When France climbed the fiscal cliff, in 1926

Paul Krugman presents a chart of UK and France growth and public debt (as share of GDP) relative performance in the 1920s. The charts show that using 1913 as a common base, France appears to have overtaken the UK in real GDP by the early 1920s, and its debt ratio went lower than the UK in 1926. Keep a note of that year. For Prof. Krugman, the message is clear —

So virtue was not rewarded, and French political weakness [devaluation and inflation] actually led to a better economic performance.

This conclusion is certainly consistent with the most recent IMF World Economic Outlook, which noted the inability of the UK to lower public debt in the 1920s. But at least for those of a certain age, references to French economic policies of the 1920s should ring a bell, back to a time when the so-called freshwater economists were paying a lot of attention to economic history and specifically the apparent monetarist stabilizations following World War I.  Continue reading

Political Europe, with rockets.

Something that has been interesting me recently is the surprising resilience of political Europe. It’s not supposed to work this way – economic integration was meant to pull the continent together into ever-closer union, and the imperatives of economic integration would somehow cause the political sphere to follow along. For years, the criticism was always that the EU was either a boring technocratic project with no zang or zap or anything else with a Z, and that we needed to find a way of getting the public engaged, or else that it was an anti-democratic project imposed on the public.

These days, in many ways, the economic integration has gone into reverse. The simplest index is the gapping-out of every kind of interest rates within the EU. A more sophisticated one is the shift from financial flows between peers to ones mediated via the European Central Bank. This is counter-intuitive, but the point was to facilitate trade and finance among European businesses, not to force everything through a central counter-party.

But the political level endures. People reliably poll strongly in favour of “Europe”, especially in the countries that are suffering the most. And even if the elite consensus seems battered, people are still willing to consider merging the entire European aviation industry.

The failed EADS-BAE merger, however, reflects the limits of the political consensus, and also the changes in it over the last 10 years. People often say that European states are unwilling to touch defence as an issue, because the ultimate attribute of sovereignty is the ability to wage war. But this isn’t quite true. The scale of international integration within NATO is at least as impressive as it is in the EU, especially as it deals with precisely this issue. And it’s not obvious that the obsession with gaining or losing sovereignty is a useful analytical construct, as it tends to obscure the content of policy in favour of meta-arguments.

Why did EADS-BAE not happen? Why did it get as far as it did? It didn’t happen, for one thing, because it was enormously complicated. Both the French and German governments hold shares in EADS, and although the UK government doesn’t own a stake in BAE, it does have reserved powers over it. Further, the French aviation industry outside EADS exists and is a substantial shareholder in it. Sorting all this out implied, among other things, settling the question of whether the French state is more committed to the purely national industry that produced the Rafale or to the European (but heavily French) one that produces the Airbus, something which touches on complex interest politics in France. It implied that the UK government rights in BAE be recognised, which in turn suggested that the British would have to have a stake again.

And it implied settling the question of where Germany fits into European defence and into the European aerospace world. This would actually prove to be the breaking point. Germany, as a nation of export-oriented engineering manufacturers, is always keen to expand its technological base. The second world war shut it out of aerospace for many years, first because the Allies simply banned it and many of the people ended up in the US or the Soviet Union, and then because of the lasting impact. German politicians, officials, and industrialists have been trying to make up the lost ground ever since, and European joint projects have played an important role. West Germany was a charter member of Airbus, of the MRCA program, of Eurofighter, of Eurocopter.

Some of the joint projects were Franco-German, others (like Airbus, Tornado, and Eurofighter) were broader. Interestingly, there was never an Anglo-German project, but there were plenty of tripartite ones, especially after the UK joined Airbus in 1977. One thing that marked many of these projects, though, was the tension between the UK and France on one hand, and the Germans on the other. The key issue was workshare, how much of the production would happen in each country, and more interestingly and significantly, what would come from each country. The French, and the British, considered themselves to have a leading role. The Germans were keen to create a base of know-how on subjects their industry hadn’t had the opportunity to master.

