By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.
Amidst a flood of proposals, plans, and rumors to save the euro and the Eurozone, much has been made of the Merkozy couple, the uneasy partnership between French President Nicolas Sarkozy and German Chancellor Angela Merkel. During his speech today in Toulon, an ancient Mediterranean port town, Sarkozy reemphasized his commitments: the ECB must remain independent, and France and Germany must remain the pillar of stability. “To defend the euro is to defend Europe,” he said. Alas, he may be out of a job by May 2012—and his potential successors to the left and to the right have different ideas.
France isn’t doing well. Unemployment, which has been rising since May, breached 9%. Wages haven’t kept up with inflation, and purchasing power has dropped. Industrial orders plummeted. Layoffs have been announced. Yields are rising. Banks are teetering. Sarkozy had tried to reform the French welfare and tax system. Result: rising income disparity, tax loopholes for the rich, diminished pension benefits for the middle class, reduced subsidies for the poor, etc., and now ugly unemployment trends.
Voters are angry. And the poll numbers that came out today show to what extent (L’Exress, article in French). During the first round on April 22, François Hollande of the Socialist Party would obtain 29.5%, Sarkozy 26%, and right-wing populist Marine Le Pen 19.5%. And this after Sarkozy got a 6-point bump from an anti-nuclear imbroglio on the left that Hollande had trouble squelching. In a face-off during the second round on May 6, Hollande would win by a landslide 56% against Sarkozy’s 44%.
If the economy deteriorates further, Marine Le Pen, president of the National Front, might beat Sarkozy in the first round. Media savvy and endowed with a captivating presence, she’d stunned the French political establishment by beating Sarkozy in the polls earlier this year.
“Let the euro die a natural death,” she said in August (article in English). And she often speaks out against the rules of the European Union. Should she become president, though unlikely, she’d pull France out of the Eurozone.
François Hollande is more temperate. In trying to appeal to the center while satisfying his diverse constituency on the left, he criticizes Sarkozy but avoids a direct confrontation with Merkel. “It’s Mme Merkel who decides and Mr. Sarkozy who follows,” he said Wednesday (Le Monde, article in French), an observation that found wide resonance. His camp has come up with a five-point plan:
1. Expand to the greatest extend possible the European bailout fund (EFSF)
2. Issue Eurobonds and spread national liabilities across all Eurozone countries
3. Get the ECB to play an “active role,” i.e. buy Eurozone sovereign debt.
4. Institute a financial transaction tax
5. Launch growth initiatives instead of austerity measures.
In his diplomatic manner, he threw down the gauntlet: points 2, 3, and 5 hit a wall of resistance in Germany, which might rather exit the Eurozone than subject itself to them.
But he claims that the five measures would be a better solution to the debt crisis than the new European treaty that Merkel and Sarkozy are concocting for the European summit on December 8 and 9. The treaty’s budgetary stability rules would impose strict limits on budget deficits and debt levels. If those are violated, sanctions kick in. If violations are repeated, the European Court of Justice becomes the final arbiter of national budgets.
Which Hollande considers an abdication of sovereignty. Instead, he wants a remodeled European commission with a president who should be elected by the populations of all member states. So neither national retrenchment of the kind Le Pen advocates nor the austerity politics that Germany insists on and that Sarkozy supports.
Hollande doesn’t operate in a vacuum. To his left is Arnaud Montebourg, who ran against him in the primary and surged out of nowhere to third place, beating a host of Socialist stalwarts. He is likely to become influential in a Hollande government. And he has come out swinging against Merkel.
“Angela Merkel decided to impose the German order on the European Union,” he said (Le Monde, article in French). “She is destroying the Eurozone by imposing on the middle class and on the lower classes the price of the debt that accumulated during the crisis.” He spoke of “German egoism” and “German nationalism” that is “resurging through the policies à la Bismarck of Mme Merkel. She builds confrontation to impose her domination.”
His idea to save the Eurozone: “Allow the ECB to do what all central banks in the world are doing: buying debt. The moment has come to confront Germany politically and to defend our values.”
