In addition to the straitjacket in which it finds itself in the Eurozone, the French social model is too socialist in structure. While it might work in times of plenty, it leaves very little room for manoeuvre for the leaders in times of adversity. Hollande’s plans are neither robust nor coherent, nor brutal enough to carry out the sort of surgical changes needed to restore the French economy to good health. He will need to do some unpopular things within his own powerbase. For Hollande, it might well turn out to be a case of head-you-lose and tail-you-lose.
HOLLANDE: OFF TO A BOLD START
The euphoria that greeted the election of François Hollande did not last very long. He did not have much time to savour his victory at the polls. The business-like manner in which he had dashed off straight after his inauguration in Paris to Berlin to meet with the German Chancellor won him the admiration of many. Lightning and thunder could not stop him. The brave and polite manner with which he had informed his German colleague that the Franco-German relations that later crystallised at the EU level into what was to be known as Merkozy is to all intents and purposes dead, won him respect.
François Hollande has taken a few good steps since coming into office. His choice of prime minister was considered by most people as a fairly sensible (and pragmatic) one. Other than one or two of the ministers, the executive cabinet consists of capable and respected people. Hollande knows that the task ahead of him is daunting: But he knows what needs to be done, and hopefully, how to do it. Yet, there is a world of difference between knowing what to do and how to do it, and being capable of actually doing it. To start with, the tasks that are pending are not best suited to a social democrat. Even a centre-right leader would shudder when faced with the enormity of the tasks.
The French economy is by no means the worst in Europe currently, but France has more problems than most. And these are serious skin-deep problems. The cry to stimulate and boost economic growth and abandon the crippling austerity regime makes a lot of sense; at least it makes a lot of political sense. And, it is currently à-la-mode.
Pumping funds into the economy should help to create new jobs, increase people’s purchasing power, thereby increasing demands for goods and services. This should in turn create even more jobs, then surely but steadily pull the economy out of the cellar, give confidence back to people who have lost it, and create wealth with which national debts could be repaid.
Obviously, there are advantages to towing the path of growth by stimulating and boosting the economy. So with all its advantages, if it was so easy to implement this, why should there be objections from some quarters? Simply because, everything that has an advantage always invariably comes with a disadvantage or two to go with it.
Putting it bluntly, stimulants do not come cheap. The money will have to come from somewhere – borrowing. For a country that is already heavily indebted, that has a reduced-credit worthiness, and consequently a higher cost of borrowing, there is an important consideration: How much will the stimulant cost? Can the country afford it? On the other hand, can a country really afford not to buy a stimulant to boost its crippled and debilitating economy at whatever cost? Could allowing the free-fall of a nation’s economy not amount to a collective economic suicide?
Yes, it does. But then there are two issues that need to be considered. The first is that of “collective responsibility”. All Eurozone members have committed themselves to protecting the integrity of the single currency. Financial discipline in the form of austerity is the path towards this end, as far as Germany sees it – even if this results in collective economic suicide. Most others disagree.
STIMULANTS NEED CONDUCIVE ENVIRONMENT TOO
The other issue (which is a weakness) in the argument for buying into a stimulant package is that it treats all the countries in difficulties as equally deserving of borrowing and pumping more money into their economies. This is not only simplistic but foolish. One size fits all never works.
Imagine two cars that run out of gasoline and need to have their tanks refilled. Imagine that one of the cars has a tank that is leaking fuel heavily. While it is true that both cars need to have their tanks refilled, the one with a leaking tank has a structural problem that needs to be attended to. If the refill is to have any impact, the leaking needs to stop. If it does not, the cost of running the car will be enormous and the driver is likely to fail.
Hollande is the guy that just got in the driving seat of that car with a tank that leaks not only gasoline, but engine oil as well. And the reason why he might fail is that those who put him in the driving seat are mostly the same as those that are benefiting from the leakage. Yet, without sealing the leaks – through very radical moves – he has no chance of success.
France has too many people that are not working. It has a legion of people that have the wrong mindset – a mindset of entitlements. There are generations of parasites on the State sucking life out of the national economy.
France has too many immigrants who it never succeeded in appropriately integrating and who have become a burden and a giant blood-sucking parasite on the State. Of course it is politically incorrect to discuss this issue, so it gets swept under the carpet.
