John Bruton

Opinions & Ideas

Category: France

FRANCOIS MITTERAND AND THE SERPENTINE COURSE OF FRENCH HISTORY

I recently finished reading “Mitterrand, a Study in Ambiguity” by Philip Short, an English writer who lives in France. 

I only met Francois Mitterand once, shortly before his death, when he spoke as President of France at the celebrations in Moscow in 1995, marking the 50th anniversary of the end of the Second World War. His speech on that occasion was memorable for his clarity of expression and for the fluent case it made for European unity, a cause in which he deeply believed.

This biography is comprehensive and definitive. It deals with his complicated personal life, and with his childhood in a staunchly Catholic family in a part of France where the wealthiest families were Protestant. His family politics were to the right of the spectrum, as was Mitterand himself in his student days in the 1930’s. 

He lost his Catholic faith as a student, something which troubled him. But even to the end of his life he believed in the value of prayer, or at least of taking time for silent reflection.

His role during the German occupation of France was complex and compromising. He served in the Vichy regime, dealing with the problems of French prisoners of war in Germany, of whom he had been one himself. But he also took part in the resistance against the Germans.

He entered post war politics as a radical rather than a socialist, and served in many of the governments of the Fourth Republic.

His politics gradually evolved towards socialism. But  one of his  Socialist rivals, Guy Mollet said of him “Mitterrand did not become a socialist, he learned to speak socialist”.
Unlike many others of the left, he did not rally to General de Gaulle when the latter came to power in 1958. He was unwilling to play second fiddle. 

Nor was he much interested in economics. When he came to power as President of France himself in 1981, it was on a socialist programme, which some believe still contributes to France’s economic problems today.

He reduced the pension age from 65 to 60, introduced the 35 working week, added a 5th week of holidays for every worker, recruited thousands of civil servants to reduce unemployment, and raised the minimum wage. The costs involved led to payments crisis and he  had to switch to austerity within a year or so.

He was an introspective man, who maintained a carefully cultivated veneer of imperturbability. He modelled himself of the seventeenth century French politician, Cardinal Mazarin, who wrote in his “Breviary for Politicians”

“Be sparing with your gestures, , walk with measured steps and maintain a posture at all times which is full of dignity……Always keep in mind five precepts, Simulate, Dissimulate, trust nobody, speak well of everyone, anticipate before  you act”

Mitterrand so admired Mazarin that he called his youngest daughter, Mazarine, after him

But one can think of one Irish politician, of Mitterrand’s era, who may also have studied Mazarin’s “Brievary”!

This is an excellent book and I strongly recommend it.

THE LONG HISTORY OF DISTRUST BETWEEN EUROPE AND THE MIDDLE EAST……. WAS THE BREAK UP OF THE OTTOMAN EMPIRE SUCH A GOOD THING AFTER ALL ! ?

I have just finished “A Line in the Sand, Britain, France and the Struggle that shaped the Middle East” by James Barr (Simon and Schuster). It is a great read. 

It deals with relations between France, Britain, and the Muslim world, a topic that has become tragically topical in recent days.

France and Britain were allies in the First World War, but bitter rivals, when it came to dividing up spheres of influence in the hoped for break up of the Ottoman Empire, something both correctly anticipated would be a result of an Allied victory in the War. The wishes of the local population, whether they were Muslim, Christian or Jew, were not considered to be a deciding factor at all. At most, they had to be “managed”.

While the First World War was still on, France and Britain drew up the famous Sykes/ Picot agreement in 1916, which allocated present day Syria and Lebanon to France, and allocated an area stretching from present day Israel, through Jordan, to Iraq, to Britain.

Britain wanted its chosen area, particularly Palestine, as a shield for the Suez Canal (a vital link to British India). It also wanted access to oil in present day Iraq. The French wanted access to the same oil, and saw itself as a protector of Christian interests in Syria and Lebanon. The crucial question was territory, rather than people.

But the British also wanted Arab support to defeat the Turks, so it promised support for an independent Arab state of Greater Syria ,which included areas it had agreed could be under French influence, and thus was in conflict with their agreement with the French.

