Good news from French President Hollande: The eurozone crisis is over, or something

posted at 4:01 pm on June 10, 2013 by Erika Johnsen

Well, that’s a relief, I must say.

The eurozone crisis is over, French president Francois Hollande said as he sought to reassure Asian investors on a visit to Japan.

“What you need to understand here in Japan is that the crisis in Europe is over,” he said. “And that we can work together, France and Japan, to open new doors for economic progress.”

Europe needs to put more emphasis on taking steps to promote growth and competitiveness “so that we can have a better presence in the world”, he added.

Mr Hollande, the socialist leader who oustied Nicolas Sarkozy, is not the first European politician leader to declare an end to the crisis. Last year the Spanish prime minister Mariano Rajoy said that “the worst has passed” for the euro.

It was a good try, I’m sure, at trying to encourage Asian investors to have no fear in investing in the French and European economies, but unfortunately for Hollande and his Socialist administration, just saying it doesn’t make it true. Some of the eurozone’s various financial ministers might consider the currency bloc technically out of the woods on what they see as the risk of a breakup (a point I would suggest that they seriously reconsider), but the collective economy has been struggling through recession for the past six straight quarters, and unemployment is above twelve percent — the highest the 17 nations together have seen since the euro’s introduction in 1999. Worse still, the ECB is predicting that the bloc’s economy will only shrink even further this year (they are also predicting that things will start looking up in 2014, but sadly, we’re all too well aware of how those types of predictions tend to go — and how things could start really improving for the long term without any major, substantive changes to the haphazard and top-down manner in which the eurozone functions, remains unclear).

The European Central Bank has predicted a deeper than expected slump in the eurozone economy as its president, Mario Draghi, said the institution had discussed negative interest rates in a bid to kickstart growth.

The ECB said the economy of the euro’s 17 members will shrink by 0.6% this year compared with the previous forecast of a 0.5% decline. However, the bank was more optimistic about 2014, inching up its growth forecast from 1% to 1.1%.

As for France specifically, a recent mild increase in international demand is one of the few bright spots on a very dark and grim economic horizon, a lifeline that Hollande is clearly trying to encourage with his appeal to Asian markets — but France’s lack of competitiveness is largely due to their horrible soak-the-rich tax scheming and their outsized public spending. Until he fixes that, attempts to spur growth by attracting foreign investment is just another short-term band-aid.

Today’s French industrial confidence report came as President Francois Hollande’s tax increases weighed on domestic demand in an economy that has barely grown in two years.

Hollande is struggling to balance demands of reviving growth and trimming the budget deficit. Yet with more than 20 billion euros ($26 billion) of tax increases now feeding through to companies and households in France, domestic demand is unlikely to fuel any recovery in the months ahead, economists say.

“The problem is that the tax increases are now starting to be felt in full,” said Bruno Cavalier, an economist at Oddo & Cie in Paris. “In the short term I see no improvement in the overall situation.” …

The International Monetary Fund said last week that it expects French GDP to shrink 0.2 percent in all of 2013 after stagnating in 2012.


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