Some quick thoughts on the French Election

[donsutherland1]

My quick thoughts on the French election:

1. A lot of constraints exist that will likely preclude a radical change in French policy. The biggest constraints concern existing agreements, which might be modified somewhat and a continuing strong commitment to the Euro Zone. Having a technocratic background, Hollande is not likely to attempt a revolutionary course.

2. The new President will likely seek to change the mix of tax and spending policies in a bid to stimulate greater domestic demand. Risks exist. For example, he could succeed in stimulating more consumption and short-term growth, but at the expense of investment. In the medium- and long-term, that outcome could lead to a less competitive economy and a smaller economy than might otherwise have been the case. Policy tends to be biased toward the short-term, so it is quite likely that the emphasis will be on the short-term.

3. The new President could seek to soften short-term deficit targets, but maintain the medium-term ones.in a bid to buy political breathing room, but avoid a loss of fiscal credibility (and the higher interest rates that would come with it). However, even as this path might be more politically expedient, it would lead to an additional buildup of debt. Whether or not that additional accumulation of debt would lead to a meaningful interest rate impact and additional credit downgrades would depend on the credibility of the entire fiscal program. Of course, a Hollande Administration would likely argue that the debt buildup will be higher than planned due to current suppressed economic growth.

4. French foreign policy will likely become more restrained than it was under President Sarkozy. I don't believe a Hollande Administration would have advocated military intervention in Libya and I belive a Hollande Administration will put an end to President Sarkozy's calls for possible military intervention in Syria. Defense could be seen as a target for generating modest fiscal savings.

5. Hollande has long been wary of nuclear energy. He could well seek to reduce France's use of nuclear energy. Whether or not he would seek to stimulate the economy with a more aggressive alternative energy policy remains to be seen.

 

[Infinite Chaos]

My quick thoughts on the French election:

1. A lot of constraints exist that will likely preclude a radical change in French policy. The biggest constraints concern existing agreements, which might be modified somewhat and a continuing strong commitment to the Euro Zone. Having a technocratic background, Hollande is not likely to attempt a revolutionary course.

Hi Don, really good to see you posting back here, I always enjoy your posts. While I agree your thoughts here there have already been signs that Angela Merkel may be moving towards Hollande's position though not in as radical a way as Hollande's pre-election stance would like. Reality and pragmatism on the ground will probably direct Hollande more than he would like.

-- 3. The new President could seek to soften short-term deficit targets, but maintain the medium-term ones.in a bid to buy political breathing room, but avoid a loss of fiscal credibility (and the higher interest rates that would come with it). However, even as this path might be more politically expedient, it would lead to an additional buildup of debt. Whether or not that additional accumulation of debt would lead to a meaningful interest rate impact and additional credit downgrades would depend on the credibility of the entire fiscal program. Of course, a Hollande Administration would likely argue that the debt buildup will be higher than planned due to current suppressed economic growth.

I think this is more likely than 2. above- very possibly with a 5-7 year (mid term) lifespan so that the argument could be made that he needs to be re-elected to see the changes and policy through.

4. French foreign policy will likely become more restrained than it was under President Sarkozy. I don't believe a Hollande Administration would have advocated military intervention in Libya and I belive a Hollande Administration will put an end to President Sarkozy's calls for possible military intervention in Syria. Defense could be seen as a target for generating modest fiscal savings.

This will be an easy one - France has long tried to remain independent (much to the annoyance of the US) and Sarkozy deliberately set about rehabilitating France in the world's eyes. I can see a return to the France of the past- however I doubt he will renegotiate the military agreements Sarkozy agreed with the UK recently.

5. Hollande has long been wary of nuclear energy. He could well seek to reduce France's use of nuclear energy. Whether or not he would seek to stimulate the economy with a more aggressive alternative energy policy remains to be seen.

I've read here in the UK that each wind turbine costs £1.5 million to produce and we have thousands of these things - very few of which are British built. I'm not sure how such industrial policy goes within the EU but trying to set up French manufacture could be the way to go for such a venture. I also wonder how any large changes in energy production would affect French holdings of UK energy and utility companies.

 

[donsutherland1]

Hi Don, really good to see you posting back here, I always enjoy your posts. While I agree your thoughts here there have already been signs that Angela Merkel may be moving towards Hollande's position though not in as radical a way as Hollande's pre-election stance would like. Reality and pragmatism on the ground will probably direct Hollande more than he would like.

