Were Paul Krugman to be inhabited by the not-so-kindred soul of Ronald Reagan, the Nobel prize-winning economist and New York Times columnist might be looking towards Europe airing the disapproving lament, “Well, there you go again”. And just who would the culpable “you” up to something iffy again be? French President Nicolas Sarkozy, who is currently seeking to manipulate Europe’s growing debt crisis as a means of scoring mostly hollow points against his leftist opponents by casting himself as the nation’s most diligent foe of nefarious, deficit-addicted political forces. But in striking that largely affected pose, Sarkozy’s engaging in exactly the kind of political theatrics that—when witnessed in the European Union’s lurching defense of besieged euro member economies—has only managed to convince markets to bet against leaders’ abilities to responsibly, decisively, and intelligently address the longer-term forces driving the continent’s wider fiscal problems. But there is a plan to Sarko’s Nero act: just 10 months ahead of France’s presidential election, Sarkozy’s pantomiming on debt represents his bet voters will be too transfixed by what he’s saying and warning now to remember everything he did–and didn’t–do during the first four years of his economically counter-productive first four years in power. Enter the debt ceiling à la française.
On Wednesday, France’s ruling conservatives obtained the hollow victory of passing what they call a “golden rule” bill to legally limit future government deficits–the most recent in Sarkozy’s positioning as in one of Europe’s leading debt vigilantes. While that pose isn’t entirely new, it has marked a significant change over wider, freer-flowing French fiscal policy under his watch. Following the global financial crisis, Sarkozy had been one of the world’s loudest advocates of increased state spending to help lift recessionary European economies back into the black until the private sector could again kick in as the major motor of growth. (This was back when he was also promising a “moralization of capitalism” that never materialized, and remedial, even retributive regulation of the same entirely unfettered markets currently pushing the euro zone to the brink of collapse.) Over the past year, however, the French president has gotten faddish by embracing the de rigeur debt-fighting trend of U.S. Republicans and most conservative-dominated EU governments—primarily Germany and Britain. In contrast to submissive euro zone nations like Greece, Portugal, Ireland and Spain—which were forced by their EU partners to impose massive spending cuts due as much to market attacks on their bonds as they were by the massive size of their debt as such—evangelical Germany, the UK, and now Sarkozy’s France are preaching the gospel of austerity not only as salvation from potentially looming debt troubles, but as an ideological value whose self-depriving benefit and goodness as a general rule is beyond question. Yet some observers question it still—at times quite convincingly
Krugman and similarly Keynesian-leaning economists have repeatedly warned that while paring back untenable public debt is a tough chore all Western nations must undertake eventually, slashing state spending at the very time most economies are fighting to sustain timid growth (and even then failing to beat back dizzying joblessness) has historically been a recipe for renewed recession. In addition to decrying the willingness of American President Barack Obama to join Republicans in the race to be the most militant debt-hater in Washington, Krugman has also warned of the risks that copy-cat slashing in Europe poses to struggling economies there. Worse still, Krugman notes, the likely economic damage caused by ideologically-inspired and premature spending cuts in Europe will only complicate what he sees as the serious handicap an overly economically diverse euro zone nations inflicted on themselves by adopting a single currency that made depreciation in response to crisis virtually impossible.
For all those reasons, it will be interesting to see if Krugman offers an economist’s reaction to moves by Sarkozy and his ruling conservatives to create the new constitutional article severely limiting the degree to which future French budgets can legally go into deficit. That so-called “golden rule” (which some detractors have dubbed a “golden handcuff”) would be added to existing–and in recent years, utterly flaunted–euro zone rules already limiting deficits to 3% of member states’ GDP. The accumulation of restrictions would still further diminish the options open to French governments in dealing with future economic slowdowns—much less calamities. Its very proposal, ironically, also comes at a time when Sarkozy and his conservative allies have been seeking to lure voters of the extreme-right National Front party ahead of the 2012 elections by insisting national governments be given back decision-making power in certain critical areas that far-rightists accuse were surrendered to Brussels.
