French Connection

Reformers In France Need Help Not German Mockery

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So which way should we go?
  • Why it matters

    Why it matters

    There is speculation that a French president could possibly resign. This is probably France’s last chance to modernize and Germany’s support is required.

  • Facts

    Facts

    • Increasing spending in Germany could help France lower its own deficit.
    • The economies of European countries are closely connected: French companies build roads, bridges and electrical grids in Germany.
    • French Prime Minister Manuel Valls is scheduled to visit Berlin on September 22.
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    Audio

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During the last decade, France has earned a reputation as a euro zone weakling, deficit junkie and museum-like nation incapable of reform.

President François Hollande, whose character is being dragged through the mud by his ex-wife, has contributed to this loss of respect. For the first time there is speculation that a French president could possibly resign – and polls show the far-right Front National candidate leading all others for the highest office. The powers on both the left and right in France make life very difficult for true reformers, who in this situation need practical support and not sarcasm from Germany.

For now, Paris and Berlin are using their energy to put the brakes on each other. When Paris talks about growth, Berlin insists on “first reducing debts” – and vice versa. These knee-jerk reflexes hinder a constructive dialogue on how to best climb out of Europe’s economic crisis.

Under these circumstances, the French idea of a grand European deal for investment, fiscal discipline and structural reform deserves attention. The argument runs like this: Admittedly, French debts and its deficit are too large. France has to reduce its expenditure. But in an integrated economy, when everyone cuts spending at once, overall demand is reduced, growth comes to a halt and debt reduction is made more difficult. So Paris proposes that it be made easier for countries that have to reduce spending, by having countries with budgetary and trade surpluses, such as Germany, spend more.

These are not lame excuses by one particular country. The International Monetary Fund, Organization for Economic Cooperation and Development, European Commission, German Institute for Economic Research and the Bruegel Institute  all make similar arguments. If Europe still hasn’t found its way back to strong growth – almost seven years after the crisis first hit – it’s because all economic and financial options haven’t been used.

For Germany, this means private and public investment must be promoted. This applies, for instance, to its run-down infrastructure. Spending on needed improvements will make it easier to meet future challenges and at the same time help countries that can’t afford to now. The economies of European countries are closely connected: French companies, for instance, build roads, bridges and electrical grids in Germany.

If French reformers want to pack a punch in this ossified political system, they must prove that they are more than Chancellor Angela Merkel’s lapdogs.

Decision-makers in Paris recognize that Berlin won’t budge on this issue if the French make no concessions. But the conditions for reform policies have improved over the last two weeks. Among the biggest steps was the dismissal of the protectionist and anti-European economy minister, Arnaud Montebourg.  He was replaced by the more business-friendly visionary Emmanuel Macron, which means more maneuvering room for reformist Prime Minister Manuel Valls.

But the reformers are still far from having full freedom to act. Severely weakened as he is, Mr. Hollande is and remains a ditherer.  That only strengthens the left wing of the Socialist Party, which could possibly topple the government. And in the Senate, a chaotic alliance between the hopelessly feuding conservatives and communists blocks any chance of meaningful legislation.

If French reformers want to pack a punch in this ossified political system, they must prove that they are more than Chancellor Angela Merkel’s lapdogs. It is well and good when the German government insists that France adopt austerity measures and speed up structural reforms. But in both these endeavors, specific actions matter more than articles of faith. France could begin working out of its economic sclerosis, but first it must freeze pensions and some of its spending on social support.  It should reduce its excessive public payroll and apply the principle of “support and stipulate” to unemployment compensation. For a solid financial basis, these concrete measures are more important than whether a 3 percent ratio of debt to GDP – as specified by euro zone criteria – is reached in 2015, 2016 or 2017.

If, on the other hand, France experiences further economic decline, Germany will suffer as well. On September 22, Mr. Valls is scheduled to come to Berlin. This is a good opportunity for strengthening his position and working toward a constructive reform deal. His new government is the best and probably last chance to modernize France. If his efforts end in failure, then either the conservatives, who are incapable of governing, or the Front National will come to power. There is still time to prevent this.

This article was translated by George Frederick Takis. Greg Ring also contributed. To contact the author: hanke@handelsblatt.com 

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