Yes indeed, French values. After a series of devaluations since 1945, the French franc was “revalued” in 1960 at 100 old francs for 1 new franc. New notes were printed and confidence was restored. However, from 1960 through 1999, when it was replaced by the euro, the franc lost another 88% of its value—due to France’s habit of monetizing its debt. A fate Germany has assiduously avoided.
And about the fabulous economic strengths of Germany? “The only point where one can say that there is a German success, it’s the trade surplus. But it doesn’t do it to China. It’s over our own ruin that Germany makes its fortune.”
Later on Wednesday, he denied that he was Germanophobe: “It’s not Germany I’m accusing, it’s the annexation of the French right by the Prussian right.”
Okay. The division of roles is becoming clear. To avoid irreparable damage, Hollande, who may have to deal with Merkel in five months, sounds tempered but firm. He lets his firebrand Montebourg make certain points in public. But the core of their solution—monetizing sovereign debt without central control over national budgets—is totally unacceptable to Germany. So, if the euro and the Eurozone as we know them are still alive by early May, then the French presidential election may well deliver the coup de grâce.
At the worst possible moment for the ECB: a member of its Governing Council is up to his neck in hot water…. International Bribery Scandal Invades the ECB
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I happen to be French and, given the opportunity, I intend to vote for Eva Joly (http://en.wikipedia.org/wiki/Eva_Joly) who is unfortunately not discussed here ..
talking about another -Testosterone Pit-.. I don’t believe Yves Smith or the contributors of this excellent blog have yet commented on the statement made by a US DOD representative to a bunch of investors on Dec 1st, on the topic of potential defense budget cuts from the automatic trigger.. ..it appears that the rawest expression of teenage male sexual anxiety (ie: ‘mine IS bigger than yours’) is entirely sufficient… and no pretense of rationality is required
Quoting from
http://www.defensenews.com
DoD Official: Sequestration Is ‘Fiscal Castration’
…U.S. Defense Department industrial base policy chief Brett Lambert told investors Dec. 1. Speaking over lunch on the second day of the Credit Suisse 2011 Aerospace & Defense Conference in New York, Lambert said he agreed with Defense Secretary Leon Panetta’s assessment that sequestration would be catastrophic.
“I think of sequestration as fiscal castration,” he said. “It truly would emasculate the industrial base.”
Interestingly, Montebourg doesn’t bring an important point, namely the catastrophic stewardship of the ECB in the 1999-2008 period.
In this period, Germany was severely depressed due to a series of self-inflicted wounds, from the financial handling of the DDR reunification artificially forcing rates much higher than warranted in the pre-Euro period to the social policies of the Harz “reforms” in 2003-2004. If you force internal deflation on your own economy, guess what? You get deflation. Year over year GDP deflator was actually negative in Germany in 2000 and ran well below 2% after that.
Had the ECB been truly European, it would have told Germany that the ECB couldn’t do anything about self-mutilation and let Germany slumber in the deflationary pit it dug itself. Except that the ECB only cared about the German economy and kept rates far too low while blissfully ignoring what was going on in the periphery, with much higher inflation and a debt bubble, perversely financing Germany trade surpluses, its “success story”.
Absolutely! We can’t say that the only problem of the EU is Germany and its excess weight on the Union’s decisions but we can say that it is at least half of the problem. Enough is enough.
“Chuck” Spinney thinks he knows how the MICC (Military-Industrial-Congressional Complex) plan to fend off the wielders of the sequastration knives:
http://bit.ly/vNkkN0
No war next year, though. But count on one in 2013 no matter who’s in the White House. The only question is, China or Iran?
Why so certain there will be no war in 2012? Our previous President was not afraid to start a war in 2003 and then assert that it would “show weakness” to vote out the commander-in-chief at a time of war.
No war next year because Obama wants to run on “peace” (“withdrawing” from Iraq, Afghanistan) through “strength”(I got bin Laden after you-know-who didn’t). After he’s safely re-elected, then it’s Game Time with Iran or China. Alternatively, assuming Romney’s the GOP nominee who then gets elected, he’ll have to make his bones and prove he’s got a pair, ergo war with Iran or China in 2013.
