A socialist path

France has elected a new president at the end of May. A socialist. In June, the voters overwhelmingly elected a socialist Parliament to complement the already socialist Senate. A trifecta.
Socialists in France, are not the garden variety reconstructed social democrats one can find in Germany, Britain or Scandinavia. They are through and through Marxists, with a few unrepented Trotskyites. This seems to suit the French electorate whivh, in its vast majority , is anti Capitalist. (France also has an anti-capitalist party, and a Left party made up of former communists, greens, and anarchists).

Francois Hollande, the new president, has inherited the economic crisis Europe is going through, but has made unconsiderate promises of a radiant future that he will not be able to deliver. Out of his "60 propositions", two thirds are no longer the prerogative of the French government, but of the EU in Brussels. Faced with an immediate crisis in the auto sector, his first reaction is to ban the firing of workers, fine entrepreneurs who outsource jobs in Eastern Europe or North Africa. Already, France slipped from the 26th to the 29th rank of "Doing Business".
Hollande also announced at the NATO summit that he was immediately withdrawing French troops from Afghanistan, whereas, Sarkozy, his predecessor had already negotiated an early withdrawal date in 2014.

Europe is in dire financial straits. The financial crisis that started in Wall Street in 2008 only precipitated a latent sovereign budget crisis . Europe has a common currency, the Euro, but 27 treasuries, 27 parliaments and 27 governments. many countries, unable to pay their social bills with their low productivity, resorted to borrowings instead. The euro guaranteed low rates. Now the bills are coming and many countries cannot pay.
It will be extremely difficult for a people like the French, who do not believe in capitalism, hate  finances, work, and love their nanny state to wean themselves of the public trough. Hollande, instead of preparing his citizens for the truth, promised even more. The fall will be hot.

We are just coming of the Iowa primaries and wait for New Hampshire. The Republican field is thinning but the voters seem to be in favor of "none of the above" . My bet is that, the Republican party always chooses the candidate whose turn it is to be the nominee. In this case, Willard Mitt Romney.
In France, the presidential election is much closer: May 2012.
President Sarkozy is less than sure of having a second term. Just like in the US where the minority accuses Obama of being responsible for the parlous state of the economy, although the Wall Street Crash, both wars and even 9/1/1 happened under GW Bush's watch, the minority in France blames Sarkozy for the high unemployment and the debt.  Both being the direct result of the Wall Street crash.
Worse, a lot of the social laws that have aggravated the financial situation of France have been passed by the very Socialists who want to get rid of Sarkozy. The Socialist party has had its primary. Francois Hollande, a bland moderate has been chosen. He already has several nicknames including "pedalo captain" and "flanby" [the name of a popular vanilla jello for kids]. The Green party would be an uncomfortable partner, requiring the closing of all nuclear power plants ( 80% of French energy source). Unfortunately, there is a worse solution: marine Le Pen. An extreme right version of the tea Party whose father nearly missed the presidency in 2007. Bad economic situations cause populist politicians to be believed by a desperate populace. Marine Le Pen in France, Sarah Palin and Co. in the US.

The Euro crisis is not over. After more than 17 emergency summits, France and Germany agreed to modify the Treaties and apply sanctions to Member States who stray from the Maastricht criteria. They could have spared themselves the effort.Back in 1997, I worked at the Dublin summit. That is when France obtained from Germany to water down the automatic sanctions they are trying to enforce today. Unfortunately, it will take many months before such a treaty is elaborated and then ratified. Political Time is much slower than the Time at which markets function. And democratic Time is even slower. By the time the Europeans have their ducks in a row, Greece, Italy and Spain will have defaulted , and rating agencies will have degraded the rest down to junk bonds. The only solution is an accelerated federalization of Europe with executive powers to the Commission. Unfortunately, the many european peoples do not feel european. And the more Germany asserts its muscle, the more the rest of Europe is remembering WWII.
Seen from Europe, nobody understands the gridlock in Washington. Obama is still very popular over there. He has forestalled a Depression that could have come from the recession given to him by George Bush. He saved the auto industry and Wall Street and the stimulus money is starting to work. By the time the election comes, the health care reform will slowly enter into force and it will be very difficult for the Republicans to take it down. Besides, republican candidates are hostage to the Tea Party and are so far right that they might very well be unelectable. In France, the population barely feels the economic crisis because of "automatic stabilizers", aka social cushions which provide a soft landing for the most affected.