Rather than standing up to the problem and facing up to the failure in the system, successive governments adopted the hands-off policy of laissez-faire. Political correctness trumped over pragmatism which ended up benefitting nobody. The problem was not the arrival of migrants. It was the failure of the establishment (that welcome them) to implement a meaningful programme to integrate them into the society. Yes, integration programmes are expensive. But lack of an integration programme is a lot more costly as France is now finding out.
The French economy is not notable for its competitiveness, nor for high productivity. The statutory number of working hours per week does not fit into modern-day economic realities. The retirement age of 60 is not practical in most other Western economies.
Like in Greece and Italy, France has a larger than necessary public sector. France never really fully adjusted to, nor took advantage of modern information and telecommunication technologies to restructure and reform its civil service. There are too many of its employees that have too little to do to justify their pays. Its public service would function better with between 25% – 30% less staff than it currently carries. But then, you do not “grow” jobs by sacking civil servants who are breadwinners for their families. That would not be boosting the economy – would it?
France does not only suffer from a high level of unemployment, it has a sizeable amount of under-employment and disguised unemployment as well. There are too many people who are operating at less than reasonable capacity even when they are counted as being employed. Youth unemployment is a problem – currently standing at close to 28%. Its youth’s NEET (that is, not in employment, education, or training) ranking is abysmal. And the cost to the economy is too high. Servicing NEET costs France 2.0% of its GDP – the same level as for Ireland. The only other EU member state worse than these is Bulgaria at 2.5% of its GDP. This compares with an EU average of just 1%, Germany at 0.6%, Luxembourg (the lowest) at 0.4%, the Netherlands and UK at just under 1%.
Boosting growth and getting people back to work would appear to be the obvious way to go. That indeed is the only real option open to François Hollande presently. But the stake is high and he somehow needs to convince Germany that in the long run, growth (and not austerity) is indeed in the best interest of the Eurozone. Presently, he might as well be talking to the wall.
THE CAMP DAVID G8 TALK-SHOP
If Hollande had gone to his first G8 Meeting hoping that the other six would help him convince the German Chancellor that growth should be the way to go, he must have left disappointed. He would have realised that the meeting was nothing more than a talk-shop. Their resolutions and declarations were too vague and carefully crafted to please everyone. “We commit to fiscal responsibility and, in this context, we support sound and sustainable fiscal consolidation policies that take into account countries’ evolving economic conditions and underpin confidence and economic recovery” ran one of their resolutions. And this to mean exactly what?
They pledged their support for Greece – no mention of how. They promised to reverse the declining state of the world economy – no credible roadmap. They made a few more empty promises. The British prime minister had to go all the way to a meeting in the US to urge his EU counterparts that belong to the Eurozone to do something about the problems in the 17-nation group. The parts of the communiqué devoted to the economic crisis is so vague it reads like a tragico-comedy script.
Possibly the most challenging part of the G8 meeting was devoted to watching the match between Chelsea Football Club of London and Bayern Munich.
Back home, Hollande has to map out his battle plans. Will he succeed in getting Germany to reconsider its stance on fiscal compact? If he fails, will he come to terms with running an austerity regime which he campaigned against? He had promised to hire more teachers and police (for obvious reasons!) and pledged to subsidise job-creation. Growing the economy through creating jobs is laudable. But relying so heavily on financing job-creation by taxing the wealthy, only appeals to socialists. It makes very little economic sense.
In addition to the straitjacket in which it finds itself in the Eurozone, the French social model is too socialist in structure. While it might work in times of plenty, it leaves very little room for manoeuvre for the leaders in times of adversity. Hollande´s plans are neither robust nor coherent, nor brutal enough to carry out the sort of surgical changes needed to restore the French economy to good health. In order to succeed, he will need to do some very unpopular things within his own power-base. Half-baked actions or cosmetic moves that are aimed at pandering to the electorates will only serve to make a bad situation worse. At the same time, there is a popular saying that the person whose head is used in breaking open the shell of a coconut, does not live to eat out of the coconut itself. For Hollande, it might well turn out to be a case of head-you-lose or tail-you-lose. Only time will tell.
The author of this article Edward Ojo is a member of the Editorial Board of Read-Online.Org and a socio-economic researcher. (Contact: Edward.Ojo@read-online.org)
Opinions expressed in this article are those of the author and do not necessarily reflect the editorial views of Read-Online.Org
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