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LQD: Of Election Campaign Football and Golden Rule

by Bernard Sun Aug 21st, 2011 at 05:17:26 AM EST

You read ET, so you know that "France's AAA rating has become the subject of French Presidential Election Campaign Football" (h/t Migeru). In addition, president Nicolas Sarkozy and prime minister François Fillon have devised another issue:  modify the French constitution to make budget deficits illegal, following in Germany's footsteps. This so-called "règle d'or" -- "Golden Rule", is predictably enough used by the UMP (Sarkozy's party) as a weapon to beat the French Socialist with in the run-up to the next presidential elections in May 2012: either the PS accept this "Golden Rule" and get in full TINA mode onto the austerity bandwagon or they reject the poisonous gift and will be immediately tarred as "irresponsible". Heads the UMP wins, tails the PS loses.

Sarkozy's camp is hoping for a repeat of the 2007 presidential race when they successfully portrayed Ségolène Royal as "incompetent" with the help of compliant media while Sarkozy was looking "presidential"; of course, this was before Le Fouquet's, "Casse-toi, pauvre con" and other fixtures of the bling-bling era supposedly long gone by now.

In the wake of last weekend's "no-business meeting" between Sarkozy and Merkel, long on the hand waving but short on any concrete action, Sarkozy's prime minister François Fillon, who just came back from his Tuscan summer vacation, published an editorial in Le Figaro (August 19), a broadsheet who is to the UMP what Fox News is to the GOP. In this editorial, Fillon is calling for no less than national unity behind the golden rule:


Le Figaro - Mon Figaro : Dette, règle d'or : l'appel à l'unité nationale de François FillonLe Figaro : Debt, Golden Rule : A Call to National Unity by François Fillon
L'Espagne et l'Italie ont décidé ces dernières semaines des mesures fortes. Sans être frappés par des tensions financières comparables, d'autres pays ont pris des mesures appropriées.Over the past couple of weeks, Spain and Italy have decided some strong measures. Even without being afflicted by comparable financial strain, other countries have taken appropriate measures.
Dès 2007, la France a décidé de s'appliquer la règle de non-remplacement d'un fonctionnaire sur deux. Une trajectoire de finances publiques a été définie, qui prévoit le retour à un déficit de 3 % en 2013, et elle est intangible. Pour la première fois, en 2010, les dépenses d'assurance-maladie sont restées dans les limites fixées en début d'année. La réforme des retraites a par ailleurs consolidé nos comptes sociaux sur le long terme.As early as 2007, France decided to apply the rule of not replacing every other civil servant [leaving for retirement]. A public finance trajectory has been defined, targeting a return to a 3% deficit by 2013, and it is intangible. For the first time in 2010, health insurance expenses have remained within the limits fixed at the beginning of the year. Pension reform has also reinforced our financial position in the long run.
Personne n'a le droit de mentir aux Français sur les efforts que nous devons consentir. Personne ne pourra revenir sur ces mesures qui garantissent notre souveraineté financière et sociale.Nobody has the right to lie to the French people about the efforts that we must agree upon. Nobody will be able to come back on these measures that guarantee our financial and social sovereignty.

And now for Sarkozy's "Modest Proposal" aka the Golden Rule of balanced budgets forever:
L'adoption par les États membres de la zone euro d'une règle d'équilibre budgétaire à valeur constitutionnelle et s'imposant aux budgets annuels, telle que proposée par le président de la République et la chancelière allemande à leurs homologues, permettra de s'assurer que chacun présente le plus rapidement possible des comptes tendant vers l'équilibre. Cela donnera à l'assainissement dans la durée des finances des pays de la zone euro une crédibilité qui permettra de rétablir la confiance et de décourager la spéculation. Ce serait une erreur de ne pas l'adopter pour l'avenir dans tous les États membres de la zone euro. La France doit, sur ce sujet, montrer l'exemple. Il en va de l'intérêt national.The adoption of a balanced budget rule with constitutional force by all member states and being enforced on each yearly budget, as proposed by the [French] president and the German chancellor to their peers, will allow for everyone to present as fast as possible national accounts that tend to a balanced position. This will give to the Eurozone countries long term financial clean-up process a credibility that will allow the restoration of confidence and will deter speculation. It would be a mistake not to adopt this rule for the future of all the Eurozone member states is at stake. France must lead on this issue. It is a matter of national interest.

