Hollande’s Growth Pitch Lacks Kick

Written by Hilary Barnes

The shock-glory (“The King has spoken: the world has changed“) front page of France’s only national Sunday newspaper, Journal du Dimanche, proclaimed on May 19: “Hollande Champion of Europe“. Really?

Time will tell, but at a press conference on May 17 to mark the anniversary of his first year in office France’s president, François Hollande made a pitch to brand himself as the European leader who can drag the Eurozone out of recession and back to growth, shaking off the austerity policies that are causing serious damage to the economy at present.

Adding own perspective, Francois Hollande declared that Europe  faces problem as:

“Recession is provoked by austerity policies … recession that is a threat to the very identity of Europe and the confidence of its peoples. Growth is the way out of the crisis and to end the recession.“

The European Commission has just given France, as well as Portugal and Spain, an extra two years to meet its budget deficit reduction targets. Hollande implicitly assumed that this was the doing of his own government’s persuasive powers.

“The European Commission has begun to understand the risks and threats. It has decided to adjust, adapt the pace of fiscal consolidation to the economy. This is a good signal.“

And one in the eye for Chancellor Merkel, he failed to add, but was obviously thinking.

He launched a four point programme for achieving his goal, but only the fourth point would make any real difference, …. “a new stage of (European) integration with a fiscal capacity that would be attributed to the euro area and the possibility gradually to raise loans,” meaning eurobonds.

This would indeed, at least by implication, fit out the Eurozone with both the institutions and the means actually to implement policies that might stimulate a return to growth. Both are sadly lacking under current arrangements.

As for the other three points, each may have its merits, but it is not obvious that they would do much for growth and the creation of jobs, which is what Europe very badly needs.

The first point was the establishment of a European “economic government” that would meet every month under a permanent, full-time chairman.

In effect, however, the Eurozone already has such an institution, the Eurogroup, which consists of the Eurozone finance ministers, who are committed to the recession-inducing budget consolidation policies, aka austerity, for want of the means and the institutions to do anything else.

This is parallelled by Ecofin, the finance ministers of all 27 members of the European Union, which can discuss policy but can do little to implement its ideas.

Hollande said,

“This economic government would discuss the major economic policy decisions to be taken by Member States, harmonize taxation, begin to act on the convergence of social policy …. and a plan to fight against tax evasion.“

It is open to discussion as to whether harmonization of taxation and convergence of social policy would do anything whatsoever for growth.

It would be another exercise in the one-size-fits-all approach, which contributes strongly to the feeling in member states, especially Britain, that the power and influence of national parliaments have been severely reduced and consist for the most part in rubber-stamping policy directives issued by the European Commission – the very embodiment of the European Union’s “democratic deficit”.

The second point is a plan for youth employment. Who can possibly object? But rather than push millions of the under-25s into make-work and job-training programmes, it might be better for member countries to reform the facets of their own policies that give the young a raw deal, not least in France (although youth unemployment is much higher in Spain and Greece).

Also under point two comes this: “Europe should develop an investment strategy, including new industries and new communication systems.” Good enough, if Ecofin or the Eurogroup had the means to do something about it.

Point the third is: “…. a European Common Energy policy for coordinating all efforts for renewable energy by which we can succeed together…… in ensuring the energy transition.“

Sustainable energy policies, which require huge subsidies, are not growth promoting. In so far as they are financed through taxes, they are liable to destroy jobs in the rest of the economy, with some economists arguing, rightly or not, that the ratio of jobs created is one for every three lost.

But I am biased, having learnt if the CO2 reduction targets of the IPCC (Intergovernmental Panel on Climate Change) were met the effect on the global surface temperature a hundred years on would be about 0.6° centigrade, which is so slight that it would not even be measurable.

Personally I am sympathetic to Hollande’s attempts to provide counter-arguments to the German insistence that there is no alternative to the process of competitive “internal devaluations” on which the Eurozone is now set. This policy appears already to be leading to disinflation and may soon tip the Eurozone into a deflationary spiral into depression.

But like most commentators in Europe I am not convinced that Hollande’s programme is sufficiently well formulated to make France the leading force in moving Europe forward to better times.