Furthermore Britain wanted Jewish support in the US to push the US Administration to help the British war effort. In pursuit of the latter goal, they agreed in 1917 to a “homeland” for Jews in Palestine, in the Balfour Declaration.  This, of course, ran totally counter to Arab interests…..and led eventually to the present state of Israel on formerly Arab lands. Again the views of the local inhabitants counted for little.

These contradictory promises, made in desperate efforts to win the war, were to poison relations between all the parties for years to come. They lie behind the violent distrust that was  manifest in the vile murders in Paris last week.

When France and Britain came, after the end of the First World War, to occupy their respective areas under their 1916 deal, with the backing of a League of Nations mandate, they each faced revolts from the local populations. But there was no “European solidarity”. The Anglo/ French rivalry was such that they each gave support to the other side’s rebels!

This rivalry continued into the Second World War, and Barr argues that British support for the ejection of France from Syria in 1944/5, so poisoned de Gaulle’s relations with Britain, that it contributed to his vetoing British membership of the Common Market 20 years later. 

France also gave strong initial support to the Zionist resistance to continued British presence in Palestine in 1947/8, in revenge for the support the British had given to the ouster of France from Syria in 1945.

As we can see in the Middle East today, and also in Bosnia, we have yet to escape from the consequences of the break up of the multi ethnic Ottoman Empire, and the ignorant response of European nations to this event. Because the Ottoman Empire had fallen behind materially, it was wrongly and patronisingly assumed to have no valid lessons to teach about how to manage the intermingled ethnic and religious populations of the Middle East.   
The Ottoman system of government, while discriminatory, enabled populations of very different ethnicities, and opposed religious outlooks, to share the same cities and villages, as they did in many parts of both the Middle East and the Balkans under Ottoman rule.. This Ottoman model of qualified tolerance was bound to come under pressure once Ottoman power was removed, and free rein was given to the view that “self determination” for a single predominant ethnicity or ”nation” was the natural order of things, a view which became fashionable which before , during, and after the First World War in the western world, including in Ireland as we know only too well. 

This book shows how selfish and ill informed European interventions between 1916 and 1950, cast a long shadow today. 

THE EU IS A UNION OF RULES…NOT A UNION OF FORCE

CHANGE THE EU TREATY RULES ON DEBTS AND DEFICITS, IF NECESSARY…. BUT DO NOT BEND THEM 

The European Union is a union of sovereign states, who are sovereign in that they are entirely  free to leave the EU. This freedom to leave means that the EU is not a “super state”. There is no coercive force, no EU army, to force Britain or any other country to remain in the EU. Britain enjoys a freedom, within the EU, that colonies did not enjoy within the British or other European Empires.
 
Britain is thus entirely within its rights in considering the option of leaving the EU, although that does not mean that such a course would be wise.

The EU does not exist on the basis of coercion. It exists on the basis of common rules, or Treaties, applicable to all, interpreted independently by the European Commission and the European Court of Justice,  that EU have so far countries freely abided by, even when particular decisions were not  to their liking. If countries started systematically ignoring EU decisions, the EU would  soon disappear.

One set of particularly important set of EU rules are the ones that apply to budget deficits and debts of EU countries within the euro zone. These rules have been incorporated in EU Treaties and in Treaties between Euro area states. One of the provisions is that if a country has an excessive deficit, it must reduce that deficit by an amount equivalent to 0.5% of GDP each year until it gets its deficit below 3%.

France and Italy, big states that were founder members of the EU, have both produced budgets for 2015 that do not comply with the rules.

Initially the European Commission objected, and both countries have adjusted their budgets a little.  But, even after these revisions, the budgets are still in breach of the EU rules.

Some will argue that it is the rules that are at fault, not France and Italy. Inflation is negative, so debts increase in value, while prices are falling.

Countries are caught in a debt deflation trap of a kind that was not envisaged when the rules were drawn up.  But that is an argument for changing the rules, not an argument for ignoring them or pretending they have been complied with when they have not been.

But changing the rules would require EU Treaty change, and nobody wants to change the Treaties, because a Treaty change would have to be unanimously agreed among all 28 EU states. Other states fear that would be an opportunity for Britain to use the lever of blocking  a Treaty change to revise the fiscal rules, with  which it might otherwise agree,  simply as a means of getting  a concession of British demands for

+  a restriction of free movement of people within the EU,  
+  vetoes for a minority of national parliaments on EU legislation and
+  the  scrapping the goal of “ever closer union” within the EU.

