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Posts Tagged ‘France’

Jean-Baptiste Hollande

January 15, 2014 34 comments

 le temps est venu de régler le principal problème de la France : sa production.
Oui, je dis bien sa production. Il nous faut produire plus, il nous faut produire mieux.
C’est donc sur l’offre qu’il faut agir. Sur l’offre !
Ce n’est pas contradictoire avec la demande. L’offre crée même la demande.
François Hollande – January 14, 2014

France is often pointed to as the “sick man of Europe”. Low growth, public finances in distress, increasing problems of competitiveness, a structural inability to reform its over-regulated economy.  Reforms that, it goes without saying, would open the way to a new era of growth, productivity and affluence.

François Hollande has tackled the second half of his mandate subscribing to this view. In the third press conference since he became President, he outlined the main lines of intervention to revive the French economy,  most notably a sharp reduction of social contributions for French firms (around € 30bn before 2017), financed by yet unspecified reductions in public spending.  During the press conference, he justified this decision on the ground that growth will resume once firms start producing more. Thus, he tells us, “It is upon supply that we need to act. On supply! This is not contradictory with demand. Supply actually creates demand“. Hmmm, let me think.  Supply creates demand. Where did I read this?
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Raepetita Iuvant

May 16, 2013 4 comments

Yesterday Eurostat published  growth flash estimates for a number of EU countries. As expected, they do not look good. In 2013 Q1 the eurozone has lost 1 per cent of its GDP with respect to the first quarter of 2012 (-0.7 for the EU 27). It is the longest recession since the inception of the single currency, and it brings with it record unemployment at 12.1 per cent.

Not surprising, I said, because in spite of increasing talks about softened austerity, austerity ain’t over. In many countries, government final consumption in real terms (the G in national accounting equations, just to be clear) sharply decreased. And this is, surprise, correlated with subsequent growth:

Post_May_15_2013 Read More

Surprise! Spillovers Exist!

February 14, 2013 5 comments

Eurostat GDP data are out. The eurozone is in recession, and it is worse than expected (-0.6% in 2012). Austerity is not working, and is recessionary. Wow, who would have said it…

Seriously, so long for the widespread optimism of a few weeks ago. The crisis is not over, we actually are in the middle of it. The way I see it, things will get worse before they get better (if they do get better).

Also interesting, Germany’s export-led growth strategy is  panting. The fourth quarter of 2012 was rather bad (worse than in France, for example), and this is due to lower investment on one side, and to weaker trade (exports fell more than imports). Here is an excerpt of today’s press release of the German statistical office, Destatis:

In a quarter-on-quarter comparison (adjusted for price, seasonal and calendar variations), signals from the domestic territory were rather mixed according to provisional calculations: household and government final consumption expenditure went up slightly. In contrast, gross fixed capital formation in construction decreased a bit and gross fixed capital formation in machinery and equipment was down markedly on the third quarter of 2012. The decline of the gross domestic product at the end of 2012 was mainly due to the comparably weak German foreign trade: in the final quarter of 2012, exports of goods went down much more than imports of goods.

Germany stubbornly refuses to accommodate austerity in the periphery with a domestic impulsion. This makes adjustment for the rest more painful, and impacts expectations at home. This is why investment dropped significantly. My take on this is that if Germany had been only moderately more expansionist at home, expectations would not have been dashed (even if slightly increasing, in January the IFO index of German business confidence stagnates at around 104 at the moment, after hitting an all time high of 115.40 in February of 2011). And investment figures would be substantially better.

So, we learned today that austerity does indeed reduce growth, and that it spills to other countries. Two surprises in one day. It will need a hell of an effort to forget all of this before tomorrow!

Bringing Krugman to Europe

February 11, 2013 7 comments

Well, not him, actually (I wish I could); I need to content myself with his latest post on austerity. Krugman argues that austerity is happening (it is trivial, but he needs repeating over and over again), showing that in the US expenditure as a share of potential GDP is back to its pre-crisis level (while unemployment remains too high, and growth stagnates).

I replicated his figure including some European countries, and with slightly different data. I took OECD series on cyclically adjusted public expenditure, net of interest payment. This is commonly taken as a rough measure of discretionary government expenditure. I also re-based it to 2008, as most stimulus plans were voted and implemented in 2009. Here is what it gives: Read more

Austerity is Bad for Competitiveness

December 20, 2012 Leave a comment

I wrote this piece with my friend Jean-Luc Gaffard. It is part of our ongoing thinking on the early steps of the new French administration. But I think it applies beyond France.

 

The French government faces a double challenge. The short run effects of the euro crisis compound a long-standing problem of competitiveness: from 1997 to 2012, the French market share fell from 5.3% to 3.3% of world exports. France is therefore suffering more than its neighbors, notably Germany, for the current slowdown.

In response to these challenges, François Hollande designed a two-arms strategy. First, he embraced austerity. To reduce public deficit to 3% next year, the French government presented a shocking 36 billion euros budget law for 2013. That will be mostly composed of tax increases. The second arm of the government strategy, a “competitiveness pact”, was, initially, aimed at shifting an important part of the burden of social security (20 billions euros) from firm contributions to the general taxation. Read more

Should Paris Go East?

December 6, 2012 1 comment

Last week I was invited to speak at a conference on the relationship between France and Germany, 50 years after the Elysée Treaty. It was an occasion to look at France’s options for the near future.

I started by highlighting the French weakness in this particular moment:

  • France suffers, like all other eurozone countries, from a protracted period of slow growth; it is the effect of the global crisis, and its vicious evolution into a local sovereign debt crisis.
  • This problem is compounded by the structural weakness of France, witnessed by its deteriorating external position in the past 15 years. A loss of competitiveness that contrasts  with the increasing strength of Germany.

The commonsensical solution seems therefore to “do like Germany”: structural reforms aimed at lower wages and lower taxes on firms, in order to improve competitiveness (I did not say it, but this of course goes together with a reduced role of the government and a leaner welfare state). Nevertheless, i pointed out  that there are a lot of “buts“, that make the solution less commonsensical than it would appear at first sight: Read more