianism and for democratic socialism, as I understand it. – George Orwell

This is what I hope my blog can help me to achieve: to build up my reputation, to highlight my professional work, and develop my own thought.

But just as I am reconciling my paid and spontaneous work, I am also trying to reconcile the Frenchman and the American in me. You might think it impossible, but I think there is considerable overlap between those two noble traditions I embrace: antiwar American liberalism and French Europeanism. Like Orwell I can say that “every line of serious work that I have written” has served these two ideals.

Both have as their enemies the armies of market fundamentalists and warmongering neoconservatives. And there is definitely a niche here to be filled (unlike general American liberal/antiwar writing, which are well-served). Steven Hill is probably the most prominent writer combining American liberalism with Europeanism today (although his Europeanism is more vanilla, whereas mine might is colored by French prejudices, e.g., social Gaullism).

Put another way, I believe in the values many “Europeans” claim, but also many Americans: peace, social well-being, international law… Things, I might add, which the American regime does not officially profess with anywhere near the same enthusiasm, if at all.

Incidentally, almost all my previous work has been in a variant of these genres. I’ve most explicitly addressed these issues in my neo-Aronian “defense of decadent Europe” (the most popular post on Letters from Europe) which took on myths about Europe’s economic and demographic decline, and my thoughts on Osama Bin Laden’s death and European collaboration in the War on Terror.

Subtracting from the sum of American knowledge, 800 words at a time.

Some might ask why there is even a need to write about these things. They might seem self-evident. But I note that there is a large amount of overlapping anti-European, anti-French, anti-social, anti-peace rhetoric and myths among the Anglo-American right: from the childish loons in  Congress who renamed “French fries” to “Freedom Fries”  to the Europe-bashing in this year’s Republican primaries.

But this also extends to “bipartisan”, “centrist” foreign policy “wise men”. There was Fareed Zakaria who after arguing for the Iraq War in 2003, declared the “Fall of Europe” in 2006. There was also Tom Friedman who in the run-up to the Iraq War argued that France’s opposition meant it should be removed from the United Nations Security Council and who six months later stated simply that “France is becoming our enemy”. The venerable and eminently Serious magazine The Economist has also made recurring France-bashing an integral part of its business model.

I will obviously present arguments and facts against this kind of parochial, willful ignorance. That’s what I live on. But I also want to present something to European and French readers. Europeans have a strong belief, surprising given their economic weight and the number of soldiers they have running around the Middle East and Africa, in their own impotence. Even worse is the truly remarkable French propensity for pessimism and belief in declinism, difficult to reconcile with the nation’s relative success as one of the most developed, peaceful, free and prosperous countries in the world.

In terms of real life, this translates into genuinely preventable, inexcusable tragedies: an incredible European tendency to collaborate in American wars and lawlessness, sacrificing their own values, interests and citizens; even as the U.S. (with typically a anti-European Republican Congress) systematically opposes European interests on climate (Kyoto, Copenhagen), financial regulation and taxation, international law (treaties on land mines, children’s rights) or really most anything that doesnt involve bombing foreigners.

To not conclude…

Hence I will be writing in both French and English and I hope to tap into antiwar, pro-European, and democratic voices on both sides of the Atlantic. The stuff on the dysfunctions of the eurozone and French/European collaboration in U.S. War on Terror is going to probably be of more interest to French readers than to English-speakers.

This will be a useful exercise for me as I almost never work in French despite living in a largely Francophone city (a fact many Brits/Americans working in EU affairs complain about) and my written French needs some practice (I was never strong in dictée).

There is a tendency with instantaneous news and micro-blogging (I have become addicted to Twitter, genius concept), to lose sight of the big picture and the long-term. As my work at EurActiv has ended, I’ve taken the liberty of purging most of the news-oriented feeds from my Google Reader. I’m also going to read more books and write more book reviews. Looking over my past writing, I found my book reviews (only to be found in my first blog) were among my best stuff (now under “published work”)

So subscribe to the RSS, follow me, and watch this space.