This was dramatised by the history of the Eurofighter project. It began with a great deal of optimism, following the successful Anglo-German-Italian Tornado, which it was meant to replace. The French had decided to join. There were the usual problems in defining the requirements, although they were nowhere near as complex as they had been on Tornado (it had to be a fighter for the Brits and then evolve into a bomber, a maritime bomber for the Germans, and a reconnaissance and electronic warfare aircraft for the Italians, and then a different recon variant for the Brits). By 1985, BAE Warton had a technology demonstrator flying.

Then, things went wrong. The German side wanted to take responsibility for much more of the fuel system and the flight control system. Not only did the British and French consider these to be the crown jewels of their aviation technology, but they also suspected that the Germans were overconfident about how long it would take to create such a capability in Germany. The British were ideologically suspicious of government industrial policy in general, while the French and Italians understood it all too well and accused the Germans of trying to build a competitor industry at their expense. Eventually the French quit and started a unilateral project at Dassault, which to the enormous embarrassment of everyone else would arrive in operational service years before the Eurofighter. The Germans did get the flight controls, and as predicted the project ran enormously late and over budget, before the control system was eventually given back to the UK.

The delays and the cost overruns brought their own problems. By the time the prototype was flying, the cold war was over, and everyone wanted to reduce the production run, especially as the planes were so much more expensive than projected. The cuts to the run meant that the unit price went up. That induced more wrangling. And by the time the planes were finally being delivered, the customers’ requirements had changed.

With the EADS-BAE merger, many of the same patterns emerged. The price of accepting the deal included moving the HQ to Germany, something the French saw as positively offensive. This wasn’t quite as fair as it might have been 20 years ago. In the meantime, the Airbus narrow-body line at Hamburg-Finkenwerder has produced vast numbers of Airbus A320s with success, and developed a speciality in reworking A300s and 310s. (The British could have had it back in the 80s if they had been willing to pay, but they really didn’t believe in industrial policy.) In that sense, Germany is a much bigger contributor to Airbus than it used to be.

The British and French were able to settle their own differences surprisingly easily, reflecting ten years’ effort to mend relations after Iraq, and cooperation on big aerospace projects as far back as the 1950s (for deep historians, the first world war, when the British made the airframes and the French the engines). That was one of the reasons the deal got as far as it did.

Another was that BAE’s decade-long acquisition spree in the US is running down. Careful arrangements were planned to avoid annoying the Americans, but the background fact is that most of BAE’s assets in the US are very much about building the requirements of the War on Terror. If you associate the company with aircraft, it looks deeply odd that it owns quite so many factories making the armoured patrol vehicles the US army bought in vast numbers for Iraq, making explosives detectors, making all the icons of the Bush era.

Further, neither the US or the UK procurement bureaucracies are at all keen on the “prime contractor” business model that helped Lockheed Martin, Northrop-Grumman, Boeing, and indeed BAE waste so much taxpayers’ money in the 2000s.

What does this all tell us? Political Europe is still kicking. The limits of it, though, are still what they were, even if they are very often drawn between different office blocks in Paris as well as along the Channel or the Alps. The EU is troubled, but the Special Relationship isn’t what it was either, although the entente cordiale is surprisingly strong. German corporate ambition is a powerful force, and one that tends to blind the people involved to the fact that there are engineers in Italy.

No unsecured funding please, we’re French

The IMF Article IV report for the UK is as one would expect an interesting and data-packed read. But its messages were well-flagged in the concluding statement after the actual visit, and as the BBC’s Stephanie Flanders notes, the weight of its messages come more from the source than the content, which accords closely with the many critics of the Coalition austerity. So one has to look elsewhere for eye-openers in the report, to which we submit the above figure in Box 1, which shows US money market funding exposures to European banking systems. Note their almost complete disengagement from France over 8 months in 2011, a much sharper withdrawal than any other country (they were already out of the high debt countries before then) and on a scale that looks like Lehman proportions.

