In case you didn’t notice, world politics shifted just a little this weekend. How dramatically is yet to be seen.
Thumbing their nose at a Europe-wide policy of spending no more than revenues bring in (also known as “austerity” and “what makes sense”), French voters kicked Nicolas Sarkozy to the curb and chose socialist Francois Hollande as their new president.
Hollande’s first order of business? Renegotiate the “austerity pact” with German chancellor Angela Merkel, per his campaign promises, to allow deficit and stimulus spending. Merkel has already told Hollande that he will be unable to keep said campaign promises and that she will not renegotiate.
Meanwhile, another corner of Europe, the Greeks rejected austerity measures required for bailout of Greek debt, kicking out of office those who negotiated the debt deal in February that kept Greece out of bankruptcy.
The defeat left the two political parties that had supported the bailout with only 34 percent of the country’s support, according to initial results. The rescue package, Greece’s second, gave the country $171 billion in emergency loans earlier this year but required biting spending cuts. Now, both the aid and the cuts are in doubt.
Because, you know, it makes sense to financiers around the world to throw good money after bad. Voters in France and Greece have decided that the spending cuts to make their countries solvent again just aren’t important enough to justify cuts to the welfare state.
Oh, and if that weren’t bad enough for a weekend, this guy was inaugurated President of Russia today. If that doesn’t just put a cherry on the top of a “seismic shift” in world politics, as The Guardian called it, I don’t know what does better (short of a war). Socialist elected in France, the Greeks reject a debt deal three months after the deal is inked, and Russia inaugurates a former KGB officer to an unprecedented third term in office (I mean, unless you count the tsars and Soviets).
And we thought our politics were interesting…
[Washington Post] [NPR] [Guardian] [Los Angeles Times]
Related articles
- Markets braced for shift away from austerity as Francois Hollande wins French election (jhaines6.wordpress.com)
- Merkel warns Greece it must stick to terms of bailout (itv.com)
- French, Greek voters say no to austerity (sgtreport.com)
About Daniel Burton
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I noticed and I am not happy about it. It is like the roadrunner putting their head back in the sand and hoping that things will have changed when they pull it out again. You can substitute the voter for roadrunner and other bodily locations for sand, but you get the picture.
When more than half the people get more out of government than they pay into the government in taxes, you end up with guys like Hollande and Obama. Not that difficult to understand.
It doesn’t say a lot about the balance or checks in liberal democracy when one of the mainstays of western democracy–private property–is so easily redistributed by majority vote.
What do you think France and Greece should do, though? I love free-market capitalism, but what do you do when you’ve spent yourself into a hole like Greece has? I think that they walk a razor’s edge. If they don’t cut enough, global financial markets will cut them off from the bond markets. But if they cut too much, they will stifle growth too much and sink into a deep recession or a depression. Has Greece already past the point of no return? It is a hard problem. I understand the austerity demands Germany is making, but are they so severe that they can’t be complied with?
Greece’s problem is that they’ve received repeated bailouts with strings attached, but Greeks really don’t want the strings. They want continued entitlement spending and welfare support in addition to debt relief. It has nothing to do with stifling growth–it has to do with stifling the costs on the state.
I think Germany is a great example of what can happen when a state gets their act together and reigns in spending. Over the last century, they’ve been the cause of two world wars, both of which devastated their economy. Rather than seek enormous entitlements, they picked themselves up and got back to work. As a result, they are, again, the big player in Europe. Even after being split after the last war, they still managed to develop one of, if not THE, strongest economies in Europe, capable even of taking on all of the liabilities of the former East Germany after reunification occurred.
Greece? They are acting like they want a spending account, but not responsibility to accompany it.
Back to France v. Germany, though. One of Merkel’s major sticking points with Hollande, I suspect, is going to be over the creation of a fed like bank that can “print” money to inflate prices, wipe out debt, and produce stimulus spending. Merkel understands that such is really a tax on the poor, will create a bubble, and cause harm to the strength of the German economy. It isn’t a matter of wanting ‘growth.’ No government policy does that. It’s a matter of agreeing whether growth will come through greater deficit spending or through market fundamentals and competition.
Great response. I hadn’t thought of the Germany parallel. Do you think that Greece’s problem is fundamentally cultural then?
And let me just clarify your position. Do you believe that government spending doesn’t lead to any GDP growth at all, or that it is an inefficient way to spur growth compared to say cutting taxes?
I don’t know if I would go so far as to say that they have a cultural problem, but I do think they have a spending problem. Greece has never been an economic power house, and spending more than you make is a problem that doesn’t take an economist to diagnose. Greece’s problem it just that: they’ve promised entitlements greater than they can afford.
As far as specific policies go, I’ve read that the politician that threw the whole Greek bailout in to a tail spin has some specific demands, none of which will lead to growth but all of which have in the past led to great economic stagnation. He wants to “nationalize the banks permanently, restore all salaries and pensions to their previous higher levels and bring back collective bargaining rights.”