Will the prophet Putin be proven right?

Vladimir Putin, peering into the future.

Last November, when the euro-shit really started to hit the fan, Vladimir Putin with his habitual freedom of expression predicted the European Central Bank would need to intervene to the tune of €1.5 trillion.

Mario Draghi, who became ECB president that month, went on to prove the Russian premier two-thirds right by injecting a mind-exploding €1 trillion in low-interest three-year loans to eurozone banks. Things have calmed down since the wily Italian bowed to the inevitable and did this little bit of steal QE.

Still, as Charlemagne points out, there is still plenty that can go wrong, which might prompt the ECB to prove Putin 100% right.

Draghi: Balanced budgets to be achieved through spending cuts alone

Because I care.

Mario Draghi, president of the European Central Bank, has been called “The world’s most important boring man”. Indeed, in this context of financial-fiscal fiscal crisis, there is perhaps no more powerful institution in Europe than that which he heads. Its refusal to buy Italian bonds, despite the country then-having the fastest-shrinking debt in Europe, effectively led to the fall of Silvio Berlusconi and the rise of Mario Monti with his election-free reform agenda. It alone decided to lend almost €500 billion to European banks in low-interest three-year loans last December to calm the financial markets.

These may or may not be good things, but there is no official-legal-democratic way of influencing these incredibly important decisions, which can prop up or topple a government, prevent or cause recession, and effectively give mind-bogglingly massive amounts of free cash to the banks (but not governments). These decisions are the lone preserve of the “independent” ECB’s governing council, made up of assorted Frankfurt bureaucrats and Goldman Sachs alumni, answerable only to its conscience.

As such, the ideological preferences, prejudices and words of Draghi and other ECB high officials are intensely important, even if most Europeans even within the eurozone are completely ignorant of them. Investors and financial publications, in contrast, listen on every oracular pronouncement.

This brings us to what Draghi had to say in an enlightening interview with the Wall Street Journal when asked about his assessment Greece’s austerity measures, given the “depression-like conditions” in the country:

This is actually a general question about Europe. Is there an alternative to fiscal consolidation? In our institutional set up the levels of debt-to-GDP ratios were excessive. There was no alternative to fiscal consolidation, and we should not deny that this is contractionary in the short term. In the future there will be the so-called confidence channel, which will reactivate growth; but it’s not something that happens immediately, and that’s why structural reforms are so important, because the short-term contraction will be succeeded by long-term sustainable growth only if these reforms are in place.

At first reading, Draghi appears to suggest there is something uniquely European about high debt-to-GDP ratios. This is false. The average gross debt of EU nations is 82.2% and for the eurozone 87.4% (most recent figures). As the WSJ reports elsewhere, the comparable figures are 107% debt-to-GDP for the U.S. and a whopping 230% for Japan. Italy, by far the worst of the big eurozone economies, doesn’t then look so bad with 128%. Also note that eurozone debt had been decreasing last year until the ECB and European Council’s mismanagement led to Europe’s double-dip recession.

Draghi is correct in noting the “institutional setup” – the eurozone’s inherently dysfunctional design as of now – means that it cannot manage debt levels even significantly lower than other developed countries’. One solution would be to change this setup, but for Draghi There Is No Alternative (TINA) to budget cuts. He cannot suggest any such reforms, partly because his role precludes it, partly because this would mean acknowledging the ECB’s own role in Europe’s worsening debt outlook and recession.

If Europeans have struggled and have to consolidate before others – even though their debt is lower! – it is because their central bank cannot or will not act as the Bank of Japan, the Bank of England or the Federal Reserve and systematically buy up public debt. That is why those countries can borrow at rock-bottom rates on the markets despite comparable-or-worse bad debt outlooks.