This is a form of blackmail, but it has happened before in EU affairs.

But if the EU is unable to change its Treaties, because of blockages like this, the EU will eventually die. Necessary EU Treaty change cannot be dodged indefinitely. The EU will atrophy if it cannot change its Treaties, in the same way that states would wither, if they could not change their constitutions from time to time.
 
In a recent commentary, Daniel Gros of the Centre for European Policy Studies has criticised the European Commission of Jean Claude Juncker for failing to either 

a.) Insist that France and Italy stick by the existing fiscal rules or, if not
b.) Call for a revision of the rules to take account of the exceptional deflationary conditions that exist

He  is right .

FRANCE….SOLVING THE PROBLEMS OF THE EUROZONE’S SECOND BIGGEST ECONOMY

I attended a conference last week that looked at France’s domestic economic situation and at the impact that has on France’s global and European role.

According to budgets they published this month, France and Italy are failing to meet the Euro area requirements for reducing Government debts and deficits to sustainable levels.

If France, as a big country making up 20% of the Euro area’s  GDP, were to be exempted from the EU debt and deficit rules, in ways that were not open to smaller  euro area countries, this would do great damage to the credibility of the euro, and potentially this could drive up to the interest rate euro area governments must pay to borrow. It is thus very important to Ireland that France overcome it’s problems.
In recent years, France has lost competitiveness, and it is consequently running a balance of payments deficit. In other words its people are spending more abroad, that than they are earning from abroad.
The French economy is projected to grow by only 1% in 2015, as against a projected growth of 2% in Germany and Spain, 2.7% in the UK, and almost 3% in Greece and Sweden.
The loss of competitiveness of France is due to several factors

+  Fewer people  are working fewer hours. For example, of people between 55 and 64 years of age, only 44% are working in France, as against 73% in Sweden, 65% in Japan, 60% in the US and  58% in the UK.

+  There is substantial youth unemployment, because young people find it hard to get on the career ladder because of an over regulated labour market that protects existing jobs at the cost of discouraging the creation of new ones. Last year 80% of all new jobs created in France were on temporary contracts.

+ The bigger a company grows, the more rigid are the rules that apply to it in terms of the right to hire and fire.  So, while France has some of the most successful big companies in the world, it lacks a large corps of middle sized export oriented companies, like Germany has.  90% of all French companies have fewer than 10 employees and they have strong incentives to stay small.

+ Monopolistic practices exist in a number of sectors controlled by the state and in some private professions. The vested interests protecting these monopolistic practices are very strong. These inefficiencies contribute to the loss of exports by French companies.


There was a strong sense among the participants at the conference that the current Socialist Government of Manuel Valls was making a serious effort to tackle these underlying weaknesses, but that the dividends of some the reforms, while very substantial, would be slow in coming, perhaps not in time for the 2017 elections.

There is a risk Prime Minister Valls will lose his majority because of defections in his own party. Meanwhile the opposition UMP is split on personality questions. The Front National is making huge strides in the polls, but its economic policy would break up the EU and introduce heavy state controls which would be incompatible with France’s global economic success.

Faster growth is crucial, and the margin between success and disaster is very narrow.  If the French economy grows at only 1% per annum over coming years, France could be on the road to default and a social crisis, but if it can manage a growth rate of 1.6% or better, it will work its way out of its difficulties. 

The stimulus for French growth will have to come to come both from inside and  outside France. French people save a lot, and if they could get the confidence to spend a little more of their savings, that would help. Likewise if Germany, which has been neglecting its infrastructure, stated to invest more that would help French exports.

The trouble is that French and Germany economists and politicians have very different intellectual assumptions, and dialogue between them can become a dialogue of the deaf.

Meanwhile, partly because it was wise enough to stay out of the Iraq debacle in 2003, France alone of the western powers, has the confidence to intervene directly in places like Mali, Libya and the Central African Republic.
France retains a strong nuclear deterrent and a civil nuclear industry that does not do the sort of climate damage that other  EU countries’ energy industries do.

Politics are important. Its Presidential system enables France to be strong and decisive in international affairs.
But that strength does not extend to domestic economic policymaking, where factionalism and introspective thinking are preventing the creation of any kind of “Grand Coalition for Reform”, of the kind that has enabled countries like Germany and Mexico to deal decisively with long standing blockages to growth.

