Francois Hollande has ruled France since 2012, and had initially promised to halt the move toward austerity, which had destroyed many jobs and reduced the economic well-being of many people in Europe, especially in Greece, Spain, Portugal and Ireland. He wanted to renegotiate the fiscal compact, which had been pushed by Brussels and Berlin. It was an IMF-style position paper, which demanded most European countries to quickly reduce their budget deficits, even as the country was reeling from poverty and more unemployment.
Electing a left-wing candidate in France certainly mattered, and is very much different from electing a left-wing leader in a small country, say, Lithuania or Austria. France has traditionally been the country, which has been able to shape EU policies along with Germany. (The UK could also play that role, but they have been the most Euroskeptic force in the EU.) Now with the election of another social democratic politician, Matteo Renzi in Italy, there could have been a powerful French-Italian coalition to reign in the train ride toward austerity. The electorate has given a clear mandate for such political change.
But, unfortunately, none of these left changes have happened. In the midst of a huge budget crisis, the various European leaders have agreed on continuing their austerity mantra. I have watched the various debates by EU commission president candidates Martin Schulz and Jean-Claude Juncker, and they both have agreed that following up on fiscal consolidation (austerity) is absolutely essential for Europe. That is how they imagine a “social Europe”.
In the mean time, we can not expect any new ideas from Francois Hollande, who is lacking a clear ideological vision to improve the fate of the French and other Europeans (see Bickerton 2014). Rather than renegotiating the fiscal compact, he has quietly accepted it. Rather than appointing more left-wing economic advisers, he has fired his left-wing cabinet member, Arnaud Montebourg, minister of industrial renewal, and appointed the right-wing Manuel Valls to become prime minister. Valls has just survived a confidence vote in the French parliament, where many socialist party members voted against Valls superbly friendly approach to investors and businessmen. Raising the confidence level of the business community implies cuts in payroll and business taxes, which really precipitates cuts in the welfare state.
Indeed, Hollande and Valls have rolled out a plan to cut government spending by 50 billion euros to fall in line with the deficit reduction plan, and at the same time give tax breaks to companies to spur hiring and job creation (Alderman and Bilefsky 2014). But it is questionable how successful France is going to be by cutting various social programs, which have also been an important source of demand.
In any case, France is following a long history, which no president has been able to escape. Since the 1970s, when the growth and stagflation malaise first made itself felt in Europe, Germany has set the tone for low-inflation, high interest rate, low budget deficits, and, of course, high exports to maintain moderate unemployment, and the French usually did the same thing with a little delay. After a brief stimulus program in 1975, which did not change the unemployment rate but increase inflation to 12%, the French government of Valery Giscard d’Estaing shifted to a hard money policy, i.e. austerity. The French then jumped on the German-led European Monetary System, which lasted from 1979 to 1999, when the Euro came into being.
In 1981, the new socialist president Francois Mitterrand decided to experiment again with Keynesian policy prescriptions expanding funding in social welfare, health care, pensions and education, and shortening the work week, but that only spurred capital flight and currency devaluation. Two years later, Mitterrand made an about-face by agreeing with the German austerity framework (Ackerman 2012), and inevitably the gap between the rich and the poor began to increase by Mitterand’s second term in the early-1990s. And unemployment has reached double-digit percentage with no signs of a decline in sight.
And what makes the German position so strong relative to that of France? It is very simple: Germany’s strategy is to undercut the neighbor by very restrictive wage policies (very un-socialdemocratic, and it was made worse by the “social democratic” chancellor Gerhard Schroder and Hartz IV), which only allow very limited wage growth and the cheap labor supply of East Germany, which has facilitated strong export growth. Germany, thus, appears fiscally responsible by accumulating huge trade surpluses, which are then reinvested in the deficit countries like France (incidentally in a trade deficit since the euro started), so they can get into debt, and be blamed for taking on the debt. The debtors are always on the hook, and have to be disciplined.
It has been an essential part of neoliberal strategy to load a lot of debt on developing countries, and then force them to adopt structural adjustment policies, which lower welfare state provision, and force people to enter the “free” market, which leads to social polarization and a massive increase in inequality. And the same logic is now used to attack the countries of the “central periphery”, i.e. Southern Europe, and now also France.
We could say that in such a situation, France really does not have much choice, and just needs to do what is expected of them (i.e. austerity). But doing what is expected of them will simply exacerbate the unemployment, growth and debt crisis, which are precisely the outcomes that the countries have said they wanted to avoid. There is no economic growth, which will be generated out of nowhere. Somebody has to consume. And cutting the state budget is not guaranteed to reduce the deficit if all the other private sector actors are also pulling back on spending. It will also not work if all the other foreign trading partners are pulling back on consumption. Even Germany faces almost no economic growth, because the other countries are not buying as much. This is what they did not really intend, but this is what their austerity prescription for the periphery has brought them.
For that reason we need a reinvigoration of the political left, particularly from a crucial country like France. In the most ideal case, we also need the victory of more clearly left-wing parties in Germany and other surplus countries, who could allow their European neighbors to breathe a little bit easier. The social and economic costs of elevated unemployment, especially among the youth, is quite staggering. We can not retreat and allow weak leaders like Francois Hollande to continue to mismanage their country. Only a new Marshall plan in Europe can offer some real alternative. And finally, we need to re-imagine a world beyond capitalism, where profit and growth are not the essential elements of the political economy.