Secondly, the interview is terrifying in that Draghi sees no difference between Greece and the rest of Europe on this issue. The “We Are All Greeks” protests are exactly right in that, as far as the ECB is concerned, the rest of the eurozone is next on the chopping block. This is evidenced by Draghi’s answer as to how to achieve balanced budgets, when he describes “good vs. bad fiscal consolidation”:

In the European context tax rates are high and government expenditure is focused on current expenditure. A “good” consolidation is one where taxes are lower and the lower government expenditure is on infrastructures and other investments.

For Draghi, the best way to balance the budget is actually to have lower taxes. It isn’t completely clear whether he is advocating outright tax cuts, although in any event that’s only one logical step away from the more generous interpretation of his comments.

Effectively the ECB is saying the burden of austerity must not be met by any additional taxes on those with means, but must be met exclusively though budget cuts on “wasteful” public services like pensions, healthcare, education, unemployment relief, etc (which make up the vast majority of national budgets).

Note that there is no strong relationship – in any direction – between low taxes, growth and balanced budgets. In the EU-15 the countries with the lowest debt are also those with the highest taxes (Denmark, Finland and Sweden).

If we exclude the actually-working Scandinavian models and focus on lower taxes, what Draghi is effectively advocating is achieving balanced budgets exclusively through cuts to public services, even if it leads to Greek-style social catastrophe. As the OECD’s FactBlog points out, public services in Europe effectively halve poverty rates. This is also at a time, as a new International Labor Organization study shows, when workplace and income inequality as well as economic insecurity for the bottom rung of society, have increased dramatically across Europe due to recession and austerity. In short, Draghi is urging massive cuts to public services at precisely the moment when these are most necessary.

When asked if all this might not mean the end of the European social model as we know it, Draghi answered: “The European social model has already gone”. As good a reason as any to defund and dismantle what’s left of it.

The ECB is not a “neutral,” “apolitical” institution. The positions Draghi expresses are intensely hostile to centre-left thought in Europe and more generally to the great Christian-Social Democratic achievements of the postwar era. Arguably the institution is within its role in demanding fiscal responsibility from members of the euro, it has no right however to tell members how to go about doing so.

French Socialist presidential candidate François Hollande has said he wants to start a “debate” on the role of the ECB. Given that EU treaties are virtually unchangeable if any major country opposes it – see French opposition to a single seat for the European Parliament, even if it means wasting €200 million every year – we can be pessimistic at his chances of reform. Germany is extremely unlikely to allow any changes to the Maastricht rules no matter how much these devastate the economies of the periphery, social democracy, and indeed the European ideal itself. Still, if we can have the beginnings of a debate to question the hollow, insipid and ultimately economically disastrous “consensus” of eurozone governance, that would be a start.

The Economist discovers life not fair

Apparently a new phenomenon.

The leading magazine of the global politico-economic elite - The Economist has an article on the recent controversy over bankers pay warning of The death of meritocracy. I guess its noteworthy for this normally laissez-faire capitalist publication to recognize inequality of opportunity as a problem. Although, perhaps because of its free market ideology, it has a particularly strange way of discussing the issue:

[RBS Chief Stephen Hester stands for] the idea that the unusually talented may deserve extraordinary rewards. Yes, people are paid unequal amounts, but don’t forget how wealth is created and the successful motivated, he says. In essence, he is making the case for meritocracy.

Merit is a fine principle. But the most painful revelation of the debate on high pay may be this: many Britons are not convinced that they live in a functioning meritocracy.

Wait, what? The most painful revelation is not that famously class-based Britain isnt meritocratic, but that people have stopped believing that it is? Right-O.

Incidentally, meritocracy in the UK hasnt died because it was never really there in the first place: the differences in life chances there have long been particularly vast between those who Warren Buffet calls members of the lucky sperm club and those children stuck in postcode poverty.

The UK is one of the developed countries were the income of an individual is most determined by the income of ones parents. As the OECD pointed out some years ago,  Britain is even worse than the United States of America in that respect. With university tuition rising to £9,000 a year in universities across the country, the situation is set to get significantly worse.

