François Hollande’s election as French president will have repercussions for anti-austerity parties across Europe. Within a short time, the continent’s political colours could change further, with all sorts of realignments in financial and eurozone policy
A fascinating natural experiment in macroeconomic and financial policy may be about to play out across the Channel – ‘may be’ because François Hollande has yet to cap his victory by securing a majority in next month’s parliamentary elections.
Like all experiments in economy and society, it’s going to be messy. It will be hard to net out the dynamics of eurozone decisions from the specific effects in France of, say, raising tax rates or employing more teachers. But the socialist party’s victory none the less sets up a test, and it’s nothing less than a re-run of what was attempted by its previous president, François Mitterand when in 1981 he tried to buck the markets and go it alone.
Mitterand failed, though he turned economic defeat into political triumph when he subjected his country to a previous version of austerity. Hollande’s failure – precipitated, say, by capital flight or credit crunch and slash and burn cuts to public spending – would not only be politically catastrophic for the social democratic left in France. It would have loud repercussions for Labour in the UK, demonstrating (so the Tories would say) the danger of its more relaxed approach to deficit reduction.
But what if the French experiment burns as bright as the lamp in Louis Pasteur’s lab and growth ticks up in response to Hollande’s rhetoric and more buoyant public spending, feeding a virtuous circle of higher revenues and accelerated control of the fiscal deficit?
That may not be Angela Merkel’s formula but it’s broadly the position of Sigmar Gabriel, chair of the German Social Democratic Party and his colleagues and within a year they could be close to power in Berlin. In a sequence of votes in regional elections, it’s not so much that Merkel’s Christian Democrats have lost large numbers of votes as that the capacity of the right to form coalitions has been grievously weakened, largely because of the collapse of the neo-liberal Free Democrats.
Within a short time, then, the political colour of Europe could be changing further, with the prospect of all sorts of realignments in financial and eurozone policy.
But that, as they say, is then. Today, most signals point to a re run of the ‘Greeks out’ debate of a couple of months ago as, after the weekend’s parliamentary election, the capacity of any likely Athens government to meet the financial conditions of continuing lending by the European Central Bank, International Monetary Fund and European Union has gone.
So, once again, Greek default, devaluation and massive financial restructuring look more likely. Whatever the domestic consequences, that sequence could, paradoxically, increase rather than decrease the chances of the Hollande formula working.
A Greek exit could give Merkel a much freer hand in negotiating, say, a European Central Bank version of quantitative easing. The closer the German federal elections get, the more centrist her political line is likely to become, meaning possibly flexibility over German eurozone commitments.
The upshot of all that is … can Hollande hang on? If the markets let him, his best advice – assuming the parliamentary elections give him a workable majority – is do what the French love to do in August and go away for a long time, deserting Paris for the plage. Come the autumn, attitudes in Berlin could be softening, the markets could be getting used to hearing the ‘s’ word used in politics again and Hollande’s room for manoeuvre could be at least a little wider.
David Walker is a journalist and commentator and a trustee of the Franco-British Council
