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EURO AUSTERITY POLITICS April 24, 2012

Posted by wmmbb in European Politics.
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The first round of voting for the French President was completed, as the Prime Minister of the Netherlands handed in his commission. The common thread is the economics of austerity promoted from Paris and Berlin.

In the French election, the Socialist Party candidate, Francois Hollande appears to just got ahead of Nicholas Sarkozy. Since they respectively received 28% and 27% it seems hardly significant, however it is the first time for 50 years that a challenger has lead an incumbent on the first round of voting. The stand out result of the first round was the 18% of the vote attracted by Marine Le Pen‘s National Front.

Nicholas Sarkozy had made a pitch for the right wing voters, and that seems to have failed. Ian Traynor, in The Guardian writes of the Europe-wide political phenomena, not entirely unknown elsewhere. He writes:

But what the assorted leaders and parties have in common is a deep rightwing cultural conservatism suffused with nostalgia for an always better and often imaginary national past – the era before mass immigration, globalisation, Europe, and international finance destroyed, they believe, the old, white, illiberal, homogeneous nation states of Europe.

On economics, however, the populists tend to be anything but rightwing. They are further to the left of European social democracy in supporting generous welfare states, early retirement ages, pensions – a strong state munificent in its public spending.

Le Pen’s Dutch equivalent, Geert Wilders, for example, has just brought down the government in The Hague over a budget crisis and his refusal to toe Brussels’ line in cutting welfare benefits and pensions.

Le Pen already looks a more formidable and cannier leader of the movement in France than her father, Jean-Marie, whose crude antisemitism, racism, and second world war revisionism made him the object of mockery as well as fear. People do not laugh at Marine Le Pen as they did at her father.

She has been fortunate in her timing, with the two big contemporary issues fuelling the rise of illiberal populism everywhere in Europe except Germany and the Iberian peninsula – the eurozone crisis and Muslim immigration.

Islamophobia has become the new antisemitism for the current generation of rebels, while the age of austerity decided by Europe’s leaders as the answer to runaway debt, soaring deficits, and a failing euro supplies fertile ground for the populist campaigners.

Chris Hedges describes Francois Hollande as a hollow man, a person given to empty rhetoric and complicit with the status quo controlled by the money power.

Robert Preston for the BBC notes:

The point is that the French government and French economy is disproportionately dependent on the goodwill of overseas investors and banks.

Here are the statistics.

According to IMF figures, 59% of France’s government debt is held overseas – which means that well over half of all lending to the French state is not motivated by sentimentality or patriotism in any way.

To put that figure into context, just 24.8% of UK general government debt is provided by foreigners.

Perhaps more relevantly, the French government has to borrow a colossal sum equivalent to 18.2% of GDP this year and 19.5% next year to finance debt that is maturing and the current deficit.

So, to extrapolate from the current ownership pattern of its debt, France needs to retain the goodwill of overseas investors to provide loans equivalent to something like 10% of its GDP this year and a similar amount in 2013.

Again a comparison with the UK may be useful: the UK’s financing needs for this year and next are much lower, at 14.8% of GDP and 13.9%, with perhaps no more than 4% of this needing to come from overseas.

And remember that the UK has another huge advantage over France when it comes to financing its deficit: the Bank of England can and has been buying bucket loads of UK government debt; the European Central Bank is prohibited from doing anything remotely comparable.

So, to put it another way, Mr Hollande may believe that big international banks, sovereign wealth funds and hedge funds are the enemy. But if he goes to war with them, there is a risk that they will go on strike and stop lending to the French government.

There are good grounds perhaps for disillusionment. Nor can it be assumed that the National Front voters will support Nicholas Sarkozy in the second round of voting.

Meanwhile the BBC reports on the resignation of the Dutch prime minister. Gert Wilders of the Freedom Party  withdrew from talks to join a coalition with the ruling party over the intention to reduce the budget by 16 billion Euros in conformity to EU rules. And yet:

The Dutch economy, Europe’s fifth largest, has survived the eurozone crisis relatively well with a national debt of around 65% of economic output but its projected budget deficit falls foul of new EU rules requiring eurozone governments to keep below 3% of GDP.

A recent forecast from the Netherlands’ Central Planning Bureau estimated that the country’s public deficit would rise to 4.7% of GDP.

The Netherlands has been asked to submit its budget measures to the European Commission by 30 April, although it is not clear how firm that deadline is. Since 5 March, the two coalition parties along with the Freedom Party have been trying to reach agreement on budget cuts before the deadline.

Mr Wilders, who was said to have stormed out of talks at the last minute, said the coalition’s proposals would harm economic growth and affect many people’s spending power. Socialist Party leader Emile Roemer said he too was not prepared to support the attempt to bring the budget deficit below 3% by 2013.

There is likely to be elections in the Netherlands.

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