France’s referendum

It’s been announced today that France is to hold its referendum on the Constitution on Sunday 29th May.

12 thoughts on “France’s referendum

  1. Even supposing the EU Constitution is finally ratified by all 25 member states, are there any indications that French governments would actually adhere to the terms of the Constitution whenever the terms became inconvenient for national aspirations? After all, look what happened with the Stability and Growth Pact of 1997 for the Eurozone. When the restrictions of the Pact on budget deficits became inconvenient, the French and German governments just disregarded the Pact. Will the EU Constitution be treated any more seriously in European affairs whenever push comes to shove?

    My problem is not that I’m opposed to closer European integration. My problem is the mounting evidence of lunatic collective decisions by the EU. But for a UK veto in the early 1990s, the EU would have been saddled with a mandatory standard for analogue HD-TV shortly before the start of digital TV. Even the most benighted of Europhiles are surely beginning to wonder if the launch of the Euro in January 1999 was a mistake – as some of us were saying at the time and more than 150 German economic professors predicted it would be back in February 1998: http://www.internetional.se/9802brdpr.htm

    Germany’s unemployment is now at 5 millions and still rising. Does anyone seriously now think that the 35-hour statutory week of the Jospin government in France was even a half-way sane contribution to abating France’s high unemployment rate?

  2. Bob B.,

    When the restrictions of the Pact on budget deficits became inconvenient, the French and German governments just disregarded the Pact.

    After Portugal and a couple of other countries did. The EU was somewhat hypocritical in its approach to France and Germany, acting like they were first and only offenders.

    Will the EU Constitution be treated any more seriously in European affairs whenever push comes to shove?

    About as seriously as any Constitution is treated, yes. Or are you unfamiliar with the many challenges to the U.S. Constitution that happen yearly in the U.S. via various government bodies?

    Even the most benighted of Europhiles are surely beginning to wonder if the launch of the Euro in January 1999 was a mistake…

    I’ve read that the Euro increases Euro-wide GDP by 1%-2%. Europe’s troubles have very little to do with the currency.

    Does anyone seriously now think that the 35-hour statutory week of the Jospin government in France was even a half-way sane contribution to abating France’s high unemployment rate?

    France will be rid of it by the end of 2005. Its already passed one chamber and is headed to the Senate as I recall.

  3. Gary,

    Particular EU states persistently top annual league tables for breaches of mutually agreed EU Directives. British business organisations are currently complaining of the mounting costs for business of the regulatory burden and much of that derives from European regulation. For good and solid reasons, business in Britain used to be among the loudest and regular cheerleaders for Britain’s membership of the European Community but not any more and business polls on the benefits of joining the Euro have turned from strongly positive, when Blair was first to power in 1997, to negative recently. Why do you suppose that is?

    The fact is that Britain’s economy is performing very well outside the Eurozone – by the standards of the other major EU economies – while EU regulations are a drag on business, which is presumably why the EU Commission has recently started to make noises about the benefits of deregulation to rescue the its lost Lisbon agenda from 2000 that was intended to make the European economy more internationally competitive.

    “Europe’s troubles have very little to do with the currency.”

    Not so. On the lead to to the launch of the Euro, it was clear from US and other data sources that employment costs in Germany were way out of line with those in much of the rest of the EU at exchange rates then prevailing, which is why so many economists at the time foresaw the prospect of rising unemployment if the DMark joined the Euro at an overvalued rate. And that is precisely what happened. It also happens that Germany’s economy amounts about a third of the Eurozone so it was predictable that the overall knock-on effect would be to depress the Eurozone, which is just what happened.

    The Belgium finance minister said in 1995 that the whole point of the Euro was to prevent the encroachment of “Anglo-Saxon values” – European code for the relatively lowly regulated and lightly taxed American and British economies.

    We’ve not mentioned here yet the embedded corruption in the EU Commission – such as the multimillion Eurostat scandal, which surfaced in the summer of 2003, or the continuing refusal of the European Court of Auditors to endorse EU Commission accounts, not least because of the Commission’s insecure accounting system. One of Britain’s last EU Commissioners was tasked in 1999 to push through the necessary administrative reforms but the only evident achievement todate from that was firing the EU’s chief accountant, Marta Andreasen, for refusing to sign off the accounts and saying the accounting system was insecure.

