By Jacques Sapir
After what can only be called one of the worst defeats suffered by a “Left government” in local elections, a defeat that saw cities won by the Socialists over 100 years ago pass into the hands of the Right (Limoges), French President François Hollande has decided to thank the Prime Minister, Jean- Marc Ayrault and appoint in his place Manuel Valls.
The speech in which this important decision was announced was painful to hear and even harder to watch. A tired man, with an expressionless face, reciting platitudes…like a province uncle came to a funeral of a distant cousin who speaks gives his condolences without much conviction. We were treated to a “fighting government” and a “close-knit team,” words that have absolutely no meaning and are well over used. His tone was misplaced and he stumbled twice on his words, as if the decision cost him. And it is true that for a man of habit, which he said he does not like to change, it was the appointment was a drastic departure. However, this decision could be a big mistake, and compel him to shortly make choices that are far more dramatic.
A casting error
It is a mistake first of all because Manuel Valls does not meet the expectations of the French, either on unemployment or purchasing power. This man is not without qualities. But they are not the ones that answer the question posed by the electorate. He is simply not the man of the day. Even with respect to the popular demand for “security”, the safety of property and persons, and particularly social security and job security. However, Manuel Valls has no answers to these questions. And the road map stammered laboriously by the President will not provide them.
It is not possible to keep the [budget] cap set for several months now and at the same time fight against unemployment. The figures in these last 22 months show conclusively. Today, however, unemployment is the primary concern of the French. The President did not mention his unfortunate promise to reverse the curve, and for good reason. The latter continues to rise. But in addition, his [tight budgetary] policies are not even succeeding to reduce the deficit. Official figures show that despite tax increases, the deficit for 2013 reached 4.3 %. For every new tax grab GDP has reduced, which in turn automatically reduces tax revenues. Note that without this deficit, however significant, the French economy would be in deep recession. But it is expensive to fund growth, which has been 0.3% in 2013. If France had effectively reduced its deficit to 3.7%, as announced in Brussels in early 2013 it is a safe bet that we growth would be in negative territory. The solidarity pact [offering workers tax cuts and assurances on welfare, youth training and education funded by the more than 50 billion euros of public spending cuts] was announced as an “equivalent” to the ‘responsibility pact [€20 billion tax cuts for businesses rolled out since the last year plus a €30 billion reduction in the cost of labour to take place from 2015 onwards in exchange for promises to create jobs] that was tinkered with and rejected by the social partners, is likely to give rise in turn to new DIY policies.
A policy mistake
But there is error after error. In fact, François Hollande tries to make concessions (a few … ) but he but remains convinced that his policies are correct. He is mistaken. France suffers from a problem of competitiveness, not only with respect to exports but also in its domestic market. The “pact of responsibility” will only improve things at the margins. Not only is the competitiveness gap accumulated since 2000 due to the difference in structural inflation with Germany too big, but the steady rise of the Euro (rightly denounced by industry minister Arnault Montebourg) is widening the gap in our trade with countries outside the euro zone.
Experts from the Ministry of Finance have calculated that a 10% depreciation against the dollar boost overall growth of 1.5%. Extrapolating with respect to countries outside the Single Currency area and the countries inside the Euro zone, there is a potential 5 % increase in growth with a depreciation of 20% . But for that to happen France would have to leave the Euro zone. That is something our President rejects, knowing however that this is the simplest and most effective way for French industry to regain competitiveness. He cannot conceive that the single currency is a failure even though his intellect keeps repeating that it is. There is something tragic in the stubbornness of will against intelligence. And this tension was also evident in the short televised speech of the President. He even raised the possibility of a “renegotiation” with Europe in economic conditions faced by France. But here, we are no longer in the realm of error but in the domain of lies. For these conditions François Hollande claims he wants to “renegotiate” he himself already put to a vote in parliament. We cannot imagine, in these circumstances, that our partners will agree to “renegotiate”. The truth, and one might think that Hollande is now aware of it, is that the Euro is a trap that condemns growth and compels us to a suicidal austerity. But this consciousness is suppressed immediately by the illusion that the Euro is politically essential to the European Union, even though it is so relentlessly destroying it.
Therefore, refusing to take the logical choice of Euro exit, it only remains for Hollande to pursue political expediency. The latter is the appointment of Manuel Valls to the Matignon. The positive effects will be felt for a few weeks, and the President will end after the European elections, in an even worse position than he now faces. Maybe it’s not in his character to take the required action. But then he should not run for the position he occupies. To be President of the Fifth Republic is to govern. And to govern is to choose.
March 31, 2014
Translation by Revolting Europe