Euro-tragedy

I just finished working for the Annual Meetings of the IMF and the Worldbank. Just before that, I accompanied Mr Baroin, the French Finance Minister in his visit to Washington. We visited Ben Bernanke at the Federal Reserve, Tim Geithner, in his office at Treasury and Barney Frank, author of the Dodd-Frank act. I have become a frequent visitor to these offices because I have often accompanied Commissioner Barnier in his regular trips stateside. The sick patient, object of worries in Europe and in the US is the Euro. The Greek debt situation is but a symptom f a greater problem. The Europeans, in their wisdom, had, long ago, decided to build an "ever closer union". The decision to pool European coal and steel markets, later to pool agricultural, transportation, fisheries, trade, and other ressources, was as courageous as it was necessary. If the initial idea of Jean Monnet and Robert Schuman had been conceived on the smoking ruins of Europe after WWII, it has become even more urgent in a globalized worls, where France, to take an example, represents less than 1% of the world population. But a funny thing happened on the way to the forum and the ever closer union. Installed in relative comfort, the Europeans forgot all about 20 centuries of mutual destruction and , lulled by cushy welfare sttes, lost track of the European ideal. The Greek cheated in a big way, they took advantage of a strong euro to give free rein to corruption , and plain laziness. To a certain degree, the same can be said of Portugal, Italy and Spain. Now Europe is face with one of the graves decisions of its existence: Either it will disintegrate under the shock of multiple bank collapse, or it will take a mighty step forward, a leap of faith, and move resolutely toward Federalization. Only a federal state will have a federal finance ministry, a federal tax authority and a federal budget. On the minus side, the 27 Member States will lose a lot of sovereignty. On the plus side, the euro will survive, stronger, and Europe will finally be able its real weight around the global table. I remember participating , in the Borschette building of the European Commission, in the creation of the Euro, in its most minute details. What a great achievement. Unfortunately, subsequent heads of state, have been reluctant to draw the natural conclusions and go for the federal option. In order to go federal different nations should bury their pride as a small country and exchange it for the pride of belonging to one of the great actors in the world. But the Lisbon Treaty had made a great step backwards when it reduced the powers of the Commission and strenghtened those of the Council, where nation-states are busy pulling the blanket their way. This re-nationalization of the EU is at the root of today's euro-tragedy. It was no different for the young United States in 1776. And the discussions about the relative weight of the Federal and the States is far from over. The Tea Party , in the US wants to strip the Federak Gouvernment of its powers to give it back to the 50 states. (Note that, in 1972, if the States had been more powerful than the Federal gouvernment, schools would still be segregated and black and white people could not get married.) What we need are courageous politicians who put Europe above their petty glory. To quote Benjamin Franklin: "If we do not hang together, will hang separately" . And I bet the hangman will come from China.

L'économie américaine

Au vu des grands titres, on aurait presque l'impression que ça va trés mal aux USA, qui seraient tombés aussi bas que la Grèce.En fait si on y regarde de plus près, rien n'est plus faux. Ce qui fait les grands titres, c'est le défaut de payment. A l'encontre des pays Européens, les USA se sont imposé un plafond à leur dette et il faut un acte du Congrès pour le relever. Ce plafond a été relevé 66 fois depuis 1917, 10 fois sous Georges W. Bush. Mais cette fois-ci, alors que la dette US n'est qu'à 65% de son PIB (Grèce 120 %, France 100%), soit 14 mille milliards$ sur 800 mille milliards d'actifs),ce plafond artificiel a été atteint. Et, au lieu de le relever comme d'habitude, le parti Républicain, au pouvoir à la chambre des députés mais pas au Sénat, exige la suppression de tous les acquis sociaux depuis Roosevelt, sans augmenter les impôts. Comme la date fatidique se rapproche, les agences de notations et les milieux financiers internationaux s'inquiètent du défaut de payment du pays de réfèrence. Une minorité chez les Républicains, le Tea Party, composé d'ignares, de racistes et de réactionnaires revanchards, profitent de la grande faiblesse du premier président noir pour arriver à leurs fins. Mettant ainsi en danger, non seulement les USA avec une économie en grande convalescence, mais aussi toute l'Europe qui en dépends largement. Les fondamentaux américains sont sains, mais une bataille idéologique sur un détail technique leur fait courir un grand risque.

The debt

The debt has many causes: The Bush tax cuts, the 2 Bush wars, Afghanistan and Irak to name the main ones.The Obama administration added 1 T$ in a stimulus plan and almost as much as a bank and auto companies bailout. Therefore the remedies are rather simple: Repeal the Bush tax cuts, stop all 3 wars ( Is Libya a war?). I would add stop the futile 30 years war on drugs and tax the illicit product, thus emptying jails, cutting down on police spending and giving back felons the means to have a proper job. We could also pare down the defense budget. The cold war is over. The Pentagon has a budget equivalent to that of the total budget of FRance. It is larger that the sum total of all the military budgets in the world.
Besides, the debt has ballooned because of a huge revenue decrease caused by unemployment. When the historically high number of the unemployed returns to work and starts paying taxes again, revenues will flow in federal coffers again.
Also, it is time to make corporations pay taxes (GE pays o$). They have hired armies of lawyers to exploit or create (lobbies) loopholes a mile wide that exempts them of any contribution to the public good. And finally, a huge myth on the debt: China only owns 9% of our debt. The US public owns 47 % through the purchase of T Bills and other financial vehicles.
So conservatives are using this crisis to exaggerate a perfectly explainable situation (the recovery of the worst financial crisis in 80 years!) and excluding the normal tools to remedy it. It is a war on the poor and disenfranchised, a class war that dares not say its name.
And for those who fear the impending doom predicted by the reactionaries: US Treasury Bills still command a 3.7% interest rate , whereas Greece is now at 14%.

There are many social needs in the US. Now is not the time to repeal the 20th Century and go back to the 1890s. I think that when the voters understand Mr Ryan's budget, there will be a Conservative Waterloo in November 2012.

Waste

Rahm Emmanuel is famous for having said that a good crisis should not be wasted. Conservatives have at first criticized him and then decided to embrace his philosophy. Under the cover of Tea Party intransigence, they have seized upon the debt crisis and used it as vehicle to push extreme reactionary policies down our throats.Of course there is a debt. It amounts to 4 % of GDP, which is a far cry from the 111% of GDP of Greece or Portugal. Let us come back to reality: The agregate assets of the US are around 144 Trillion $. The debt is about 14 T $ We are far from bankruptcy. (Standard and Poor tried to scare us in threatening downgrading the US notes from AAA to AAa, but isn't it the same S&P which contributed to the Wall Street meltdown in 2008?)
There are many causes to the debt problem.