But in cauda venenum: Fillon is trying to present this Golden Rule proposal as a non-partisan issue in the name of a national unity we need so much, or so we're told:
Devant l'ampleur de tous ces défis, j'en appelle à l'unité et au sens des responsabilités de toutes les formations politiques.Given the magnitude of such a challenge, I am calling for national unity and for all political parties sense of responsibility.
Contrainte par ses primaires, l'opposition semble par avance répondre non, quelle que soit la question. Il y a pourtant au Parti socialiste des économistes éclairés et des responsables sincères. Malheureusement, pendant que le président de la République et la chancelière allemande mettent toute leur crédibilité dans la balance pour défendre notre monnaie et que la politique que nous menons garantit le maintien de la notation de la France au plus haut, le Parti socialiste semble attaché à la multiplication des emplois publics et des contrats aidés, montrant ainsi qu'il n'a pas encore pris la mesure des efforts que nous devons accomplir pour tenir nos engagements de réduction du déficit et de la dette.Constrained by its primary elections, the opposition seems unable to respond anything else than 'no', regardless of the question. There are enlighted economists and responsible leaders in the Socialist Party though. Unfortunately, while the [French] president and the German chancellor are putting their credibility at stake to defend our currency and while the policy we are running ensures France's highest rating (AAA), the Socialist Party seems attached to public sector jobs as well as subsidized job contracts, thus showing that it has not yet taken full measure of the efforts we must undertake to keep our commitments on deficit and debt reduction.
Un message d'unité nationale est encore la meilleure des réponses aux doutes des marchés et aux craintes des investisseurs. C'est d'ailleurs ce message que la plupart des grandes forces politiques européennes ont choisi de privilégier.A message of national unity is still the best answer to the markets and to the investor's concerns. This is by the way the message that most major European political parties have chosen to put forward.

François Fillon was also answering an op-ed published a few days ago (August 12) by Martine Aubry (h/t Jérôme) whos is coming out swinging against the Golden Rule claptrap and reminding where the budget deficit and debts come from:

Contre la dette, pour l'emploi : ma "règle d'or" -
Martine Aubry - LeMonde.fr
Against debt, for employment : my "Golden Rule" -
Martine Aubry - LeMonde.fr
En pleine crise de l'endettement et de la spéculation, M. Sarkozy réclame une limitation constitutionnelle des déficits. Le sérieux en matière financière est une révélation tardive pour celui qui, à quelques mois du jugement des Français, cherche d'abord à faire oublier sa responsabilité, celle d'un endettement qui aura doublé au cours des dix dernières années de gestion UMP.In the midst of debt and speculation crisis,
Mr. Sarkozy is demanding a constitutional budget deficit ceiling. Seriousness in financial matters is a late realization for someone who, a few months before the French people's judgment, is first seeking to make everyone forget his own responsibility, the legacy of a debt that has doubled over the course of ten years of UMP rule.
La "règle d'or" qui est proposée, bien peu contraignante en vérité, est d'abord un exercice de communication dont le procédé n'est pas nouveau et le discours classique : la gauche pousserait au déficit des finances publiques tandis que la droite les ramènerait à l'équilibre.The proposed "Golden Rule", that has little bite in truth, is first and foremost a PR exercise whose mechanism is nothing new and the storyline well known: the Left is pushing for public finances deficit while the Right would bring them back to balance.
Dispendieux contre sérieux, poches percées contre caisses remplies, c'est la fable de l'UMP pour 2012. Hélas pour la droite, cette fiction se heurte aux faits, d'autant plus têtus qu'il s'agit de chiffres incontestables.Profligate vs. serious, empty pockets vs. full coffers, this is the UMP's tale for 2012. Unfortunately for the Right, this fiction doesn't square with the facts -- stubborn facts backed by unimpeachable figures.
Les précédents sont accablants pour les conservateurs d'ici et d'ailleurs. Aux Etats-Unis, Reagan et Bush ont creusé les déficits que Clinton dut résorber, et c'est désormais Obama qui doit faire face à l'irresponsabilité des républicains. En France, c'est Edouard Balladur, premier ministre secondé par son ministre du budget Nicolas Sarkozy, qui augmenta la dette de 50 % entre 1993 et 1995.Precedents are unforgiving for the conservatives here and abroad. In the United States, Reagan and Bush have generated ballooning deficits that Clinton had to tackle, and it is now Obama who must face the Republican's irresponsibility. In France, it was then prime minister Edouard Balladur seconded by his minister of budget, Nicolas Sarkozy, who increased the total debt level by 50% from 1993 to 1995.

