Mon, Aug 20, 2012 - Page 9 News List

Political and economic change needed to save the eurozone

By Michel Rocard

The face of French politics changed dramatically in May and June. First, after 17 years of center-right presidents, Francois Hollande, a Socialist, was elected. Then, a month later, a center-left majority took control of the National Assembly, too, after 10 years of right-wing domination.

Meanwhile, the Senate, the French parliament’s upper house, a conservative bastion between the two world wars and ever since, swung to a Socialist majority for the first time in history at the end of last year. The Socialists also control 20 of France’s 22 regional governments, a majority of the presidencies of the Departments, and most cities with more than 30,000 inhabitants. In short, we are now witnessing a stunning concentration of power that is unprecedented in French republican history.

All of this occurred very peacefully, with no wave of triumphalism, or even much enthusiasm. Indeed, the abstention rate for a presidential election had never been higher before the contest between Hollande and former French president Nicolas Sarkozy.

France’s profound political shift reflects the persistence of the economic crisis that began in 2008. French electors did not vote for a dream. The Socialist Party’s program and its presidential candidate’s campaign promises were considerably less ambitious than they were in 1981, when former French president Francois Mitterrand was elected.

As a result, the campaign was quiet, almost cautious. Indeed, most candidates, notably Sarkozy and Hollande, might have been too cautious: The current crisis and possible future threats received little emphasis, which means that it may be difficult for Hollande to claim a mandate for any painful reforms that he will have to propose.

And now there is no escape from the difficult reality that the budget deficit remains massive, at more than 4 percent of GDP in last year. Except for creating 60,000 new jobs in education (following controversial cuts last year) and restoring the right (rescinded under Sarkozy) to retire at 60 for about 200,000 individuals, Hollande’s administration has barely any room to maneuver, and severe economic measures will have to be introduced in next year’s budget.

Moreover, France’s rapidly worsening foreign-trade deficit is boosting already-excessive debt levels, while output is falling and unemployment is rising. Unfit for modern markets, France’s tax system actually stifles the country’s businesses, reflected in a disturbing increase in bankruptcies among small and medium-size companies.

In such conditions, France urgently needs to restore and maintain economic growth, and should seek to coordinate its policies with those of other eurozone member countries. After all, because most of the eurozone’s 17 member states suffer from heavy debt burdens, they are all anxious to find fiscally responsible ways to promote growth.

Unfortunately, the eurozone’s institutions lack the powers needed to defend the monetary union effectively. Greek debt amounts to less than 2 percent of European GDP. Had the European Central Bank (ECB) been entitled to deploy enough firepower when the Greek crisis first erupted, the threat would have lasted only two hours. Instead, it took three weeks to grant the ECB only partial authorization to act, causing speculation to take hold and spread to Portuguese, Spanish and Italian debt, thereby jeopardizing the euro’s survival.

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