You just have to think with the reptilian part of your brain.
No war with China, Succotash: they just “discovered” they have too many nukes for that to be even thinkable.
Personally I do not think Iran either: it’s the recurrent super-villain (but not so “super”) which can’t die: they need it alive for the super-hero plot. And then Russia would not allow it in any case: too strategical. They already allowed Afghanistan, Iraq and Libya but they cut short any foreplay in Georgia (defeating an army trained and equipped by Israel, what was a strong regional warning).
Iran is too big a fish to let fall for Russia and for Washington-Tel Aviv is useful as recurrent villain now that Bin Laden is officially “dead”.
Iran is also too large, rugged and populated to occupy: if Afghanistan or Iraq are difficult, Iran is a practical impossibility.
And finally Iran could merely obstruct the straits of Hormuz too easily, collapsing all oil traffic, what is major words.
They might intervene in Syria however but even there it will be complicated, not to mention what will happen after Assad falls, destroying the relative security he provides for Israel (in spite of the anti-Zionist discourse and the Golan Heights dispute). A democratic, islamist or maybe just unstable neighbor is bad news for Israel, who is watching how its regional status quo is collapsing as we speak.
Only China — and it looks like President Obama has swallowed the MICC’s bait. ex-PFC Chuck
How much of our military depends on Chinese made parts?
It’s amazing what people will do for money – even risk the end of the world. We really need to find peaceful ways to get people the money they need.
Thanks for that reply!
It is indeed why this physicist Buddhist nun theologian faithfully reads these pages, and has high expectations for the nakedcapitalism community to help do whatever is possible and reasonable to help resolve the systemic issues behind our massive, complex problems!
Both Joly and Yves Smith are awesome, and stick it to the establishment. Joly exposed mega-financial scandal too, right?
Germany may be more right than wrong. Some form of tighter bugetary controls/loss of sovereignty is necessary or these Euro problems will worsen or be revisited. But sovereignty is not relinquished easily and the terms of any such “give-up” have yet to be set.
Perhaps the seemingly never-ending rumors are just delaying tactics so the real economies can catch up to the “misery” of the financial economy. Once the “man in the street” feels the pain and stares into the abyss, a “grand bargain” will be struck and a majority will then vote for a stronger EU, reduced social benefits, etc.
It wouldn’t surprise me if the Dec. 9th produces nothing more than a plan for a plan (again). The longer that the countries in trouble sit back and wait for a miraculous solution to their problems from the “core,” the more likely that the “core” gets to dictate the terms of any solution.
We’ve seen this kind of realpolitik “negotiation” between the oligarchs and the masses (mediated by the politicians) in the US also. From “never let a crisis go to waste” to creating a crisis the 99% get shafted. Example: tax cuts for the wealthy when times are good, then more tax cuts to get the economy going when times are not so good – leading to a deficit crisis where “burden sharing” requires cuts to social programs.
Let’s just make sue the Germans are allowed to vote whether or not they want more Europe. German voters were EXPLICILTY promised that the ECB would not monetize. For it to do so would be a gross violation of German sovereignty.
And I’d like to add that I’m surprised at the number of NC readers who are supporting this entire ECB debacle, specifically the coups in Italy and Greece.
No way someone supporting the OWS movement can also support the appointments of viceroys in Italy and Greece.
Right you are, Jim.
Oh dear. It looks like Arno Montebourg is pushing the EU to the right not the left! And Germany is actually moderate. If the Socialist Hollande wins on his 5 points it looks reasonable to an American…. but not so to a European. They desperately need a socio-economic union. They need a fiscal union. They are just messing around with a monetary union, and accusing Germany of ulterior motives. Politics – pure and simple. But Germany has benefited, there is no denying that fact. The comment that the EU surplus doesn’t exist in China is irrefutable. So what’s a union to do?
I would also like to point out that we, the United States, are also just messing around with a monetary union. Eventually our differences will also have to be resolved.
I fear the fiscal union solution is premature, since there is no cultural union in Europe now.
A Europe with fiscal union but no cultural union is like the former Yugoslavia, with resentments building up over decades only to explode tragically.