How was this done without a huge recession in France? Mostly by overseas asset dumps by French banks, but still, this looks like an impressive feat of balance sheet management given its scale. “Headwinds” is a popular phrase, but here there are in real life. Nicolas Sarkozy might wonder about his electoral outcomes had the country bank’s not been navigating these headwinds last year.

More like “London, France’s 68th biggest city”

A piece about the French expat community in London, titled “London, France’s sixth biggest city”, is the most shared article on the BBC News website as I begin to write this post.

That such an article would be popular among BBC News readers is not surprising: the idea of French people crossing the Channel en masse to find a more vibrant, fluid and color-blind society, and staying there despite the mediocre weather and exorbitant rents, is appealing to both London fans and French bashers alike. (The view that French people move to London because it’s the closest large English-speaking city is not mentioned)

What’s more baffling is why the BBC News Magazine editors, who had recently shown a laudable willingness to take oft-repeated but bogus factoids to task, would decide to publish a piece based on such a worthless piece of statistics.

For the idea that “between 300,000 and 400,000 French citizens live in the British capital” is just plain laughable.
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The FN: not just the UMP on the booze.

Is the Marine Le Pen (and Nigel Farage, and more importantly Patrick Buisson) vision of re-organising the French Right around the FN viable? I prepared what follows for use elsewhere, but I think it helps here.

It isn’t as obvious as you may think that FN voters are the lost sheep of the Right.

In so far as they’re protesting, they’re protesting against French conservative neoliberal euro-atlanticism. This ought to be obvious, because who’s been in charge all these years? Conservative neoliberal euro-atlanticists. The 5th Republic has mostly been governed by conservatives.

Typical FN voters aren’t, in fact, ex-communist voters, but rather, PCF voters’ kids. Studies of the FN electoral breakthrough found that it was actually quite rare for people to switch from the PCF or the PS to the FN. Instead, FN voters in the 1988 and 2002 breakthroughs were typically first-time voters in places that traditionally voted Communist.

As Bernard Girard explains, this time out the FN did well with exurban voters, especially first-time house buyers who did the French equivalent of “driving until you qualify” in the US housing bubble. This meant that places suffering from rural depopulation were partly converted into suburbs, not necessarily getting any more in the way of public services or economic development in the process, and leaving the new exurbanites vulnerable to property and petrol prices. Interestingly, this suggests that the Tea Party and the modern FN are parallel phenomena.

It strikes me that a lot of French politics in the last decade can be summed up as “France discovers that it has suburbs” and in fact I did a post on Fistful about this back in 2007. So, after this somewhat protracted radar vectoring around the Ile-de-France basin, we finally come back onto final approach. If you vote FN, you probably don’t have any socio-cultural ties to French conservatism or any intellectual conviction of its ideas, which in any case are radically opposed to those of the FN, and you’re protesting against French conservatives because they’re the ones in charge, and it makes no sense to assume that you’ll necessarily come back to vote for the conservatives, because you are an extreme-rightist and not a conservative.

FN thinking is far more sceptical of capitalism, more protectionist, more anti-European, and more anti-American than UMP thinking. FN style and tone are far more working-class than the UMP’s. The FN is mostly after a different demographic to the conservatives. The exurbanites sound more like the material of a conservative party…if it wasn’t for the fact they are furious with the conservative party, furious enough to vote for the sort-of fascists.

This has two key consequences. The first is that trying to merge the UMP and the FN might not work, because UMP people don’t want the same things as FN people. The second is that trying to make the FN the replacement for the UMP might not work, because FN people don’t want to be a boring conservative neoliberal Euroatlantic party. They want to vote something that hurts the boring conservative neoliberals.

Now, before the election, pollsters were working on the principle that about 20-30 per cent of FN voters would vote Sarkozy, between 15-25% would switch across to Hollande, and the rest would follow the party line and spoil their ballot or stay at home. We’ll need more data to know whether this happened, and no doubt it is coming. My gut impression is that the pandering had some effect and is partly responsible for the late tightening in the polls, but I don’t actually have any data that supports it. Turnout fell noticeably between the rounds – the difference could be Mélénchonistes who decided that the Left would win anyway and they didn’t need to compromise in round 2, for example.

