It's down to Sarkozy (or Merkozy, as he is known in some circles) and the Socialist Hollande in France, with the runoff happening May 6th. They finished in a virtual tie during the first round.

We are friends with French ex-pats and they are freaked out by Hollande and the prospect of a socialist trying to grow the economy by providing the unemployed govt jobs though real tax and spend, and that his election would be the beginning of the end of France as they know it.

But does it matter to the larger world outside of France? Could the Socialists ignite contagion starting in France? Or is it all a bunch of worry for nothing?

May be a bigger deal than anyone knows, maybe not. If Sarkozy loses it will be interesting to see the French bond rates over the coming months. As for contagion, who knows. It seems that it may well spread. It is far easier, as a politician, to say "Don't think, don't worry we'll do it for you" Than it is to say "Be responsible for yourself"

Oooh, socialism. Must be scary for you guys who've been brought up on propaganda.

Oddly enough, Geo, there's been reports of French people who are voting there that they fear more Sarkozy will be the 'end of France as they know it'.

Austerity is facing challenges. More noteable is actually the collapse of the centre-right government of Holland. For months the Dutch have been lecturing others (such as Greece) about fiscal responsibility, and it turns out they can't agree on a budget. When we look across the pond and see the USA staging a recovery in very difficult global conditions, we wonder whether a dose of Keynes would actually have done us some good.

The polls have for ages said that Hollande will beat Sarko in round 2. It may narrow in the last week, but there's a fair margin to make up.

danivon wrote:Oddly enough, Geo, there's been reports of French people who are voting there that they fear more Sarkozy will be the 'end of France as they know it'.

Indeed. "Austerity" and "France" just don't seem to go together, do they?

I don't disagree regarding Keynesian measures in the US, and while there may be consequences later, it's an example that should offer pause to the German-led European austerity approach. Nevertheless, how does one be a Keynesian when the Germans control your money supply? But that's another thread.

Germany alone does not control the money supply. They act like they do, but in reality the ECB is not controlled by the Bundesbank. France and Germany agreeing up to now, along with other 'northern' EuroZone nations was enough, but France can pull others away.

Of course the German government - in particular the liberal (in a European sense, so economically right wing but socially left wing) partners of Merkel's conservatives - are losing support and at the moment it would appear a Social Democrat - Green coalition is likely after the next Fedral elections (due next year I think).

So you think if France goes Socialist and Germany goes Social Democrat that the push for austerity in Europe goes away?

Not completely - there will still be a market-driven call for fiscal tightness and bodies like the World Bank and IMF are not without influence.

To be fair, I think it's not simply a question of Austerity and no stimulus spending, or Keynes with no thought to deficits and debt. What we need is a balanced approach, and the balance in Europe is too far to one way. The fear-driven markets forget that if economies are not allowed to grow, debt will be harder to deal with, even if you can shave billions off a deficit.

What we need is a balanced approach, and the balance in Europe is too far to one way

Except in Germany, where the austerity has never been severe....
Or in the healthy countries like Sweden that had lavish social programs kick in as unemployment happened and never really saw a huge break in domestic demand...
The Euro brought with it all kinds of advantages but one crucial disadvantage. the loss of an independent currency eliminated one major tool in fighting recession and that is the ability to lower value for a local currency and make exports and tourism more attractive.... Tieing one's self to the German economy, which has a different set of strengths and limitations than the smaller nations, means a huge adaptation. It would have been difficult anyway, but the loose credit for a decade masked a lot of structural problems that should have been dealt with immediatly.

rickyp wrote:

Danivon wrote:What we need is a balanced approach, and the balance in Europe is too far to one way

Except in Germany, where the austerity has never been severe....

No, rather they had a brief stimulus (their cash for clunkers being the successful scheme that other countries copied) and then ended it earlier than most, and then wondered why fewer and fewer Europeans in other places were buying their imports.

The Euro brought with it all kinds of advantages but one crucial disadvantage. the loss of an independent currency eliminated one major tool in fighting recession and that is the ability to lower value for a local currency and make exports and tourism more attractive.... Tieing one's self to the German economy, which has a different set of strengths and limitations than the smaller nations, means a huge adaptation. It would have been difficult anyway, but the loose credit for a decade masked a lot of structural problems that should have been dealt with immediatly.

True, but the Germans think that they are the victims, despite the effect being that the currency was kept lower than it otehrwise would have been, which helped to keep exports going.

The basic lesson is one that was learned in Germany about 150 years ago - that a tied currency means a tied economy.

dan

True, but the Germans think that they are the victims, despite the effect being that the currency was kept lower than it otehrwise would have been, which helped to keep exports going.

I suppose if Fred is tied to Ethel. Then Ethel is tied to Fred.
Overall, I suspect Germany has made out okay partly because they focussed a lot of their export markets on the far east, and the low value euro helped there. For example they make wonderful appliances and sell a large number to the growing Chinese middle class looking for better than domestic quality products...

C'est Hollande.

ricky, Germany was able to sell because the Euro was lower than the Mark would be, and its neighbours were borrowing to buy.

I think I said that Dan

.I suspect Germany has made out okay partly because they focussed a lot of their export markets on the far east, and the low value euro helped there

It's also the case that other Eurozone countries were able to borrow due to lowere interest rates than they would get as standalone currencies, which affected private borrowing as well as public. Another benefit to the Germans that they overlook in condemning other countries' spending.

Courtesy of a friend:

Angela Merkel arrives at Passport Control at Charles De Gaulle airport.

"Nationality?" asks the immigration officer.

“German” she replies.

“Occupation?”

“No, just here for a few days”

Ray Jay wrote:Courtesy of a friend:

Angela Merkel arrives at Passport Control at Charles De Gaulle airport.

"Nationality?" asks the immigration officer.

“German” she replies.

“Occupation?”

“No, just here for a few days”

Funny!