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?