08 May 2013

Paul N Goldschmidt: France should stop deluding itself!

It is totally illusory to believe that France will be able to impose a coordinated European stimulus package without significant further transfers of sovereignty to "Europe", comments Goldschmidt.

That President Hollande or his Finance Minister should welcome the two years' grace conceded by (Brussels? Europe?) the European Commission to reduce France’s budget deficit to 3 per cent of GDP is perfectly understandable. That they attribute to their skills the merit of changing the orientation of European policy, avoiding foisting austerity on the French, is an unabashed example of arrogance and disinformation.

By allowing France – as well as a number of other Member States – to spread their budgetary efforts over time, the Commission has done nothing more than interpret, with the appropriate flexibility, the rules of the Treaties and Directives that it is charged with enforcing. In so doing, it recognises that the continuing crisis renders the blind pursuit of austerity counterproductive, as long as there are no signs of an economic recovery.

That being said, the Commission – which has neither the means nor the competence – has in no way changed the rules of the game. Thus, the flexibility is conditioned on the pursuit of structural reforms which hardly increase the room for manoeuvring of the governments concerned. The situation of France appears particularly difficult insofar as it is the only country that has not even started to implement significantly the required measures, while continuing to boast record public expenditures, one of the highest tax regimes and an increasing public indebtedness.

Thus, while the heavy sacrifices imposed on Greeks, Portuguese, Irish, Spaniards, Italians and Cypriots (or adopted unilaterally by the British and earlier by the Germans) are likely to bear fruit rapidly if and when the economy improves, France will find itself forced to maintain austerity because, even if the problematic 3 per cent threshold is achieved by 2015, deficits should continue to be reduced further, all the more that an economic upturn will impose countercyclical measures and constraining debt reduction objectives in line with the country’s European obligations.

It is totally illusory to believe that France will be able to impose a coordinated European stimulus package without significant further transfers of sovereignty to “Europe”. Indeed, its avowed objectives aiming at more solidarity (debt mutualisation, joint deposit guarantees, greater ECB interventionism, etc.) will remain unfulfilled if they are not accompanied by a robust institutional framework capable of ensuring collective discipline and enforcing sanctions on any attempt at free-riding on the efforts requested from the partners. This implies a credible enforceable roadmap leading to a form of European Federation, armed with an autonomous budget financed by significant “own resources” (European taxes).

As long as the mandate of the Commission is restricted to monitoring the compliance of each individual Member State with its Treaty commitments, it will not be in a position to impose a coordinated “European economic policy” which could, for example, weigh on the exchange rate of the euro; its relevance would, in any case, be at best marginal in light of the weight of intra-eurozone commerce.

From an internal French political perspective, the consequences of the above-mentioned considerations are serious. The prospect of the continuation and aggravation of the austerity voiced by Marine Le Pen are increasingly likely to pass even if, at the same time, the solutions she offers, including exiting the euro and repatriating French national sovereignty, ignore the massive readjustment (impoverishment) to which the French population would be submitted. The current developments in Cyprus, where the ability to restore the free movement of capital remains highly problematical, should ring alarm bells before committing a country such as France, which is so highly dependent on access to international markets for goods, services and debt financing, to following a similar course. However, receiving support on her diagnosis and remedies (but not on her ideology) from Mélenchon and his “left of the left” supporters, an anti-European consensus could easily paralyse any French governmental initiative, leading the “unthinkable” to become “inevitable”.

This potential paralysis could extend to the European institutions. A protest vote, sanctioning governments in place at the time of the forthcoming European elections (considered – wrongly – as the ideal venue to express frustrations with unemployment, austerity, poverty, corruption etc.) could easily jeopardise the Parliament’s capacity to fulfil its role and continue to be the arena in which the democratic legitimacy of the EU expresses itself.

The insolent behaviour of financial markets, where stock markets establish daily new records, far from announcing better times ahead, is rather a further demonstration of the deep changes in the balance of powers that control world events. It is totally illusory to aim at restoring effective sovereign powers in policy-making or control at the level of any one of the EU Members States. Only a European-wide entity, comparable to the United States, China, India, Russia or Brazil, can aspire to manage its own destiny. Condemned by national egoisms to virtual paralysis, it is difficult to predict the spark that will trigger the demise of the uncompleted European construction.  It could happen suddenly, caused from outside such as a widening of the Middle East conflict or a brutal shock to financial or commodity markets, or internally by social unrest or the growing influence of populist and nationalist movements.

In conclusion, the chances of reversing the trend diminish with every passing day. The weakening of France, driven to seeking suitable foreign scapegoats and putting in jeopardy the indispensable Franco-German leadership, constitutes the biggest danger confronting the Union. Correcting this state of affairs starts with the realisation that the future of France is not dissociable from the future of Europe.

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Paul N Goldschmidt, Director, European Commission (ret); Member of the Advisory Board of the Thomas More Institute

Tel: +32 (02) 6475310 / +33 (04) 94732015 / Mob: +32 (0497) 549259

E-mail: paul.goldschmidt@skynet.be / Web: www.paulngoldschmidt.eu

© Paul Goldschmidt