I think fiscal uion works in America because we are one culture…with diversity.
I’m against fiscal union without democracy and the EU ruing bodies are still anti-democratic and look like they will be for a long time to come.
However if resentment has to build, Germany can quit the EU any time they wish: they are not pulling their weight but just reaping the benefits and behaving nationalistic and even imperialistic. Nobody says that states can’t quit the EU, but it does not need to be Greece if you know what I mean.
I agree.
When some says, I am going to fiscal union you, I take that as a threat and probably will call the police.
Who says that Europe needs a “socio-economic union”? Does the German voter feel this way?
Perhaps the Republicans, when saying that any American who opposes their efforts to convert Medicare into a defined contribution program, is too “ignorant” to realize what’s good for him, is correct.
Or do we preserve democracy in the US, but not in Europe?
Why did you ask “does the German voter feel this way?” and not “does the Italian* voter feel this way?”
*alternatively: Greek, French, Spanish, Portuguese, Irish, Belgian, Slovak, Slovene, etc.
Why should we care for what the German voter and only the German voter thinks: they are just the 24% of the Eurozone voters and the 16% of all the Union. And just one out of many states. Why is the German opinion always the one which counts? Doesn’t that amount to racism and apartheid of sorts?
Because Germany was a specific subject of the comment to which he responded.
Read what he said. He’s FOR democratic choices. It is the Eurocrats of all the countries, themselves at the behest of the global finance/corporate Goon Squad that are ramming fiscal union down everyones’ throats. Bear in mind that the disastrous financial condition of the European banking system and governments were known to almost nobody. ALL the peoples of Europe have been attacked. Sucking people in to directing anger at other nations is exactly what you’d expect from a much greater, supranational Enemy that is intent on destroying ALL sovereign nations and ALL democracies.
“Which Hollande considers an abdication of sovereignty”
Well, he is right about that.
Maybe it’s time for the idea of Deuro – no, not a merger of the Deutsch Mark and the Euro (that happened already), but a merger of the Dollar and the Euro.
Two reasons.
1. Bigger is better since if Too Big To Fail is good, then Too Bigger To Fail is gooder or more better.
2. Parallel to Too Big To Fail, there is another wisdom – Too Many To Fail. One example is when there are too many rich people with secret Swiss accounts to prosecute, you give them amnesty. When there are too many illegal immigrants, you give them amnesty. When too many are overcrowding our jails, you give some amnesty or release them. When too many are driving too fast and the courts can’t handle the cases, you give them amnesty. All examples of Too Many To Fail – strength in numbers, as the low-tech, old fashioned Neanderthals would say.
Based on those 2 reasons, we propose that we merge the Dollar and the Euro.
The Euro is dead.
Long live the Deuro!
But who rules it? The Fed? No thanks.
I try not to be too literal.
I think the Brittish would not want to be left out, so the Pound would have to be included also. The currency would be an amalgam of the symbols for each: LES.
1984 Newspeak would then be complete as politicians promise LES and people demand LES.
It’s sure to happen because this simple change in terminology is just what oligarchs need to confuse and confound a public that seeks MORE (more accountability and more money for a better future). So prepare for LES now and you won’t be disappointed.
Nice – LES is preferred by more and more people everyday.
Good one.
Ok, you have persuaded me: if I could vote in French elections, I’d vote Hollande (in second round only, I’d probably vote someone like Cohn-Bendit in first round). It is past due time to devalue the euro a lot (and if it can be done monetizing the debt, then two birds with a single shot: the better).
Could it be that the SDK fiasco has produced some revitalization in the French social-democracy? I sincerely hope so. Germany is too all-powerful in this EU and that has to stop.
I believe in being prepared.
Here, not quite 50 ways to say good bye to your lover:
Tchau, meu Euro!
Auf Wiedersehen, mein Euro!
Ciao, mio Euro!
Adieu, ma Euro!
Fo, mo Euro!
Bless, Euro min!
αντίο, ευρώ που μου!
I remember a commenter on this site a few months ago who saw enormous political opportunity in his native Spain for politicians who run against the austerian, foreigner Germans. Interesting that it’s already causing major effects in France.