I agree. The constraints will encourage pragmatism. At the same time, both Chancellor Merkel and President-elect Hollande are committed to the EU. Those factors will likely lead to sufficient common ground. Indeed, following the outcome of the French election, Chancellor Merkel stated, "...progress is only achievable via solid finances plus growth."

This will be an easy one - France has long tried to remain independent (much to the annoyance of the US) and Sarkozy deliberately set about rehabilitating France in the world's eyes. I can see a return to the France of the past- however I doubt he will renegotiate the military agreements Sarkozy agreed with the UK recently.

I agree that France will uphold its military agreements. It will return to a foreign policy that is more focused on France's interests. From a Realist standpoint, that's not necessarily a bad thing. It's certainly a more reliable approach than foreign policy that rests on personal sentiments. If such a change leads to foreign policy makers in the U.S. and elsewhere to better understand the actual difficulty in building and sustaining systems and structures in foreign countries (the UK and France have far better understanding on this than the U.S.) e.g., democracy cannot easily be transplanted via regime change, it could have a beneficial impact beyond France. Foreign policy goals could become more realistic and prospects for effective foreign policy could be enhanced.

The notion that opposition movements in non-democratic countries would automatically produce liberal democratic rule if those movements topple the existing governments is naive. Outcomes typically are far more complicated. Over the past year, Egypt, Libya, and Tunisia have seen authoritarian regimes replaced. None of those countries has a functioning democratic form of government. Are the successor regimes better than the ones they replaced? IMO, the proverbial verdict is far from being rendered on that issue, as well. Real risks and opportunities exist.

I've read here in the UK that each wind turbine costs £1.5 million to produce and we have thousands of these things - very few of which are British built. I'm not sure how such industrial policy goes within the EU but trying to set up French manufacture could be the way to go for such a venture. I also wonder how any large changes in energy production would affect French holdings of UK energy and utility companies.

Until Hollande formulates his details, it's difficult to be specific on how he aims to go about pursuing his goal of reducing the role of nuclear power in France, much less how he plans to proceed with possible investments in alternative energy. He has not indicated that he would retreat on the climate change issue. If all those points are consistent, that means nuclear power's role could only be reduced by alternative not convention fossil fuel energy. To do that, he would need to make investments in alternative energy.

 

[Infinite Chaos]

I agree. The constraints will encourage pragmatism. At the same time, both Chancellor Merkel and President-elect Hollande are committed to the EU. Those factors will likely lead to sufficient common ground. Indeed, following the outcome of the French election, Chancellor Merkel stated, "...progress is only achievable via solid finances plus growth."

Yes, there seems to have been a really interesting letter sent to Hollande from Merkel, both congratulating him on his victory and also stating that ""It is up to us to take the necessary decisions for the European Union and the eurozone, to prepare our societies for the future and protect and advance prosperity in a sustainable way,"

"I look forward to continuing with you on the path of assuming our shared responsibility for Europe and to working for the benefit of our countries and Europe.""

The message is clear that she wishes to work with Hollande but Germany is also adamant that there is a shared responsibility of leading Europe through the crisis. Apparently there are suggestions for a separate pact - one that would increase growth and competitiveness alongside the one Britain refused to sign and Hollande wishes to renegotiate. It could be a pact that the UK would be able to sign and participate in much more enthusiastically which would reassure the markets.

That brings me back to a point I made in a separate thread: that the UK (under a right / centre left alliance) was demonised in France and other parts of Europe for not signing the agreement but Hollande (representing a socialist left view) has brought the pact back into focus without comment in the wider press here in Europe.

Until Hollande formulates his details, it's difficult to be specific on how he aims to go about pursuing his goal of reducing the role of nuclear power in France

Without some major investment program to build such plants and generators I think this will be one area of policy that quietly disappears into the background while other, more politically important matters are dealt with.

 

[donsutherland1]

From CNBC:

France's Socialist president-elect Francois Hollande may use a summer audit of state finances to water down his generous campaign promises rather than risk a backlash from financial markets against stubbornly high deficits and rising debt.

News Headlines

Such a move would be consistent with Hollande's taking a more pragmatic course given the constraints that exist. The above move would give him a face-saving way to reverse himself on some of his campaign pledges. He could assert that he had wanted to increase spending by a larger amount, but audit results made it impossible for him to do so without putting France at greater fiscal risk.