None of that has anything to do with growth. (Check the article here: http://www.cnbc.com/id/47342551)
One more statistic for thought: Greece’s unemployment rate is over 20%.
http://www.tradingeconomics.com/greece/unemployment-rate. What should a responsible politician in Greece do in the sort term? Do you think the country will spiral into a depression? If so, is that just the medicine that they have to take?
If it’s not already in a depression, i don’t know what a depression is.
Germany is definitely a great example of a nation that has worked hard to keep its house in order, but it cannot continue to push severe austerity on the rest of Europe without having unintended consequences.
Germany turned to Hitler when it hit 30% unemployment. Just like we are seeing in Europe this week, when people start to feel the kind of pain caused by high levels of unemployment, and there does not seem to be a way out, they look to the fringes for leaders with more radical ideas and solutions to their problems.
While these leaders economic ideas may seem misguided, or even laughable, they bring other ideas that can be destructive.
I don’t think Hollande is another Hitler, of course, but he’s the first true socialist they’ve elected in years, and he was elected by making promises to challenge the ideas that are being pushed by Germany. The newly elected parties in Greece are so radical that they not only threaten to reject the deals that were just worked out to help get their economy in order, they are also threatening to reassess their involvement in the Eurozone. But since they also refuse to work with any other parties in Greece, they can’t even form a government.
As Joshua pointed out, Greece’s unemployment is at 21%. Spain’s is at 24%. At the height of our depression, the average unemployment rate was 25%, though it was higher in some regions of the nation. As you said, if these nations are not already in a depression, I don’t know what a depression is.
Germany may not agree with the idea of a central bank because it would disadvantage Germany, but Germany is not the only country in the Eurozone. I believe Germany is truly interested in the long-term well being of all the European Union nations, but it cannot brush off the immediate needs of citizens in other countries; if it does so, it will never achieve it’s long-term goals, and I am convinced the Eurozone will collapse.
A strong economy is not just the product of sound fiscal policy, it’s also the result of confident markets. Germany is staking everything on what it considered sound policy, but it’s losing the confidence of a large number of everyday Europeans. It needs to be more flexible.
I believe Greece is really close to leaving the Euro.
That’s an insightful view, Sterfryiv. Two questions, the first a tad tongue in cheek:
1. Was Greece foolish to enter into a monetary union with the likes of Germany?
2. Is it fair for Germany to carry the liabilities of other countries’ welfare entitlements with no say in how the money is spent in those countries?
1. I’m sure the Greeks think so now!
2. I don’t think it’s fair to the Germans at all. But Greece is a sovereign nation, and the agreement that they entered into (i.e. the European Union) grants them each that sovereignty. Just like Greece took a risk, Germany did too, and this is a very unfortunate consequence.I’ve always seen that as the biggest weakness of the European Union. How do you intertwine all those economies without realistically giving up true sovereignty of your nation? As we are seeing now, the answer is, “you don’t”. German sovereignty is threatened by the Greeks, who the Germans are being forced to help out of this crisis. Even though Germany refuses to dip too far into its own coffers to pay for this mess – instead pushing the “austerity measures” discussed here and in your other post – just look at the insane amount of time that the German prime minister and other German government officials are spending on Greece and other nations, instead of being able to focus on German domestic affairs!Meanwhile Greek sovereignty is threatened by having Germany “meddle” in their national affairs. Can you imagine how we, as Americans, would react if another nation, say China, were to be so intricately involved in our national affairs, to the point of weighing in on national elections? Back in the 90’s as the European Union truly formed and created the Euro, I remember wondering what would happen, after all those economies were lumped together, when one of the members ended up in a war…not like a NATO mission, but instead a real threat to the destruction of one of its member nations.What does the EU do then? If one member’s economy is threatened, the economies of all are threatened. Does that mean that that if you go to war with one, you go to war with all? Luckily that has not happened yet, but it’s really only a matter of time. So do they raise a “Eurozone” Army? Or do they go to war as individual nations?This is all very similar to the debate here in the US over a strong central government vs strong state governments. While I cannot imagine the nations of Europe ceding any national rights to a stronger central European government, I cannot help but think that the demands of the Euro will eventually force them in that direction.This is why Britain said no to the Euro isn’t it?To be clear, I do think that given the nature of the European Union as it stands today, Germany has the right to protect its own interests, and I applaud it for taking on true leadership in such a hard situation. But the same agreement that allows Germany to protect itself from what it feels are unfair actions against it’s interest, also allows Greece to do the same, even if it means electing more dysfunctional government leaders that eventually results in it’s departure from the Eurozone (voluntary or otherwise).You cannot maintain true national sovereignty when you cede so much control of your economy to a larger collective.
You might just be right…