Spot the difference

Buttonwood points out that Francois Hollande’s plan to eradicate France’s deficit by 2017 doesn’t on the surface look that different to the UK coalition’s latest budget plans to eradicate our deficit by 2017:

TAKE two countries. One has a government “inflexibly committed to austerity”, lacking a Plan B and dragging the economy down, according to its critics. The second country has a new President who has just declared that his victory is a rejection of austerity. The victory has been hailed as a new dawn for European politics.

The first country, the UK, is aiming to balance its budget by 2017. The second country, France, plans to balance its budget by, er, 2017. Funny old world.

In reality, there’s a bit more to it: the French are trying to cut their deficit from 5.3% of GDP last year, the UK from 8.7%. So we here are still looking at an extra 3.4% of GDP worth of tightening over the five-year period.

But this still touches on my earlier point: rather than being inflexibly committed to austerity, the UK in fact seems to already be in the process of switching to a Plan B as the global economy deteriorates vis-a-vis 2010 forecasts. It’s just that loosening fiscal policy in a modern welfare-state economy with automatic stabilisers doesn’t always require a conscious decision by the government.

Super Sunday (1) – It’s Hollande

Francois Hollande, as expected, has won the French presidential election run-off, with 52% of the vote.

In terms of first thoughts, I can’t agree with the Telegraph’s claim that this raises ‘fresh question marks over a eurozone break-up’.

The possibility of increased Franco-German divisions at the euro area’s top table are worrying some people. But the consensus seems to be that Hollande’s ‘renegotiation’ of the fiscal compact to favour growth can be done through compromises that don’t involve having to reopen the text of the treaty.

Indeed, I don’t fundamentally accept the claim that Franco-German divisions are a bad thing for Europe; diverse opinions can be a strength.

I still buy into Mark Leonard’s argument about Europe being a kind of modern-day political Hydra. To quote his example of how disagreements in Western Europe during the 90s led the post-communist countries to so radically reform their economies prior to their EU accession:

British and Nordic enthusiasm for enlargement in the East allowed the countries of Central and Eastern Europe to ‘keep faith’ as they embarked on painful processes of internal reform. At the same time, French doubts allowed the European Commission to exact concessions from them in the protracted negotiations for accession. The key feature of this ‘good cop, bad cop’ dynamic is that, even though the disagreements are genuine, the core objectives of all European countries tend to be the same […]

I think the euro area needs an equivalent dynamic to develop if it’s to convince the peripheral countries to reform their economies without dangerously eroding support for the euro among their voters and politicians – i.e. Hollande’s enthusiasm for growth, Eurobonds, etc, can allow the periphery to ‘keep faith’ in the single currency, at the same term as Merkel’s bailout scepticism extracts concessions from these countries to correct their fiscal imbalances and undertake needed economic reforms.