FRANCOIS HOLLANDE’S VICTORY- WHAT DOES IT TELL US ABOUT FRANCE ?

The result of the French Presidential election was no great surprise in a way.

In fact, when one considers that  most of his first round competitors had  endorsed Hollande,  outgoing  President Sarkozy did  well to get  48%,  as against the mere  27% he had  got in  the first round.

The  Centrist Bayrou, and the Left Front candidate Melenchon, had both explicitly endorsed Hollande, and  the National Front  candidate  Marine  le Pen, most of  whose  supporters were otherwise trending in Sarkozy’s favour,    said she was  going to  vote for nobody  .

The breakdown of the vote is interesting .

Sarkozy did best in a Northern  block of territory  from Normandy over to  the German  border in Strasbourg, and  Hollande did best in Paris, and in the  rest of France, apart from the  Riviera.

Unlike the US, where women  are more for Obama, and men more for Romney, the two candidates in France got more or less the same level of  support from men as from women.

Those with higher educational qualifications voted more for Sarkozy ( 54%/46%). So also  did those who were financially better off.

Employees were  54/46 in favour of Hollande, whereas  business and self employed were  58/42 for Sarkozy.

AGE GROUPS VOTED DIFFERENTLY

The age distribution of support was most marked.

Those under  24 were  59/41 for Hollande.   
The 25 to 34  and the 50 to 59 age groups were  for Hollande.

But the 35 to 49 age group, and the over 60s, favoured Sarkozy.

SO DID PEOPLE OF VARYING RELIGIOUS VIEWS

The most remarkable cleavage of all was on the index of religious practice.

Practising Catholics were 73/27 for Sarkozy.

Protestants were 61/39 for Sarkozy.

But those who said they had no religion were 66/34 for Hollande.

Muslims supported Hollande by a margin of  93 to 7!   Sarkozy’s anti immigrant  rhetoric and his talk  about strengthening borders may have  won him  support from elderly voters, but it  may make it difficult for his party to win Muslim votes in future elections and they are a very important  voting bloc in France.

HOLLANDE IS ALSO COMMITTED TO AUSTERITY

Some may think that the election of Hollande will mean an end to so called austerity policies in France.  In fact ,he  gave that impression himself during the campaign. Outside France, some people  have seized on Hollande’s campaign rhetoric as a sign that   borrowing does not have to be reduced, and  budgets do not have to be balanced. They are mistaken.

In fact, if those who voted for him read his programme closely they would see that he is committed   to getting the French budget deficit down to  3% of GDP by  2013, and to eliminating it altogether by  2017.  That simply  cannot be done without austerity, at least  in France itself.

Of course a little less austerity  IN GERMANY  might help achieve that goal, if it meant that more Germans bought French goods, or took their holidays in France.  But even that is not guaranteed.

France’s big problem is a poor export performance. Whereas Spanish manufactured  exports are at 108% of the level they were at in  1999, French  exports are now   at only 72% of their  1999 level.  This is not, it seems , because French wages are too high, but rather that French companies have not innovated enough.

Meanwhile the French national debt is at its highest level ever, apart from the peaks it reached after the two world wars.

Hollande is committed to increasing the corporation tax on big companies to 35%, and reducing the tax on small companies to 15%. This would create and incentive to companies to stay small, which may not help the French export effort much.

He is also committed to employing more teachers. This will be difficult to reconcile with his plans to eliminate the budget deficit.

MEANWHILE HE HAS TO FIGHT ANOTHER ELECTION………

The immediate task facing President Hollande is that of winning a majority in the National Assembly. This may mean that he will avoid facing really difficult choices until June, when the Assembly elections are due, and  stay in campaign mode until then.

His difficulty is that the financial markets may not give him the  space in which to do that.  If the markets feel that, in the medium term, the French budget  deficit is going to rise faster than that of Germany, interest rates on French bonds will rise faster than those on German bonds . That could create problems for the euro, something to which President Hollande is committed.   

AND DEAL WITH THE PROBLEM OF GREECE

The Greek election result poses an even more immediate problem.

Greeks favour staying in the euro, but do not favour the conditions on which they  can access funds provided by the taxpayers of  other euro area  countries.