I find oddly more natural to have an effect in France than in Spain. France has a national and European policy, Spain does not and just hopes to benefit from the joint European policies (but it’s more a satellite of France than of any other regional power).
Something we have seen these months (and sadly we are likely to see in the near future) is the lack of statesmanship of Spanish politicians, specially those who have the dual-party power and can therefore reach power positions. Neither the fake government nor the fake opposition (nor the media as far as I can tell) have lifted a finger to protest Brussels’ impositions. And I understand that the same case is in Greece, Portugal, Ireland, Italy, etc.: no independent ideas, no defense of any “national” (much less popular) interests, just colonial subservience from all sides of the quite monochrome political spectrum.
I am surprised, gladly surprised, that this Hollande is daring to act as a real leader and not the usual kind of mediocre managers we style in Europe.
Of course it may be just facade for the elections or even he could get be suppressed somehow… there’s a long run to May. And he could just betray his promises like Obama did in the USA: that’s very typical too.
Caught a bit of the NPR report on Sarkozy’s Toulouse speech (channel flicking and the others were playing commercials). One statement the Nice Polite Republicans played up was his complaining about the shortened work week and earlier retirement.
He might have been playing to the US elite on this. Most of them are shocked to hear wage earners have a life outside the job site. Then, too, a lot of the employees get nervous about not working enough to insure job security. Which a myth, but creates the minion mindset so beloved of the 1%.
And in any case, by piling more hours on the workers, it sometimes comes out to fewer bodies on the payroll, which may mean short-term profit gains. However, it also means more unemployment and so more income disparity. More divisions in society to exploit.
Often, the damage right wingers do to the economy and society are spoken of as unforeseen accidents or unavoidable costs. In truth, it’s a feature, not a bug.
OUR WINTER OF DISCONTENT
The above is just one example example of this nonsensical article’s journalistic bent for negativism. The piece grossly overstates the situation in France.
I will remind the author that when Marine Le Pen’s father did make it into to the second round of elections in 2007, his adversary, Jacques Chirac, waltzed into the Elysée Palace with a landslide.
No Right-wing lunatic, even as attractive and well-educated as Marine LePen (she is a lawyer), will be elected President in France.
The French are “raleurs” (moaners) by nature. Moaning about this or that is part of our daily conversation in France. It’s a national pastime and is showing up in the polls.
Basically, I submit, François Hollande and the French Left have not a hope-in-hell of obtaining this election despite the present polls. They have no platform for political reform that this country needs so desperately. Because it is largely through measures that the Socialists instituted that the French economy finds itself in a such a plight.
EXASPERATION
A month ago, Holland promised that he would add 10,000 teachers to the school system, when it is generally recognized that the amount of teachers is not the problem. It is the school-content that is lacking. His only solution is to promise more jobs to teachers (who, as state functionaries, cannot be fired). French teachers already vote solidly Socialist. (When, it is largely recognized, that the problem with French secondary-schooling is not the means but its educational content.)
All the Left has to offer is more Tax & Spend – with French taxation already at 46% of GDP, one of the highest GDP percentages in Europe.
Perhaps Richter’s intent was to disparage the French Right? I can assure him that Sarkozy is more of a leftist than Barack Obama. It is the American Right that is rightwards of Attila the Hun.
MY POINT
The French have two-rounds of elections. The first (a sort of primary) to reduce the field of candidates to two and the second to decide between those runner-ups. (French dictum: “In the first, the French vote with their hearts. In the second, they vote with their pockets.”)
The polls are showing discontent, which is rampant in the country, but the grassroots in France has a better grasp of politics then its American counterpart. The French actually go to vote, unlike grassroot Americans.
Sarkozy is a fighter and in the televised debates he’ll wipe the floor with Holland who is just another Socialist apparatchik. Frankly, Sarkozy has the right arguments – the principal one being the 35-hour work week that the Socialists instituted in the early 1990s during a brief tenure in power.
This measure torpedoed French productivity and started the exit of un- and semi-skilled French jobs to the Near East (ex-Soviet Bloc countries) and Far East.
