France’s central bank chief to Socialist government: Get it together
posted at 8:01 pm on May 29, 2013 by Erika Johnsen
France has all kinds of faux-excuses at their disposal for why it is the Socialist government just can’t seem to make any progress on righting their seriously stagnating economy and eleven percent unemployment rate, many of which seem to focus on Germany being a big, intransigent bully in coordinating the eurozone’s financial dealings. At a meeting of the European Commission just today, French President Francois Hollande once again criticized what he interprets as the raw deal getting handed down to him from on high:
Francois Hollande has warned the European Commission not to “dictate” orders on how France should run its economy after the Brussels executive called for urgent eurozone reforms to avert a “social emergency”.
The French president was critical after the commission, which has new European Union powers to enforce reforms in the eurozone, demanded France enact far-reaching overhauls to its employment laws and pensions.
“The European Commission cannot dictate to us what we have to do. It can simply say that France must balance its public accounts,” he said.
“As far as structural reforms are concerned, especially pension reforms, it is up to us, and us alone, to say which is the best path to attain this objective.”
Er, except that, when has France ever balanced its public accounts, really? Talking about financial rigor is one thing, but France has routinely and blithely flouted their deficit reduction targets as well as failed to keep their budget deficits below three percent of GDP, and the burgeoning crisis they are currently experiencing has not nearly as much to do with how much public spending they somehow aren’t being permitted to do as it does their many and terrible fiscal and economic policies. All of the grasping at straws about their entirely self-imposed eurozone shackles isn’t going to do anything to fix their systemic problems of declining competitiveness and economic productivity.
Today’s WSJ highlights the annual report from French central bank chief Christian Noyer, who had some real talk for what France and the eurozone at large need to start working on fixing their underlying problems — and more taxing and public spending aren’t it.
“The underlying objective,” Mr. Noyer writes, “is growth. Not just a temporary spurt, sustained artificially by public spending, but strong and lasting growth that creates jobs and is based on the development of modern and competitive production capacity. This kind of growth cannot just be summoned up. It requires a profound change in public policy.”
Consider France’s inflexible labor market. Mr. Noyer says France “is one of the biggest spenders on employment policies in the developed world, but it still has one of the highest levels of unemployment.” The central banker argues that France’s various programs and incentives to boost employment are undermined by their sheer complexity. …
Mr. Noyer’s third truth concerns government spending, which is 55% of GDP. “For the past ten years,” he writes, “France has had one of the highest levels of public spending in the world. Over a certain threshold, which our country has probably crossed, any increase in public spending and debt has extremely negative effects on confidence” (our emphasis). For this reason, trying to stimulate growth through a spending binge is bound to be counterproductive. Businesses and households, anticipating higher future taxes to pay for the binge, will cut back, offsetting any boost from deficit spending.
Unfortunately, this pretty much mirrors much of the fight going on in the United States: We desperately need to get our economy back on the fast-track to growth, but certain branches of the powers that be are determinedly convinced that flailing around for more taxing, stimulus spending, and increasingly complex regulations are the way to do it.