Anyway, it didn’t have enough effect to win, and winning counts.

Fighting the real enemy

If the PS isn’t going to give us red meat faction politics, who will? The UMP, that’s who. The parliamentary elections are only weeks away. Nicolas Sarkozy has ruled out taking part in the campaign, and so has Alain Juppé, who has decided not to stand for a parliamentary seat in favour of concentrating on his job as mayor of Bordeaux. (Don’t assume that means he’s ruled anything out in the longer term, though.)

Everyone will have to find some sort of modus vivendi to get through the campaign, but after that it’s a free for all. There are perhaps three key groups in the UMP. Let’s work through them.

One group are the sarkozystes, the former president’s personal following. Despite many efforts to identify a shared ideology among them, the biggest common factor between them is that they are relatively comfortable with the extreme Right, and many of them (like Sarko’s advisor Patrick Buisson) have a background in it, whether the FN, the wider extreme-rightist student movement, or the network around Charles Pasqua and the dodgy fringe of Gaullism. Sarkozy’s personal court was always pretty febrile, and the experience of defeat is only going to make them more so.

As Marine Le Pen is talking about trying to re-organise the Right around her party, they are the ones who like the idea and will try to reach out, although of course they will see it as bringing the FN into the UMP rather than vice versa. But they will also have to decide who their leader is, and that will be a vicious experience.

Group two are the traditional Gaullists, who weren’t particularly happy with Sarkozy and fluctuated between putting up with him and outright sabotage. They are deeply suspicious of the FN, and one of their leaders, the former PM and current senator Raffarin, actually broke surface to criticise Sarko for pandering even before he lost. Look out for much talk about needing to rassembler, social peace, and the Republic. They will see Sarkozy as having lost a great conservative opportunity, and will be after revenge.

And then you have the overlap with the old droite classique, the heritage of Giscard, who don’t like the Gaullists much and don’t really want to be in a party with them. Neither do they like the far Right much, even if some people have been involved in both.

Actually, memberships and life histories tend to overlap all three, which is not surprising in a party whose original raison d’etre was just to support Jacques Chirac in the 2002 parliamentary.

The big short term decision is what strategy to adopt for the parliamentary elections, and how far to cooperate with the FN. Three-way marginal seats between the PS (or other left-wing candidate), UMP, and FN are common, and the question is whether to ally with the FN or fight it for every vote. It’s not hard to see how this fits with the factional divide, but it fits so well with it that it may end up being fudged in order to maintain some degree of unity. The fudge would be to say nothing and tacitly leave it to local initiatives, which has happened before.

The strategic question is whether to head for the centre or to keep going with the Sarkozy/Buisson strategy of “droitisation”. The sarkozystes will point to the fact that the polls pulled in some between the two rounds as evidence that the strategy was working. Everyone else will point to the fact that they still lost as evidence that pandering to the FN turns off moderates, and perhaps that FN voters aren’t sociologically very compatible with the UMP.

Meanwhile, of course, the Left has its own analogous question, which is whether and under what terms to cooperate. Ensuring a left-wing government is very important to the PS, and the degree of influence that the Front de Gauche will have as an awkward partner is vastly greater than what it would have yelling in opposition. Their incentives are to agree, and the cultural gap is less troublesome. Also, coalition between the parties of the Left is a feature of some of its proudest moments, and you can’t say the same about cooperation between French conservatism and the extreme Right.

Exit the elephants, enter the balanced budget multiplier

So, the PS’s long faction fight is now over. The vast egos that fought over the legacy of Mitterand were known as the elephants, and we have arrived at the elephants’ graveyard. For the next five years, the PS is going to reorganise itself around whoever is closer to Francois Hollande. There will be a million micro-political questions like this, starting right away with the job of picking a prime minister and a cabinet, and then filling the huge range of posts that the president’s patronage still covers. What will happen with Ségoléne Royal, for example? One rumour puts her as speaker of the National Assembly. The head of the Socialist group is being tipped for prime minister.