The magazine takes no comfort in Britons growing awareness of this fact and their worries that their extremely well-paid executives might not be entirely deserving. This is a dangerous mood, transcending labels of left and right. Indeed, it sometimes feels as if all political parties are following, not leading, public opinion. Sounds ghastly.


Eurostat: Eurozone debt actually decreasing

…last year. Between June and September 2011, the debt of eurozone governments as a percentage of GDP fell from 87.7% to 87.4%. The recovery’s combination of GDP growth, rising revenue, and falling unemployment meant debt was falling at an annualized rate of a full 1.2% points.

The kicker? The country in which it decreased the most was Italy, where it fell by an incredible 1.6 percentage points in a single quarter. Spain’s debt-to-GDP remained unchanged and recently-downgraded France’s debt-to-GDP fell by 0.8% percentage points. Virtuous Germany, on the other hand, was barely in the black at 0.2%.

That is to say – before the European Central Bank, under intense pressure by German officials both in and outside the bank, refused to shelter Italian and Spanish bonds from the Greek contagion, causing the double-dip recession – all the big eurozone countries had neutral or improving debt outlooks. If Berlin had had less influence over Frankfurt, there would actually be far less debt in the peripherals for German taxpayers to worry about.

Berlin looks to be unfazed. As far they are concerned this recession and debt crisis were caused by fiscal profligacy – certainly not bone-headed monetary policy. German officials apparently “simply don’t understand” what the rest-of-the-world (especially the U.K., U.S. and I.M.F.) is disinterestedly advising them to do.

But no. Despite being the most fiscally responsible member of the eurozone, Italy must make further cuts because of the mistakes of Frankfurt-Berlin. Actually, it is not necessarily a “mistake,” at all. Wonks in Brussels regularly describe what is happening, dispassionately, as an intentional strategy: The ECB refuses to do what it takes to drive Italian bond yields down in order to force the country to adopt the reforms the bankers, all-knowing as the Frankfurt office-dwellers are, think best (budget cuts, job market liberalization, privatization of public services, etc).

Note that this amazing quarter of fiscal performance on Italy’s part was immediately before Jean-Claude Trichet and Mario Draghi issued their September letter to Italy demanding these reforms (The Economist readily described it as “diktat). And that’s how, in the euro system, those who cause crisis in fiscally responsible countries still get to dictate what policies and governments those countries must have.

The most striking thing highlighted by the Eurostat figures is the perversely moralistic and anti-economic aspect of the European debate on austerity. German journalist Alan Posener, in a fine essay in Die Welt, attacks what he imagines to be Angela Merkel’s Protestant pain-now/payoff later attitude and suggests that having more debt for future generations is acceptable if it means growth now:

Compared to that [Germany recently fully repaying WW1 reparations debts], future generations should be glad to pay debt accumulated by a government that shelled out for unemployment benefits, pensions to mothers, health costs for the poor or college educations – even if it was a little dilatory about tax collection.

But in fact, the figures suggest there is not even any such trade-off: Had growth been maintained through an intelligent monetary policy then we would actually have less debt. The argument is not over whether we should pass on more debt to future generations to have growth today. It is about a status quo in the euro system, defended above all by Germany, which means Europe being both poorer and more indebted.

Other than that quibble, Posener’s essay is right on the ball. He concludes: “But the key is not savings. It’s growth. The green-Protestant, post-democratic austerity regime could end up destroying Europe.” With one-in-two youth unemployed in some countries and years more of recession still in sight, who could disagree?

Raymond Aron on Europe, Israel, and dual loyalty

Raymond Aron, it is no secret, is my favorite French intellectual of the twentieth century. He was not a Great Philosopher, nor did he create an all-encompassing system, but I think if one had to read one single author to understand the modern world, there is perhaps no one better than this liberal democrat and inveterate enemy of Russian Communism and French Socialism.

