French President Nicolas Sarkozy made his long-anticipated re-election bid announcement Wednesday night and has some good news to jump-start his campaign. On Wednesday morning, figures for the fourth quarter of 2011 showed that the French economy unexpectedly grew by 0.2%, lifting full-year economic expansion to 1.7%. This gives Sarkozy an argument against critics of his management of France’s crisis-rattled economy, who contend his recent embrace of austerity measures will result in the kind of shrinkage confirmed elsewhere in Europe on Wednesday. It will also restore a little more strut to Sarkozy’s stride in his dealings with German Chancellor Angela Merkel—whose emergence as uncontested leader and task-master in responding to Europe’s debt crisis may suffer from the news that Germany’s economy shrunk in Q4 2011 by the same 0.2% margin that France’s grew.
The growth figures couldn’t have come at a better time for Sarkozy, whose expected entry into a presidential race already in full swing will center on his appeal to voters to stick with his crisis leadership over what he’s expected to depict as dangerously untested rival candidates. Moreover, Sarkozy may also be able to restore a bit of national pride that had been bruised when he and his conservative government repeatedly pointed to the surging, reform-strengthened German economy as the model France should follow by importing its more frugal fiscal, labor, and social policies. Indeed, that “why can’t you be like Germany?” refrain has become sufficiently heavy and vexing over the months that both pundits and some officials in Paris Wednesday voiced a slight tone of “oh yeah?!” defiance in noting that France had out-performed its mighty neighbor in growth terms—and in doing so, reversed the nation’s chronic trade deficit in Q4 as Germany’s mighty export motor stalled.
“All three of the main components of the economy—foreign trade, household consumption and investment—made a positive contribution in the last quarter of 2011,” said Finance Minister François Baroin in a statement that managed to limit French schadenfreude to a bare minimum. “This strengthens the government’s forecast for 0.5% (growth) this year.”
Though that news will doubtless factor in Sarkozy’s campaign kickoff—and probably enliven the endless jostling between European Union leaders for most influence in shaping European Union decision-making—the clashing results for France and Germany won’t change the wider, dismal European outlook. France’s unexpected (yet modest) Q4 advance was not just offset by the corresponding decline in Germany, it also contrasted with slides of -0.1% in Austria and -0.7% in both Italy and the Netherlands. The debt-swamped Greek economy shrunk by 7% in the fourth quarter of 2011—and 6.8% for the entire year. Economic activity in over-indebted Portugal was down 1.5% in 2011 and is expected to decline a further 3% in 2012.
True, the fear of chain-reaction defaults by euro-zone economies and the resulting implosion of the currency itself has given way to a degree of grim calm of late. And despite continuing downgrades of several indebted European economies, rate spreads in new bond sales by nations that investors had gone dangerously cold on—Italy, Spain, and to a lesser degree France—have now come down to viable levels. But protracted negotiations over a debt write-down and new bailout for Greece still leave the nightmare scenario of a default by Athens and its disorderly exit from the euro feasible. And even if that doesn’t happen, the happiest outlook for Europe right now involves open-ended stagnation or recession, and little relief of recovery any time soon. Little wonder that serious depression—of the psychological sort, rather than economic—is endemic in Europe these days.
All that may cause Sarkozy to limit using France’s surprise Q4 expansion as a merely convenient handle with which to crank his re-election campaign car to life Wednesday night—before pitching it in the trunk. Because despite its achievement, France is still the exception to the glum European rule—and a small, probably temporary exception at that. Should Sarkozy inordinately point to the Q4 advance as proof that his management of the crisis was better than Socialist front-runner François Hollande could have mustered, he risks inspiring a “how could we know unless we try?” reaction from millions of angry French voters approaching elections in an anyone-but-Sarkozy frame of mind. Over-hyping Q4 also runs the risk that any future sign of downturn or negative economic news will be accentuated as seeming to confirm Hollande’s criticism that Sarkozy’s policies—that is, austerity unaccompanied by stimulus to encourage growth—are exactly the same measures that appear to be failing miserably elsewhere in Europe.
And wider evidence appears to support Hollande’s claim. Austerity measures imposed on Greece and Portugal—in large part at the urging of Merkel and Sarkozy—are being blamed by some observers for actually making the debt crises in those nations worse. The UK’s conservative government, meanwhile, has been forced to defend the wisdom and effectiveness of its own sweeping austerity program after rating agencies put Britain’s stalling economy on a negative downgrade alert.
On Tuesday, moreover, the Organization for Economic Cooperation and Development issued warnings about limited growth capacities in the once-resplendent Germany. The OECD paper noted that Germany’s over-reliance on exports leaves its economy vulnerable to regional or global slow-downs, especially as spending by its main euro-zone trading partners dries up. (That’s a complaint many of those same European nations pointed out in recent months as Germany insisted on what struck some as haughty, tight-fisted, tough-love crisis remedies for weaker economies unable to produce the more competitive goods and services that Germans do. Roost, meet chickens.) Worse still, the OECD’s note complained that a German economy that’s been widely hailed for its pro-active, liberalizing reforms in recent years still has a lot of difficult reforms to see through if it wants to increase growth potential. That all seemed like a decidedly unflattering grade for what was supposed to be the star student in Europe’s economic detention class.
With virtually no other EU economy or leader now escaping economic shrinkage or criticism, it will be hard for Sarkozy to use the Q4 result to disassociate himself from what appears to be the limitations—or failure—of Europe’s collective austerity-without-stimulus response to crisis. That’s another reason why Sarkozy may decide not to exploit Wednesday’s happy growth news beyond the framework of announcing his candidacy during a nationally televised interview this evening. By the same token, Sarkozy may be mindful of another claim Hollande makes: that the shrinkage seen elsewhere in Europe has largely occurred in nations where austerity measures went into place before Sarkozy embraced them late last year, meaning the corresponding downturn in France may come a bit later than elsewhere, too.
Meantime, even France’s commendable 1.7% growth in 2011 hasn’t done anything to help France’s unemployment rate, which even Sarkozy’s government predicts will exceed 10% later this year. French voters may be impressed by growth—especially as other economies decline—and Sarkozy has every right to trumpet France’s Q4 exploit. But those same voters are far more concerned about jobs that such growth is supposed to produce. That means some unhappy French voters may find their discontentment over economic management rising if hope inspired by even modest growth can’t produce the employment expected from it. Elections are always about jobs and the economy, so any good news on either of those fronts will provide lift to Sarkozy’s re-election bid. But he’d be unwise to use this week’s fortunate life-preserver as his larger campaign vessel in what’s looking to be a dark, roiling and dangerous stormy economic sea.