But let’s get onto content. Hollande was very clear throughout the campaign that he intends to change European economic policy in the direction of more stimulus, and that he’s willing to pick a fight with the Germans about it. He referred to this in his press conference last night, and then again, hoarsely, to the crowds gathered at the Bastille. And the Germans have, as previously blogged, given the faintest suggestion that they might be willing to budge a little.

There is a detailed discussion of Hollande’s economic programme in two parts here and here. He is being notably careful not to promise a major fiscal expansion, and the balanced-budget multiplier is going to get quite a workout. On the other hand, any substantial budget consolidation is being firmly kicked down the road.

In general, it looks quite a bit like this post on the British TUC blog. On the European level, Hollande is arguing that if the Germans don’t want eurobonds, then they should accept quantitative easing, and vice versa.

There is a way out of the apparent impasse – the Germans are much warmer, or at least less icy, on expanding the European Investment Bank’s infrastructure projects than they are on eurobonds or QE, and Hollande explicitly mentions project bonds, i.e. linked to named projects. (It’s also rather like option 28 here.)

As far as the politics goes, Hollande’s working assumption seems to be that if the Germans want there to be an EU and a Euro, they’ll just have to shift somewhat, with the back-up plan of lining up the IMF and the Americans on this. As I mentioned in the last post, Hollande formally takes office on the 15th, and will be in Camp David on the 18th, which rather suggests that a call on the IMF (and its French director) and a bilateral with the Americans will be on his agenda, as at least one of the intervening days will be spent travelling. There’s also a trip to Berlin coming up, but Le Monde‘s sources left the date of that one open. Obama won the congratulations race by a country mile, getting in with an invite before Hollande got back to Paris. (As for the EU institutions, well, they want there to be an EU and a Euro.)

The market insta-response has been promising, although everyone’s attention is riveted by Greece, the Spanish industrial production numbers, and the banking sector. Speaking of which, does anyone else wonder whether the bail-in directive figures in his plans in that respect?

Frelections: roundup

The day after, some French election blogging. A somewhat ambiguous photo from the Sarkozy rally – he’s despairing, she’s…not. Sarkozy gets made to eat his Flamby, an allusion to Francois Hollande’s enemies’ habit of likening him to a wobbly jelly. But in the end, it wasn’t a wobbly jelly but more of an epic blob. Sarko kept throwing punches, but it just kept coming.

The exact details show that the polls narrowed at the last, to 51.6% vs 48.4%, not as decisive as you might have expected earlier in the campaign. However, as the winner said in an interview last week, the nature of the poll is that a win is a win, and the Left’s support, the peuple de gauche, put on a spectacular crowd at the Bastille for Hollande to struggle through with the sixty motorbike cops that were the security state’s own special tribute, today’s version of a bodyguard of lancers.

Transition of power in France is somewhere between the astonishingly swift process in Britain, where the old and new prime ministers’ official cars both park up outside Buckingham Palace while the first has their farewell audience and the second officially accepts the appointment, and the weeks long grind from a US presidential election to inauguration. The handover was fixed this morning for the 15th of May.

It couldn’t be much later, as the president will then have to zap off to the G-8 summit at Camp David on the 18th and then on to the NATO summit in Chicago on the 20th, as well as whatever happens on the European scene in the meantime.

Frelections: a round-up between the rounds

No need to guess what’s got the headlines. Mediapart published what purports to be a document demonstrating that (as has been repeatedly rumoured) Libya offered Nicolas Sarkozy a substantial sum of money (€50 million) for his 2007 campaign. The finances of Sarkozy and the broader French right are a deep dark subject, as the continuing Karachi affair makes clear – the treasurer of the 1995 Balladur campaign just described how they concealed large donations in used banknotes. Of course, the campaign manager was none other than Nicolas Sarkozy. Quite a few of the same personalities involved also turn up in the note. It’s not clear, even if the document is genuine, if the money was ever paid out, and its addressee denies ever receiving it. Meanwhile, the arms dealer Ziad Takieddine, who shows up in the whole range of scandals, says he was refused entry to France in the hope of preventing him from producing the document.