    Umpteen polls show Brits to be the most sceptical in Europe about the claimed benefits of EU membership. Our historic traditions of common law, parliamentary government and philosophy don’t readily mesh with mainland European traditions. We have managed quite successfully for centuries without a formal constitution when the constitutions of most EU states only go back a few decades at most. It simply isn’t self-evident why we need to engage in ever closer political integration with mainland Europe.

  4. Bob,

    it’s true that Germany was too expensive at the start of the Euro, but that’s not the end of the story. According to 2 articles from the Economist, German industry did some serious cost cutting in the last couple of years. As a result the country is once again the world’s biggest exporter.

    As these articles show, inflation rates are the Eurozone?s quite effective mechanism for correcting different levels of competitiveness. Eurozone companies know that they will not get a break because of a weak currency policy, so they have to face the hard task of cost cutting themselves. This is also how it should be: companies compete, not currencies. The single market and the single currency stimulate competition all over Europe and are therefore part of the solution, not of the problem.

    Sources:
    http://www.economist.com/displaystory.cfm?story_id=3666544 (Feb 17th 2005)

    “When the single currency was born, Germany’s unit labour costs were the highest in the euro area; but since 1999 they have fallen by 10% relative to the average. Put another way, Germany’s real exchange rate within the zone has depreciated by 10%. In contrast, relative unit labour costs have risen by 9% in Italy, Spain and the Netherlands, implying a huge loss of competitiveness relative to Germany.

    Since early 2002, when the dollar started its decline, the euro’s real trade-weighted exchange rate has risen by 18% (based on relative unit labour costs), slightly less than the 21% rise in its nominal trade-weighted value and considerably less than its 50% leap against the dollar. Yet Germany’s real effective exchange rate has risen by only 4% since early 2002, the smallest increase of any euro-zone country. France’s real exchange rate has gone up by 9%, and those of Italy and Ireland by 17%.”

    http://www.economist.com/displaystory.cfm?story_id=3667837 (Feb 17th 2005)

    “over the past five years German exports have grown more than three times faster than America’s, pushing Germany ahead of America as the world’s biggest exporter. Germany is the only G7 country that has increased its share of world exports over the past five years, a period of increasing Chinese competition. America’s share of world markets has dropped from 14% to 11%.”

  5. Bob,

    it’s true that Germany was too expensive at the start of the Euro, but that’s not the end of the story. According to 2 articles from the Economist, German industry did some serious cost cutting in the last couple of years. As a result the country is once again the world’s biggest exporter.

    As these articles show, inflation rates are the Eurozone?s quite effective mechanism for correcting different levels of competitiveness. Eurozone companies know that they will not get a break because of a weak currency policy, so they have to face the hard task of cost cutting themselves. This is also how it should be: companies compete, not currencies. The single market and the single currency stimulate competition all over Europe and are therefore part of the solution, not of the problem.

    Sources:
    http://www.economist.com/displaystory.cfm?story_id=3666544 (Feb 17th 2005)

    “When the single currency was born, Germany’s unit labour costs were the highest in the euro area; but since 1999 they have fallen by 10% relative to the average. Put another way, Germany’s real exchange rate within the zone has depreciated by 10%. In contrast, relative unit labour costs have risen by 9% in Italy, Spain and the Netherlands, implying a huge loss of competitiveness relative to Germany.

    Since early 2002, when the dollar started its decline, the euro’s real trade-weighted exchange rate has risen by 18% (based on relative unit labour costs), slightly less than the 21% rise in its nominal trade-weighted value and considerably less than its 50% leap against the dollar. Yet Germany’s real effective exchange rate has risen by only 4% since early 2002, the smallest increase of any euro-zone country. France’s real exchange rate has gone up by 9%, and those of Italy and Ireland by 17%.”

    http://www.economist.com/displaystory.cfm?story_id=3667837 (Feb 17th 2005)

    “over the past five years German exports have grown more than three times faster than America’s, pushing Germany ahead of America as the world’s biggest exporter. Germany is the only G7 country that has increased its share of world exports over the past five years, a period of increasing Chinese competition. America’s share of world markets has dropped from 14% to 11%.”

  6. ?When the single currency was born, Germany?s unit labour costs were the highest in the euro area; but since 1999 they have fallen by 10% relative to the average.

