With Britain’s exit from the European Union, France sees an opening

I was quoted today in the Washington Post in an article by Paris reporter James McCauley on opportunities for France in the wake of Brexit:

According to Vivien Schmidt, the Jean Monnet professor of European integration at Boston University, the major shift away from a French-led Europe came in the 1990s, when the European single market embraced a host of neoliberal economic polices, including the deregulation of telecommunications and, later, of electricity, both opposed by France.

“Basically, it’s no longer the French leading,” she said. “It’s a set of policies that don’t sit well with the idea of the French state being in control.”

Read the full article here>>

The Rise of the Fringe: A Threat to Democracy?

anna_omelchenko

See my comments in Kaitlin Lavinder’s article on The Cipher Brief on the rise of Euro-skepticism and the growing popularity of candidates who are political outsiders:

“Euro-skepticism has been increasing more generally across Europe, along with disenchantment with national political elites,” explains Boston University professor Vivien Schmidt, who is also the founding director of BU’s Center for the Study of Europe.

The Eurozone crisis, the refugee crisis, and the security crisis (that is the heightened threat of terrorist attacks on the continent) all contribute to a loss of trust in mainstream parties and the “steady rise” of populist parties across Europe, says Schmidt.

Read the whole article>>

Photo: Anna Omelchenko

How to Deal with the Current Greek Crisis

The problem for Greece is that meeting most of the austerity focused demands won’t do anything for growth, which Greece desperately needs.  And another year of austerity is unsustainable—after five years of utter misery with a drop of 25% in GDP and an increase to over 50% youth unemployment, with a humanitarian crisis the result.

While the Council and Commission have actually introduced increasing flexibility into the interpretation of the rules for ‘normal’ (non-program) countries, and have put the emphasis on investment and growth-oriented ‘structural’ reforms, they appear to remain largely inflexible on Greece.  The problem is that while some Northern European countries (Germany but also Finland) believe that austerity works, governments of countries that have had to impose austerity on their own populations (especially the Baltics, Spain, and Portugal) or are now in the midst of putting ‘structural reforms’  of labor markets and pension systems (France and Italy) are not about to let Greece off the hook, for fear of their own constituencies’ responses.  But this is counter productive.

Greece needs to stay in the Eurozone for its own benefit as well as everyone else’s.  But what they need is not yet another austerity program.  Instead, why not recognize that they need growth, and give the government a two year period of grace…no austerity, release of the monies to repay the IMF, and ECB guaranteed bank liquidity  in exchange for an agreement from the unions not to raise wages, for the government to collect taxes from the non-paying rich (including the expatriates with the help of international institutions), major reform of the state administration, rationalization of the rules to make it easier to start businesses, plus investment funds for small and medium sized enterprises, to reignite the private sector that has been dying on the vine these last few years.  Moreover, the EU ‘institutions’ (formerly known as the Troika) should transform themselves, moving from ‘enforcers’ to ‘advisers’, to help the Syriza government implement reforms that will not be easy.

Only by changing completely the program—and the discourse justifying it—can Greece stay the course, and succeed.  Greece has suffered enough, and should be given another chance to prove that it can succeed—with a program that has a realistic chance of succeeding.  This is the new message that Eurozone leaders should now agree on, and convey to their constituencies.

See A Finance Minister Fit for a Greek Tragedy? in Sunday’s New York Times.

The Beginning of the End or the End of the Beginning for the Stability Rules

The latest skirmish on the budget, as Berlin (and Brussels) try to hold the line on the stability rules, while Paris and Rome push for greater flexibility, is very much a draw.  Hollande and Renzi wanted and needed a very public fight to show their citizens that they have been pressing for less austerity to ensure economic growth, even as they reaffirmed their respect for the rules.  They won by gaining modest concessions that marginally violate the rules on austerity. Merkel also won by ensuring that they too had to make modest concessions toward greater austerity.  This leaves the question:  is this the beginning of the end for the stability rules or is it just the end of the beginning—with wrangling about the rules the new modus operandi? If the latter, Eurozone economies will continue to sink.

Quote appears in the Greek newspaper newspaper Kathimerini on November 6, 2014.

Comments on French Crisis and Germany’s Role

Here are some comments from Professor Schmidt in response during a recent interview on the role of Germany in the recent restructuring of the French government:

On the role of Germany in the restructuring: It played no direct role, but of course indirectly, Germany does. First, through its ordo-liberal ideas that underpin the Stability and Growth Pact and all the subsequent packs (six pack, two pack) and pacts (fiscal compact), and a discourse that has promoted the ‘Stability Culture,’ and policies focused on austerity and structural reform as the only answer. But why blame only Germany? Its allies include the ECB, that also believes in stability, and has pushed austerity and structural reform as a quid pro quo for its own monetary policies; the Commission, that has only begun to show flexibility very recently; and a variety of member-states worried about a ‘transfer union’ in which the core would have to pay for the periphery. Moreover, France (under Sarkozy) signed up to all of this as well, so Hollande is stuck with it, whether he likes it or not.