However, so far the response from the Sarkozy camp has just been to complain that it’s “undignified” and to point out that the legal maximum campaign spending is €22 million. Obviously you’d have to be naive to think that this somehow excludes finding something else to do with the spare money.

Obviously, the frantic last chance that the interval between the two rounds provides brings everyone with a grudge boiling up to the surface. Dominique Strauss-Kahn re-appeared, with what claims to be an interview with him appearing in the Guardian (rather-too-helpfully translated here) and causing Nicolas Sarkozy to start talking about him a lot. Weirdly, DSK then walked it back, denying that the piece was an interview. Perhaps it helped to move some books. The founder of Rue89 publishes an open letter calling on him to shut up.

Sarko, meanwhile, claims that he’s hoping for a unprecedented mobilisation of the electorate, although the 80% turnout in the first round didn’t seem to help his cause much. Both candidates finish their formal campaigns with a rally today, before the TV debate on Wednesday night.

In terms of actual content, the debate between the rounds has been marked by both candidates denying they were trying to suck up to the FN while also doing so. Rue89 takes a left-wing view of the FN electorate. Sarkozy announces he wants “a presumption of self defence” for the police, in a transparent sop to the FN, while also denying that he would ever form a coalition with them, although also basking in FN rhetoric. He also did a bit of culture war. There are limits to this: Sarko’s enemies in his own party, including two former prime ministers, are angry about the pandering.

Pandering is bipartisan, of course: Hollande has discovered a desire to have an annual parliamentary debate on an immigration quota, as well as doing a bit of security politics about policemen and cannabis. The PS has been measuring the dosage carefully, though – Ségoléne Royal was sent out to remind the public that the party wants foreigners to have the vote, at least in local elections, as a form of republican integration. However, this promise goes back as far as Mitterand’s 1981 campaign and has yet to be implemented.

Hollande is also trying to score off the European Union, or rather, off the ECB and Angela Merkel. In an interview this weekend, she suggested that she might be willing to support a “growth agenda”, perhaps making use of the EIB, but also said nobody was going to re-open the stability pact. Hollande took the credit and remarked that things had moved and were going to move further.

Le Pen and Mélénchon, meanwhile, are looking ahead to the parliamentary elections in June. Interestingly, the deal setting up the Front de Gauche gave the Communists the majority of parliamentary candidates in exchange for letting JLM run for president, but the man himself is bored with being an MEP and feels the need for a bigger megaphone in French politics. A big deal for both will be whether they can get an agreement with the bigger party on their side of politics to cooperate in three-way marginal seats. This is crucial for the smaller parties, as you need to get 12.5% of the vote in round one to be on the ballot in round two. The UMP and the PS are both playing hard to get.

Out with the PS in La Courneuve, where the local secretary reminds us that Barack Obama didn’t invent canvassing.

Apparently, Nigel Farage has been suggesting that Marine Le Pen dump the FN and create something like UKIP. All I can say to that is that perhaps he could give advice when he gets one in five Britons to vote for him as prime minister.

Frelections: a little more

Wondering what I meant about Mélénchon performing Frenchness? L’Humanité does an in-depth interview, in which he says as much. If you read French, well worth reading the whole thing. Anyway, his take-home message is that the mission is now just to beat (even to eliminate) the Right.

Elsewhere, IFOP reckons 31% of FN voters are reverse-switchers, but then they were off by 2.5 on both MLP and JLM, and not too good on Sarko or Hollande either.

So far, Le Pen has won one département, the Gard, a mountainous, wild, Protestant former Communist fief down south, where she got 25.5% of the vote, with Sarkozy and Hollande on 24% each and Mélénchon on 13%.

Looking at the first few results from Paris, I get the impression Mélénchon’s campaign did poorly in the capital. This may just be because some districts haven’t reported yet, but he got scores around 13% in quite a few départements and he’s struggled to break 10% in Paris so far. Hollande got 43% in the 18th, for example.