    From the receiving end: I can add that in some industries, IT in my case, decimation is a dramatic under-estimate. Contract rates, for example, are 30 – 40% down. And, while IT is beginning to stabilise, my friends in the building industry report that it is now their turn to suffer. Simultaneously, Germans now pay for, for example, medical care at point of use that they didn’t before; but they don’t yet see any of the promised tax benefits that were to result from the changes. Likewise, mortgages and rents haven’t changed much.

    At which point, the economists amongst us say that this is fair: indulgence leads to hangover. However, as always, the ones that suffer are never the same ones that benefited in the good times.

    I consider myself fortunate, my family is now old enough to look after itself, but I do feel sorry for those around me trying to start families.

  7. Ton,

    The piece in The Economist is a good intro as to why the “irrevocably” fixed exchange rates of the Eurozone don’t necessarily mean fixed real exchange rates – just as the old Gold Standard didn’t either.

    What has happened to Germany’s real exchange rates vis a vis its trading partners is an illuminating example of market adjustment mechanisms at work. Schroeder’s policy reforms are working in the right direction too. But the bottom line is that it has taken 5 million unemployed in Germany to bring about the necessary adustments with “irrevocably” fixed nominal exchange rates. This is why some of us continue to believe that with insufficient convergence of economies and institutions in the EU, it would have been wiser to postpone starting monetary union. Unhappily, the politicians were working to their own aspirational agenda which took little account of the economic realities.

  8. I agree that monetary union is not to be untertaken lightly, and the exchange rate with which you join the club is of prime importance. It really surprised me at the time of the negotiations, that there was so little discussion about the rates. One day in 1998 the fixed rates were in the paper and that was all. I think Kohl defended the interests of his people very poorly at that time. But considering the fact that he fixed the exchange rate of Ostmarks to D-marks as 1:1, while the market rate was about 7:1, sound economic judgement is not the first thing that comes to mind with Kohl.

  9. Bob, does it play a role that at the time, the currency and bond markets were aligned that you could have order, or delay, but not both?

  10. Doug, The climate for the launch of the Euro was nurtured, shaped and eventually driven by political imperatives for speeding up European integration. The economics mattered little.

    Bernard Connolly, a Brit who headed the EU Commission’s monetary policy unit was fired in 1995, effectively for making critical comments about monetary union. The Maastricht Treaty of 1992 was intended to pave the way and that was that. As Connolly reminds us, in 1995 the Belgian finance went on public record to say that monetary union was about preventing “the encroachment of Anglo-Saxon values” – and Anglo-Saxon, the code in Europe for deregulating and liberalising markets, was definitely regarded as something to avoid.

    Whatever else, Delors (EU Commission President 1985-94) is certainly no fool, and he recognised that Britain had and has a rational case on national interest grounds for remaining outside the Eurozone:

    http://www.eubusiness.com/afp/040117021026.t2ppx60f
    http://www.timesonline.co.uk/article/0,,724-967150,00.html
    http://www.timesonline.co.uk/article/0,,724-967151,00.html

    In Britain, all sorts of bogus arguments were deployed c. 1999 to get us to sign up for the Euro. Popular ones then were the benefits to tourists from not having to change currencies on crossing EU borders and the advantages to us Brits from having cheaper home loans. Naturally, the Europhiles didn’t mentioned what that would do to house prices in Britain or whether joining would destabilise Britain’s economy. Dire consequences were predicted if we were so foolish as to remain outside. In fact, Britain’s economy has continued to perform rather well outside the Eurozone, notably better than the other major EU economies although not as well in terms of GDP growth as the American economy. The case for more market deregulation and liberalisation in the EU is better accepted now with the conspicuous failure of the Lisbon agenda from 2000 for Europe to become the most internationally competitive economy by 2010.

  11. We are writing this open letter condemning the increasing powers of teh EU, If the EU had been around in teh 1930s, we would not have been able to invade our neighbours and kill teh people, why how would we be able to invade poland, if teh eu stopepd us, how would we be able to massacre 250000 spaniards, in executiosn if a constitution guaranteed human righst, and poor old us would not have been able to massacre socialists, this is a disgrace, when teh french vote no, me an le pen, andf joerg haisder, will be happy that war has been strenghed, and be happy that satanism, has won againq

  12. we will cheer liek teh kkk, when we deafeta humnanity on sunday and see a vote for no, it will be the greatest day for evil since 1933, and bush’s win in 2000, skinheasd in austrai will cheer, liek joerg haider, and teh thugg le epen

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