He also did not have the penchant of so many French intellectuals to fall into over-zealous moralizing (Sartre) or resorting to willfully dense, apparently meaningless, prose (Althusser, Derrida, Baudrillard).

Aron was also one of the great believers and advocates of Western Europe, in itself, as a collection of mixed-market liberal democracies (this is true throughout his career and writings but above all in his In Defense of Decadent Europe). Yet I am struck, having almost reached the end of his mammoth memoirs, that he has almost nothing to say about European integration.

Granted, having died in 1983, he did not live to see the movement’s greatest achievements: the Single Market, the Schengen area of free movement, the euro, and the reunification of Europe with waves of eastern enlargement.

But still. Aron wrote on many topics Marxism, industrial civilization, war and peace, and Western Europe but it appears he had neither the time nor the interest to devote much attention to the various still-born and successful projects for European military, economic and political unity.

Aron was skeptical of all grand, apparently Utopian, designs, and it seems he put the lofty aspirations of European federalism in that category. The (then) European Economic Community he describes favorably as an organization of experts and economists to collect and interpret data and coordinate European economies, but it is not as an embryonic polity.

For Aron, democracy and citizenship are necessarily national. They cannot be shared between countries. This passage on diaspora Jews and Israel perhaps illustrates this most unambiguously:

Reason would prevail over conviction if Jews today aspired to integration, if their Jewishness remained wholly spiritual. From the moment that their consciousness binds them to Israel, a State among others even if it presents certain particularities, non-Jewish Frenchmen have the right to ask to which political community they belong. As long as humanity is divided between “States of power”, Jews of the diaspora, free to determine their destiny, must choose between Israel and their “host country,” that has become their nation [patrie]. Citizens of the French Republic, they legitimately maintain their spiritual or moral ties with Israelis, but, if those ties with Israel become political and take precedence over French citizenship, they should logically choose Israeli citizenship. (Mémoires, 1983, p. 709)

In short, the interests of Israel are not the same as those of France and, when push comes to shove, one has to choose. This passage is naturally of interest to the current so-called “Israel-firster” debate (Aron was, incidentally, Jewish and his writings are sympathetic to and largely uncritical of Israel). But it is of much broader interest to other hyphenated identities emerging due to immigration (Turkish Germans, Arab Frenchman) and European integration.

If a citizen cannot legitimately be loyal to two nations – Israel and France – what likelihood is there that the officials of the European Commission or the European Central could stand for an entire continent of nations? Are they not reduced to being, not the enlightened embodiment of the European interest, but apatrides (nationless) bureaucrats representing no interest beside that of their institution? Today, Aron seems to imply, Germany (for example) can only act in the German interest. It cannot, plausibly, be expected to act in the imagined European interest if it interprets this to be in a contradiction with its own. The denial of this truth leads to all manner of negative consequences.

This may be a slight caricature or imply an idealization of national democracy. But if one observes the interaction between the member states (Council), the Parliament and the Commission, it is hard to escape the impression that they defend not any European interest but only their institutional power.

Aron’s point is naturally somewhat disagreeable to me. As an Anglo-Franco-American (si, si), my background may not be as inherently subversive as some other national combinations, but it is never comfortable to have to face the prospect of being torn between loyalties.

It is also naturally in opposition to the United States of America’s concept of citizenship, with its hyphen identities. It has long been accepted that foreign policy be partly determined by ethnic pandering and lobbying – by and for Cubans, Irish or Jews, for example – even if it makes it much less clear that that policy is in the national interest.

German official simply doesnt understand rest of world

Gideon Rachman of the FT has great run-down of his recent conversations with German officials and diplomats.

There is considerable impatience with the Davos-led, Lagarde-Cameron-Geithner line that Germany has to throw more money at the problem, by building a bigger firewall and rebalancing its trade. “I simply don’t understand them,” says one senior official. “This is a problem that will not solved by the ECB or bazookas or bigger firewalls. It can only be solved by growth. And the only long-term route to growth is structural reform.”

