Posts Tagged ‘economics’

France. Ha ha.

January 14, 2012

To say the French and British aren’t exactly in bed with one another is probably something of an under-statement. The British have always regarded the French as arrogant. For their part, the French tend to regard the British as awkward and difficult, clinging to a past that has long since evaporated and switching in emotions between colonial guilt and nostalgia.

In his autobiography, Tony Blair has an interesting description of French premier Nicolas Sarkozy. Blair met him before he won office and says:

“Nicolas and I had certain things in common… However, we differed in one respect: he had superabundant self-confidence. There was not a glimmer of self-doubt. As we walked through an avenue of trees that led down from the villa, he talked frankly and with complete conviction about his own victory: ‘I will win. I will become president.’

From anyone else it would have sounded vain or even slightly mad, but he said it with a combination of charm and clarity that made it seem entirely factual. The British would have wanted to cut someone who talked like that down to size, but I could see that the French would go for it. It was an attitude which had passion, elan and also that touch of arrogance which in some small way defines France, and which in some small way I admire. I could see them looking at Nicolas and saying: Now that’s a president.”

I must say that, unlike Blair, I’m not hugely enamoured with arrogant confidence. I think I’d probably have just felt like punching Sarkozy. But then I, unlike Blair, never have had the ambition to be prime minister.

Sarkozy has not been winning many friends in Britain recently. In December, Britain was forced to veto a new EU treaty that had precious little to do with saving the euro and quite a lot to do with giving more powers to Brussels. It’s difficult to know exactly what went on in that room of 27 leaders, but the outcome – with Cameron isolated, unable to sign up to a French-backed treaty that would bizarrely have placed an onerous burden on the City rather than actually done anything useful to salvage the euro project – had all the hallmarks of a French stitch-up.

Of course, the French position is entirely justifiable. Britain has never been a full part of the EU – it remains outside the euro, Schengen and the social chapter. So France might be quite entitled to ask: why are you in this EU club at all? By isolating Britain, Sarkozy clearly has more weight – along with German chancellor Angela Merkel – to steer things in the direction that he wants.

Troublesome Britain. Arrogant French.

My personal view is that Cameron did the right thing but for perhaps the wrong reasons. One of my arguments with the Conservatives is that they are somewhat incoherent on Europe. The party is divided over Europe, with the consequence that they say nothing, which, given the importance of the EU in British life, is clearly wrong. The party has been forced into this ridiculous position by the somewhat nutty eurosceptic movement in the UK – and the best thing for the Tories would be to decide exactly what relationship they want with Europe. Deciding this might also please the French.

Yesterday, Standard & Poor’s, a US ratings agency, downgraded French sovereign debt by one notch – from AAA to AA+. French government advisors responded in usual kind – by attacking the ratings agency in question, and saying this didn’t really matter since France is still a comparatively stable economy able to service its debts.

True, perhaps. But the S&P downgrade is still significant.

One can rant and rave at rating agencies until one is blue in the face – as the EU very often does – and there is a good argument to be made that they have too much power in the world. A friend of mine, who used to work at a rating agency, has endless stories about the politics involved behind ratings – and how his office would often get called by the finance minister of one country or another if a downgrade was expected, to perhaps steer things down another course.

This is not an indication that rating agencies are unimportant, as some in Paris might have you believe. Not only does the downgrade signal that things are not completely rosy in Paris, but also on a more practical level they make it more costly for France to borrow money. And that is going to hurt the recovery. It will also cause the euro’s rescue package to wobble since France is one of the biggest backers of the European Financial Stability Facility (EFSF).

Of course one has to be careful of schadenfreude. The UK has its own distinctive problems and may very well be in recession (again!) But the downgrade of France holds in it a warning for those eurozone leaders trying to resolve the crisis. National arrogance is misplaced. Solidarity would serve the euro-group much better.

And, for Cameron, reading the reasons for the S&P downgrade might not be a bad idea. Austerity is all very well – says S&P – but it cannot work on its own, without solid policies to stimulate growth. This is of course what that maverick economist John Maynard Keynes once said – you have to grow your way out of a recession, not cut your way out.

There are signs that Cameron, which launched his premiership on the ticket of fierce austerity, might be heeding such advice and recognising that there is a complex balance to be struck.