Despite the sovereigntist thrust of those efforts to woo France’s extreme-right voters of late, Sarkozy remains a committed believer in European construction (though, like most French leaders, he tends to envisage the future of Europe with a distinctly Gallic profile). There’s also little doubt about his commitment and determination to fend off the attack on the euro, and towards getting the zone’s economic house in better order. By contrast, his crusade to create a constitutionally binding “golden rule” deficit brake is not only hypocritical, but also driven almost exclusively by ulterior political motives that are obvious. To begin with, unlike to the German law limiting government borrowing to a maximum 0.35% of GDP starting 2016–the measure Sarkozy’s “golden rule” was inspired by–the proposed French version doesn’t set a fixed ceiling on future government budget deficits. Instead, it would allow cabinets to figure out which annual budget figures would be necessary to fulfill constitutionally-required multi-year programs designed to produce balanced budgets. In other words, the constitutional obligation would be for governments to table broad budgetary plans designed to limit or eliminate deficit over a period of several years, not be held to meeting set annual targets. Given the way Paris (like other currency partners) have lavishly exceeded euro-imposed deficit limitations, the new French plan appears even more tailor-made for violation whenever spending looms as an easy solution to pressing problems. And France has never had a shortage of pressing problems–or governments ready to throw cash at them.
Meanwhile, nothing has, does, or will stop Sarkozy, his government, or future cabinets from presenting balanced budgets without a constitutional change requiring them to do so. Despite that, the same French conservatives now getting hawkish on debt have continually tabled deficit-bulging budgets every year during past decade they’ve dominated national power. Not only is the ruling right already able enforce fiscal responsibility should it want to without needing a new legal gun to point at its own head for inspiration; the fact that anyone calling the measure as unnecessary is being derided by conservatives as a threat to the nation’s economic well-being strikes many critics as hypocrisy on stilts.
“When you’re responsible for €1.8 trillion in debt that was €900 billion in 2002, you don’t come proposing rules to parliament about limiting deficits,” mused Socialist legislator Henri Emmanuelli. “It’s virtually intellectual fraud.”
Or maybe just politics—and fairly audacious politics by Sarkozy at that. Though the conservative majority voted the deficit limit bill through when it was tabled in parliament Wednesday, Sarkozy and his rightist backers know that to pass it as a constitutional amendment they’ll need at least 60% support. Meaning, conservatives pushed the measure to the fore knowing that–barring an unthinkable mass defection of leftist legislators to their cause—it has no chance of ever becoming law. So why’d they bother? To do just what conservatives did as soon as Wednesday’s parliamentary vote ended: seek out microphones and cameras to denounce Socialists now looking likely to beat Sarkozy in elections next spring as irresponsible spendthrifts who care less about France’s economic future than they do their own options for raising taxes and spending public money unchecked if they get back in power.
“The opposition must understand that the common good is that together we all defend the euro, the economy and the future of the country,” said Bernard Accoyer, the conservative president of France’s parliament. “I hope we continue with the process and that the opposition eventually understands it is also in its interest, and more importantly in the interest of the country, to vote for the golden rule.”
Perhaps, but that’s coming a bit little a bit late—and in suspicious conditions—from French conservatives who’ve rivaled previous Socialist regimes in running up deficits. Meanwhile, though Sarkozy’s allies have made it clear they’ll seek to bludgeon the left before public opinion for its opposition to the “golden rule” at a time when the euro debt crisis rages, their claims of occupying the economic high ground may ring hollow in voters’ ears. After all, nearly every major economic innovation or reform passed by Sarkozy in his first four years has either produced almost no positive result, or has been de facto repealed by later legislation adopted in response to the darkening environment–or to correct the negative impacts of Sarkozy’s initial policy. Generally speaking, France unemployment is far higher than when Sarkozy took office in 2007, while growth, salaries, purchasing power, and voter outlook are all down.
Meaning, despite the trendiness in conservative political circles to sing the praises of austerity and deficit caps these days, French voters may wind up agreeing with Krugman that now isn’t the time for additional hymns to austerity—and that, indeed, it may be time to change the tune in France altogether.