Les résultats récents sont plus implacables encore pour l'actuelle majorité. Depuis 2002, les deux tiers de l'endettement sont dus aux cadeaux fiscaux accordés à une minorité de privilégiés, comme l'a établi la Cour des comptes.Recent results are even more embarrassing for the present ruling majority. Since 2002, two third of our total debt are the results of "tax gifts" to a minority of wealthy priviledged, as established by the Accounting Court.
Même en retranchant les 100 ou 150 milliards d'euros de dette liée à la crise financière de l'automne 2008, les années Sarkozy resteront celles de l'explosion historique de la dette.Even discounting the 100 or 150 billion euros debt linked to the financial crisis in the fall of 2008, the Sarkozy years will remain forever as the years of the debt explosion.
La prétendue "règle d'or" révèle l'aplomb de son initiateur : non content de l'avoir négligée depuis qu'il préside le pays, lui-même se garde bien d'en appliquer la logique dès à présent ! Bien sûr, le gouvernement a adressé à la Commission européenne un programme de retour des déficits sous l'étiage des 3 % en 2013.The so-called "Golden Rule" is mostly revealing its initiator's chutzpah: not only has he neglected it since he is ruling the country, but he is making certain it won't be applied for now! Of course, the government has sent the European Commission a program for returning the deficit under the 3% mark by 2013.
L'ennui est que personne - ni à Bercy, ni à Bruxelles, ni à Berlin - n'estime crédibles les hypothèses qui fondent cette promesse. La hausse "spontanée" des rentrées fiscales de l'Etat affichée à 7 % en 2013, alors même que ne sont prévus ni changement de taux ou d'assiette, ni aucune remise en cause des cadeaux aux plus hauts revenus ou aux très grandes entreprises ? Irréaliste, évidemment !Trouble is, nobody - neither in Bercy [French Finance Ministry], nor in Brussels, nor in Berlin - gives any credit to the assumptions underlying this promise. The "spontaneous" increase of tax revenues to the State, presented as 7% in 2013, while no change at all in the tax base is scheduled: no rate change, no tax base change, no reconsideration of the tax cuts to the highest earners and big businesses? Unrealistic of course!
Quant à une croissance de 2,5 %, faute de politique économique favorable à l'emploi, à la consommation des ménages et à l'investissement des entreprises, elle est désormais improbable, comme en témoignent, hélas, les mauvais résultats enregistrés au deuxième trimestre.Regarding the 2.5% growth hypothesis, for want of an economic policy that favors employment, household consumption and business investment, it is now highly unlikely, to wit the bad results recorded for the 2nd quarter [Null GDP growth].
La vérité est que la politique actuelle est une impasse. Sans croissance, dette et déficits ne se réduiront pas ; sans ressources nouvelles, les coupes aveugles dans les dépenses aggraveront la crise.The truth is: present policies are leading to an impasse. Without growth, debt and deficit will never shrink; without new resources, blind budget cuts will only make the crisis worse.
Même si la situation n'est pas la même, le scénario grec l'enseigne à tous les pays européens. Les résultats en France sont mauvais parce que la politique est mauvaise. Il faut en changer. Et il y a urgence.Even if the situation is not the same, the Greek scenario is teaching this to all European countries. We have bad results in France because the policy is bad. We must change it. It's urgent.

Aubry follows with a couple of counter proposals that I'm not going to detail here (essentially: stop digging; repeal the tax cuts). The set for 2012 presidential campaign is pretty much clear now: Sarko and his camp are pushing for austerity and following Merkel's CDU, but the PS so far seems to be resisting the path followed by Papandreou in Greece or Zapatero in Spain. The Greens also are not buying the Golden Rule line either.

So this is how the debate is shaping up in France right now, in the final dog days of summer vacations and before serious business eventually resumes in earnest come September. At least, there seems  to be some real opposition to the austerian dogma. We'll see how this will play out over the next couple of months. One thing is for sure: we haven't seen the last of the "Golden Rule".

Display:
French left, Greens reject government plea on fiscal rule - swissinfo
A months-old push by President Nicolas Sarkozy to put a deficit-controlling clause into the constitution has blown into a political storm since he proposed on Tuesday, backed by Germany, that such "golden rules" be enshrined across the euro zone.

The Socialists have refused from the start to give Sarkozy the three-fifths majority he needs to tweak the constitution, but they will be left in an awkward corner if the rest of the 17-nation euro bloc backs the golden rule plan.