These conditions involve reforming wage agreements, cutting pensions ,improving tax collection, and  cutting the cost of  pharmaceuticals used in the health service. There is also a difficulty that Greece has  not done all the things it  promised, like eliminating supplementary pensions and getting rid of off budget funds.

The trouble is that things are now so bad in Greece, that many Greek voters convinced themselves that they cannot not get worse, and thus  voted for parties that want to reject the conditions on which money is  currently being lent to Greece to  keep its  government functioning.

Unfortunately, things can get much worse in Greece, even than they are now, if taxpayers in other countries decline to provide more funds.   A collapse in the banking system, and a disorderly exit from the euro, would be worse than anything Greece has experienced  so far.

President Hollande, as a new leader, with a democratic mandate, has a capacity to persuade  the Greek people to see sense, to a degree that may not be open to other European leaders, including Chancellor Merkel. President Hollande can  be persuasive in Greece because

France favoured Greek entry to the euro.

France never occupied Greece.

French banks have lent to Greece in the past.

Francois Hollande is a man of the left.

All these  things give him an authority  to speak to the Greek people,  at a critical moment  for them, and for Europe.

THE FRENCH PRESIDENTIAL ELECTION

I was in France this week,  and had a chance to have a closer look at the  French Presidential Election Campaign.
It is a two round election, with only the top two in the first round, contesting the second  round three weeks later.
At the moment,it is likely the two in the  second  round will be François Hollande, the Socialist(now on 27.5%) and Nicolas Sarkozy (now on 29.5%).
The third and fourth candidates, Jean Louis Melanchon of the  Left Front, and  Marine  le Pen of the National Front are both on 14%, so neither of them is likely to overtake the front runners. Francois Bayrou, the Centrist candidate, is on only 10%.
When voters are asked who they would vote for in a straight fight between Holland and Sarkozy,  they plump for Hollande  by a margin of 8 points.
This is because Hollande  picks up a bigger share of the eliminated candidates’ votes.  For example, Hollande has a margin of 81/3 among Melanchon’s voters, and 40/32 among Bayrou’s.   Sarkozy beats Hollande by 49 to 16 among  Le Pen’s electorate.
Sarkozy’s best chance to win is if he can convert Bayrou’s voters to his  cause, possibly by offering the Prime Ministership to Bayrou, while still holding on to the National Front electorate. This would not be an easy task, because there is little or nothing in common between Bayrou’s electorate and that of the National Front
Some of the campaign debate is about taxing the rich. This is in response to the fact that incomes at the top in France have risen faster than incomes in the middle and lower range.
Clamping down on Islamic militants, and employing more teachers, are other recurring themes.
The fact that France has an excessive budget deficit, has lost competitiveness vis a vis Germany, and as a result has a big trade deficit, is not getting attention from the big parties.

FRANCE’S LOSS OF COMPETITIVENESS

Hourly labour costs in France are now 10% higher than in Germany , whereas ,in  2000, they were 8% lower.
The State in France spends 56% of GDP. Deductions from wages to pay for health and pensions (the retirement age is only 62)  are extremely high and deter job creation. Yet French politicians blame things like the Irish 121/2% tax rate for their problems in attracting investment, rather than the cost of employing people in France itself.
If Hollande wins, he could find himself dependent on Deputies from the party of the Left Front, who favour a complete ban on redundancies, and a 100% tax rate on incomes above 350,000 euros. Hollande himself already favours a top 75% tax rate, and an increase in the wealth tax.
France has a revolutionary tradition and a passionate belief that political action can change things. The difficulty is that globalisation, European integration, and accumulating Government debts,  have reduced political options more than French politicians are willing to  admit.

FREE MOVEMENT OF CAPITAL IGNORED IN THE DEBATE


The policies of the French Left would be very difficult to implement, because as long as France continues to allow free movement of capital, people who feel they are being overtaxed can simply leave the country, and take their money, and their factories with them. 
Free movement of people, and of capital, are requirements of EU and euro membership, and have allowed France to develop world class companies, like Pernod Ricard ,which owns Irish Distillers.
France  is prepared to take the benefits from globalisation, but has not accepted that these benefits come with limitations on what is politically feasible.  
 I believe that the unreality of the debate in France about its public finances, and about its true economic options, could become a threat to the future of the euro.

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