That said, Montebourg’s comments about the German obsession with austerity were indeed crucial to his ousting for two reasons. First, he is a Minister in a government in which the President had just announced continued austerity and structural reforms in line with ‘the line’ of the EU. Breaking ranks in this way is never appreciated by any Prime Minister or President of a country. Second, no doubt there were already frictions with the PM, and this was the opportunity to get rid of him. Montebourg may himself have welcomed it, so that he is no longer associated with a President (and government) he plans to run against in the next Presidential elections. But this means that there will be no vocal representatives of the left of the Socialist Party in the government—a problem for Hollande in terms of keeping his party entirely behind him.

Finally, on whether Berlin with change its European policy, the answer is not in the discourse, but possibly in the practice. My sense is that the discourse will continue to focus on ‘staying the course’ of austerity and structural reform, but that the Commission will exercise increasing flexibility in meeting the criteria, and the Council is likely to try to provide some investment to promote growth. I think by now everyone recognizes that these policies are not working, and you can’t just blame the Greeks, the Italians, and the French for it!

If I am asked: will policy change a lot soon? The answer is no. However, policy is likely to shift incrementally over time, in particular if and when the Council itself becomes increasingly represented by social-democratic member-state leaders.

Hollande’s Tax Rebels Underscore Mounting Opposition

Hollande is caught between a rock and a hard place.  The rock is the European Commission, which has been pushing him  to reduce deficits significantly.  Having been given a two year extension on the rules that demand a 3% deficit or lower, Hollande has to find the money.  The easiest way to do that, and the fastest, is to raise taxes.  That French taxes are high is not the main problem, despite the fact that they are the highest in the Euro-area.  Like the Scandinavian countries, French citizens get a lot for their money in terms of a high level of public services, including high quality day care and generous allowances for child-care, which have translated into France having one of the highest birth rates in the EU (alongside Sweden).  The problem is that with the economy slowing and unemployment high (esp. youth unemployment), ordinary citizens don’t want to hear of any tax increases, in particular because they see the rich leaving for across-the-border tax havens, such as Belgium, and government officials maintaining their perks.  The hard place, then, is the citizens.  It is all the harder for Hollande, given his popularity ratings, which are the lowest historically for any President of the Fifth Republic, and because he has failed to find a discourse that legitimates his adherence to Eurozone agreed austerity—remember that he pledged ‘growth’ in his presidential campaign—or a strategy that actually could deliver growth.

Link:

Hollande’s Tax Rebels Underscore Mounting Opposition by Gregory Viscusi and Mark Deen (Bloomberg 11/20/13)

 

Austerity Seen Easing With Change to EU Budget Policy?

Vivien Schmidt’s comment on Mathew Dalton’s September 19 Wall Street Journal article, “Austerity Seen Easing with Change to EU Budget Policy,” was picked up by AP reporter Juergen Baetz. Comment and links to both articles below.

Easing austerity through change to EU budget policy is a very significant move.  If agreed by EU finance officials, changing the calculation of the ‘structural deficit’ could go a long way to easing the economic problems—and thereby the political ones–of the Southern European countries as well as Ireland.  It is also a silent acknowledgement of the fact that the radical deficit cutting programs of the past three years have failed to address growth.  It may not be possible to reverse the financial stability rules and numerical targets of the various Eurozone pacts, but  it is possible to reinterpret them.  And by reinterpreting them, the worst aspects of those rules, the growth destroying aspects, may be set aside.  What we are seeing is the beginning of a process of re-evaluation of the economic policies that have kept growth down while increasing debt-to-GDP ratios, and thereby keeping the Eurozone from exiting the crisis.  It is about time.

Links:

Austerity Seen Easing With Change to EU Budget Policy – Change Would Have Big Impact on Spain, Significantly Reduce Estimates of Government’s ‘Structural Deficit’ by Mathew Dalton (Wall Street Journal 9/19/13)

EU to Change Budget Calculation to Ease Austerity by Juergen Baetz (Associated Press 9/19/13)

Comment on the Greek crisis and EU leaders meeting

It is amazing how blind the EU leaders (German Chancellor, ECB, and some in the EU Commission) are to the political dangers involved in trying to force Greece to implement economic cuts that are bound to fail, that have already failed, and that will plunge the country deeper into misery….and anarchy!  What EU leaders need to do now is to extend the Greeks an olive branch.  Certainly hold them to the loan agreement, but give them time to repay and grow.  This means that in exchange for holding the deficit where it is today, rather than insisting on continued radically rapid deficit reduction, that the Greeks promise to continue to reform—by tackling tax evasion, corruption, and structural reform.  And make offer a new set of terms today.  Don’t wait til the upcoming legislative elections!

Link:

Court official to be appointed Greek interim PM (Associated Press 5/16/12)