Prime Minister Francois Fillon upped the ante by pleading in an interview with Saturday's edition of the daily Le Figaro for all French political parties to show a united front on the idea.

"Francois Fillon is calling for national unity to pay the bill for his bureaucratic waste," snapped Socialist Party leader Harlem Desir in response.

"Since 2007, it's been more about unity of the super-wealthy to share tax favours. At the height of the crisis, the French people are not waiting for the prime minister to publish political editorials, they want a fair and efficient budget."

The French Greens also weighed in against Fillon's plea.

Green presidential candidate Eva Joly called the golden rule idea "economically inefficient and politically absurd" as she kicked off her election campaign in the city of Clermont-Ferrand in mountainous central France.
by Bernard on Sun Aug 21st, 2011 at 05:22:21 AM EST
Bernard:
they will be left in an awkward corner if the rest of the 17-nation euro bloc backs the golden rule plan.

An unlikely situation, and a not necessarily awkward corner (the thing is to keep on the move). Aubry hits the right spot by pointing at the conservatives as the deficit-raisers, who have no right to hand out lessons about "responsibility". But this needs soundbite-plugging again and again, and of course, as usual, the MSM in France are there to serve Fillon in his severe daddy/schoolteacher/serious man in a suit role. Plus ça change...

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Aug 21st, 2011 at 05:37:23 AM EST
[ Parent ]
'left in an awkward corner', that's the "compliant media" to you, the Reuters version in that case. The "tax-and-spend", "irresponsible" and finally "awkward" left narrative is in full swing now, opposed to the "SeriousTM", "reasonable" right behind which we should all unite.

As much as Aubry's op-ed last weekend didn't get any play, the Green party summer convention is gathering some media interest and it's a good thing that Cécile Duflot and Eva Joly (along with Daniel Cohn-Bendit) are getting some air time deconstructing this propaganda.

by Bernard on Sun Aug 21st, 2011 at 06:47:24 AM EST
[ Parent ]
"He who has the gold makes the rules."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 21st, 2011 at 11:05:27 PM EST
A balanced budget rule for a non-sovereign state within a sovereign nation is perfectly sensible, since the non-sovereign state does not have the power to create its own sovereign currency.

This is, of course, a balanced budget under capital budgeting, not a balanced budget under cashflow budgeting ~ but when actually borrowing funds, as opposed to borrowing back money that you yourself created when you purchased something, you need to be able to cover the finance cost of the debt out of revenues.

What is not sensible is being a non-sovereign state within a non-sovereign state ~ being inside a political confederacy where the level with the technical ability to run budget deficits is not politically empowered to do so.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Aug 22nd, 2011 at 11:34:24 AM EST
Why is this sort of gesture so attractive to politicians?

No one, I presume, is compelling the French state not to follow the proposed new rules without the need for them to be written into the constitution. Could it be that the politicians would not want to be blamed for expenditure cuts, so they do not want any discretion not to make them?

by Gary J on Fri Sep 9th, 2011 at 08:11:55 PM EST
Gary J:
Why is this sort of gesture so attractive to politicians?

Duh, this is the belief du jour: the ideology you must profess to appear as one of the Serious PeopleTM. It positions Sarkozy right next to Merkel, away from the profligate tax-and-spend Socialists.

Expressing the faith is enough by the way: Sarkozy has never followed that rule himself and, even if written into the Constitution, it has plenty of loopholes to allow wiggle room. And Sarkozy isn't the kind of guy who'll let a rule decide what he can or cannot do.

No, the main, if only, interest of the rule for Sarkozy is as a weapon to attack the Socialist and run for re-election next year; that's all. "Irresponsible" is the prevailing adjective lobbed at the Socialists: irresponsible for refusing this "common sense rule", irresponsible for opposing the teachers job cuts and calling for 50000 new teachers hiring in the next 5 years (François Hollande yesterday), ... The trend is well established by now.

by Bernard on Sat Sep 10th, 2011 at 04:34:41 AM EST
[ Parent ]
I suppose if a majority of the voting public falls for the "responsible" "common sense" nature of these policies we will have the civilizational collapse we deserve.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sat Sep 10th, 2011 at 05:02:30 AM EST
[ Parent ]
Indeed; but so far, if the polls are any indication, the public is not buying it.
by Bernard on Sat Sep 10th, 2011 at 05:13:28 AM EST
[ Parent ]


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