Cool. I will posit two things. First, bureaucrats, diplomats and dare-I-say even economists have never been able to fully explain where long-term growth comes from.

Second, this simply not understanding by a senior German official I can only describe as incredibly weak. One has to be talking about willful incomprehension when this issue has been thrashed out and explained ad nauseum over the past 18 months in the major newspapers op-ed pages (including the FT) and by too many celebrated/prize-winning economists to cite.

The Lagarde-Cameron-Geithner line is really the Lagarde-Cameron-Geithner-Putin-Sarkozy-Krugman-Eichengreen-Roubini-Sarkozy-andlotsofothersmartand/ordisinterestedpeople line. Its basically the everyone-except-Germany line.

So meh. Ill chalk that not understanding as a case of the cognitive dissonance of one German  official who must imagine himself serving the public and European interest on some level having to defend a policy that is manifestly ruining the European economy, destroying the EUs image across Europe, and is, beside that, unsustainable. Its interesting, if depressing, that even after the thrashing at Davos the German high authorities appear so completely unreconstructed.

Lots of other good stuff in the post.

Eurozone, the Unravelling (III): The Fake Jobs Growth Plan

Ive been reading Molly Ivins so I almost put like heartless, dumb bastards but that wasnt quite in keeping with the style of the publication:

Was it the fact that both the IMF and the World Bank warned that the eurozone’s economic mismanagement could trigger another global recession? Or that the world’s economic and political elite was dismayed by Angela Merkel’s business-as-usual speech in Davos? Or perhaps because the EU was due to announce that eurozone unemployment is still rising, reaching a new all-time record of 10.4% (even as it has dropped to 8.5% in the U.S.)?

In any event, it seems some EU leaders were worried that all this happening in the days before the summit to finalize a fiscal discipline Treaty, mandating more-of-the-same-budget-cuts-and-tax-hikes that have failed to prevent the worsening crisis, might make them look… well, not just heartless, but stupid too.

and so they came up with an amateurishly bad Growth & Jobs Plan/spin operation. Read all about it on Future Challenges, where I report from the Brussels Think Tank Forum, the EU/national think tanks big annual shindig. The Eurowonks were pretty grim.

Europe on Autopilot: How Krugman predicted the euro-mess in 1998

I came across a December 1998 article in Fortune magazine by the indomitable Liberal economist and Nobel prize winner in which he takes a critical look at the monetary union the Europeans were creating. Its quite amazing how much has not changed in the concerns he raises, whether its on Germany vs. the rest, EU central bankers insensitivity to economic performance in favor of hard money, or the efforts of subtle Europeans to come up with dense, unclear and loop-holey texts so as to have something that can pass for agreement.

Most impressive of all is how Krugman describes the weaknesses of the emerging euro system as one that not only jammed together disparate economies but set its core institution, the European Central Bank, on an autopilot hostile to both growth and jobs. I can do no better than to quote him at length:

But come actual monetary union, this subtlety [hiding German preferences/predominance behind inscrutable bruxellois] will no longer work, because a truly unified currency must have someone a European Central Bank explicitly in charge. How could this institution be set up to give each country an equal voice, yet satisfy the German demand for assured monetary rectitude?

The answer was to put the new system on autopilot, pre-programming it to do what the Germans would have done if they were still in charge.

Krugman then notes the characteristics for maintaining autopilot, including the ECBs independence, its very narrow mandate: price stability, period no responsibility at all for squishy things like employment or growth, and appointing the monetary über-hawk, Dutch central banker and bouffant enthusiast Wim Duisenberg as the first ECB president.