The Euro is here to stay. But where France, like America, will find future job-generation is the key question. And the Looney-Left in France hasn’t a clue of a response.
The truth-in-politics is neither All Left or All Right – it is found somewhere in the middle.
Thanks for your comments, Lafayette.
I also wrote: “Should she become president, though unlikely, she’d pull France out of the Eurozone.”
Note the word “unlikely.” We agree on this issue. She does, however, have a chance of beating Sarkozy in the first round.
Lafayette, you said: “I will remind the author that when Marine Le Pen’s father did make it into to the second round of elections in 2007, his adversary, Jacques Chirac, waltzed into the Elysée Palace with a landslide.”
Well, you made a typo (happens to all of us). It was actually in 2002, not 2007, when Jean-Marie Le Pen trounced Socialist Lionel Jospin in the first round. And you’re right: Chirac blew M. Le Pen away in the second round.
Again thanks for your comments.
Well his rhetoric may say one thing, his 5 points seem good especially eurobonds, but I suspect it may be bluster from Holande.
As for Le Pen, The French will never leave the euro,
one of the main reasons the French ruling class joined the euro was to defeat the unions, they know that the end of the euro will mean a return of the unions they have feared and hated since the days of Zola.
They are terrified of Germany leaving the euro and the Germans have been leveraging this fear to achieve a position of singular power within the system, when it comes down to it the French will give in.
On the other hand at a ‘centre left’ conference in response to the crisis the other day Carsten Seling (mp for Bremen) said [paraphrased]”The German SPD favours the European Central Bank becoming the lender of last resort, issuing Eurobonds and advocated for a martial plan for Europe’s southern hemisphere, which needs investment to stabilise”
So now all we need is the Merkel government to collapse and the SDP to be voted in, and bob’s your uncle fanny’s your aunt etc.
I hope you meant “Marshall plan”, and not “martial”.
http://www.spartacus.schoolnet.co.uk/USAmarshallP.htm
What are the probabilities that Merkel’s government will collapse? (She does seem to be the sticking point.)
whoops sorry!
maybe the martial plans will be a few bad years down the road if things go on like this.
I havent been able to find anything up to date about the CDU coalition and fractures in it, but I’m assuming it will hold. Merkel is under huge pressure though to agree to issue common eurobonds, look at this from Der spiegel online
http://www.spiegel.de/international/europe/0,1518,800618,00.html
(headline “Germany as isolated on Euro as US was on Iraq”)
This is fanciful opinion. You don’t work in a Parisian sweat-shop, do you?
All unions have seen a degradation of membership – whether in America or the EU – which started to happen long before the advent of the euro.
Your assertion that the demise of the euro means a resurgence of French unionism is unimaginable. You might want to explain your reasoning because it cannot stand as a naked statement of fact.
Besides, in what country does one see people descend into the street at the drop of a hat – but usually instigated by a union deposition of a permit to demonstrate. Meaning this: Unions have a sympathetic reach far beyond their actual numbers.
Polls continually show that the French public, on certain issues of national importance, sympathize sizeably with those who are demonstrating. Often strikers will obtain the same sort of sympathetic appreciation for their cause. (Though this wears a bit thin, they have learned, when one disturbs generally the public’s ability to get to work.)
Where unions are weakest is when confronted with the fact the European productivity is lowest where their income gains have been highest. Like America’s unions, they fixated on income alone throughout the post-war years and not job tenure. The Socialists fed upon the job-protection goal by making job redundancy a legal nightmare to implement in France.
The consequence of which is to have triggered the wholesale movement out of French un- and semi-skilled production (to the the Near East and the Far East). For which, the unions have only themselves to blame.
But when it comes to saving key Social Services, like a first-rate National Health System or the guaranty of an education from primary through tertiary schooling, then the French public will be manning the barricades and not just marching behind a red-couloured banner.
And the unions will be in the pitch of such social action. A pity that American unions don’t seem to have a clue about such militancy.
American expat, living in France for 30 years, I can only echo Lafayette’s analysis of the way things are in France.
For how many years have Germany and France been the crux of the problems in Europe?
The solution to that issue what ever it may be must be found!!