He goes on to lament that despite falling inflation, double-digit unemployment and the rise of pro-stimulus centre-left governments across Europe (including France, Germany, Italy an the U.K.), there was no sign that the Bundesbank/the embryonic clique of eurobankers might favor a looser monetary policy:

Instead of an asymmetric economy, in which some countries want tight money while others want a boost and all of the major governments agree that the central bankers should emulate (EMUlate?) that wild and crazy guy Alan Greesnpan, and loosen up. So there is, in the end, no conflict of interest. Indeed, EMU could get off to a rousing start by cutting interest rates and making everyone happy.

But EMU wasnt designed to make everyone happy. It was designed to keep Germany happy to provide the kind of stern anti-inflationary discipline that everyone knew Germany had always wanted and would always want in future. So what if the Germans have changed their mind [under social democrat Gerhard Schröder], and realized that they along with all the other major governments are more worried about deflation than inflation, that they would very much like the central bankers to print some more money? Sorry, too late: the system is already on autopilot, and no course changes are permitted.

To say yes, to give the politicians what they want even if what they want is entirely reasonable, feels like a betrayal. In fact, the more the politicians demand action, the more the central bankers dig in their heels.

The latter, incidentally, is probably why Nicolas Sarkozy, even as he has been pushing for a more interventionist ECB, has relegated his efforts to private lobbying rather than public exhortation, lest he offend the technocratic priesthood in Frankfurt.

Krugmans account is a good explanation as to why the ECB, by its very structure, failed to manage the sovereign debt crisis of 2009-201?. The bank was unfazed by the damage a $1.40-€1 exchange rate was having on exports, had no mandate to guarantee low interest rates on government borrowing by buying up bonds (thus avoiding self-fulfilling debt-spiral in the periphery-minus-Greece), and indeed had no inclination to encourage business by lowering its main interest rate below 1%.

In short, the ECBs autopilot meant it behaved in the exact opposite manner of other central banks, including the Fed, the Bank of England, and the Bank of Japan, which all engaged in rock-bottom interest rates and guarantees of low interest rates for government borrowing. So, now, Europe alone has a double-dip recession, rising unemployment and an exponentially worsening debt outlook. Oh, and according to the World Bank, the Old Continent is likely, in due course, to drag everyone else down with it.

In addition, both the European models of integration and of social protection have been tarnished as a result. The latter is particularly vexing as U.S. Republicans and other opponents of the welfare state can quite reasonably point to Europe as proof that it is synonymous with economic disaster spending beyond ones means, etc. even as eurozone countries actual debts and deficits are no worse, and sometimes better, than other developed countries.

Krugman concludes by saying These Europeans, they are a subtle race. And this time they may have subtled themselves into a very tight corner. Indeed, nowhere is this tight corner clearer than in looking at France and the U.K., comparable in terms of economy and budget. But because one is shackled to the euro and has ceded the responsibility for choosing the right economic policy to whims of Frankfurt, it is France alone which pays higher interest rates and has lost its triple A rating.

The European subtlety of hiding differences and (in)action behind verbose bruxellois has been at the heart of integration since the beginning. It may be fine for ever-so-slowly breaking down trade barriers, adopting product standards, and so on. But it is fatal when decisive and reactive leadership is necessary (which is indeed why Europe has failed whenever there was a crisis, notably in foreign policy, see Iraq, Yugoslavia).

The non-discourse and remorseless, inscrutable and/or imaginary consensus of subtlety continues: We will have the Necessary fiscal compact even if the Luxembourgish foreign minister says its a waste of time, the ECB will not print money (lest the Germans protest) but will engage in stealth quantitative easing by making €489.2 billion (sic) in loans to banks, and all PMs and presidents (minus the Brits) are in total agreement on the direction Europe is going even as national politicians voice dissentare cowed and vow to renegotiate the new treaty.

The result is no one really be it professional observers, markets or, least of all, public opinion has any idea whats going on. Perhaps the European ruling class, multinational as it is, must necessarily articulate its thoughts in the habitual diplomatic subterfuge and techno-bureaucratic platitudes.  I just hope they dont doom a generation, mine, to perpetual unemployment and a ruined welfare state as a result. That wouldnt be very subtle.