The seismic forces propelling the socialist contender to the Elysee Palace have been caustically dismissed by Bret Stephens, a prominent columnist for the Wall Street Journal, as the result of the conceited embedding of ‘crazy’ ideas. The analysis underplays the significance of the French presidential election and the way it is channelling continent-wide discontent over the institutionalisation of the politics of austerity.
These strategies lie at the heart of the fiscal compact brokered by the incumbent French President Nicholas Sarkozy in conjunction with the German Chancellor, Angela Merkel. Formally agreed to by the European Union member states in March of this year (with the exception of the United Kingdom and the Czech Republic), the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union places significant limits on the capacity of member states to run deficits.
The commitment to prudence, a pre-condition for German support for the expansion of the bailout facility used by the European Central Bank to help at risk economies within the European Union, has done little to solve the underlying crisis. Arguably it has exacerbated the problem, in the process fuelling popular discontent, most notably in France itself, where President Sarkozy enters the second round-runoff with a ten point deficit in the opinion polls.
It has also exposed deep fissures within the European core (and beyond) over what constitutes societal obligation and role of political agency in fashioning it, a point made with clarity in the Financial Times recently by Philip Stephens, when he argued that a lack of trust lies at the heart of the paralysis that is blocking progress towards strategic management of the crisis on both sides of the Atlantic. It is from France, however, that the pressure to reshape the tectonic plates is now building up.
The socialist front-runner, Francois Hollande, pointed out in Paris last night that support for a refashioning of political purpose extends beyond French borders. He cited Italy and Spain as examples of countries determined to base legitimacy on more than capacity to withstand austerity. It is a message that corresponds to the private counsel of the International Monetary Fund.
While agnostic on the outcome of the election, the IMF has for some time intimated that austerity without mechanisms to promote growth is unsustainable in political and economic terms. As Stephanie Flanders, the highly-regarded economics editor at the BBC pointed out in her blog this week, “many fund officials would be happy to hear a French President re-ignite that debate after 6 May - though naturally, they would rather the president in question were not (gasp) a socialist.”
This reasoning resonates across the periphery, defined in political as well as spatial terms. A notable case in point is Ireland. The country is under the economic stewardship of a troika comprising the European Commission, the European Central Bank and the International Monetary Fund.
Notwithstanding the fact that it has received plaudits from the troika for institutionalising restraint, the savings have made little impact on the scale of indebtedness. To do so will require even more savage cuts to already diminished stores of social capital.
The most recent opinion poll shows a steep decrease in the popularity of the government of national unity, which remains wedded to implementing the austerity agenda. The junior partner, the Irish Labour party, has seen its support go into free fall. The primary beneficiary has been Sinn Fein, a party traditionally linked to the IRA and hostile to the fiscal compact.
The compact is subject to a referendum later this month. Three major trade unions are actively campaigning for a “no” vote and Sinn Fein is adroitly campaigning on a rejection of what it terms the politics of fear.
A rejection will not torpedo the compact, it comes into force if twelve countries ratify it. It may, however, limit Ireland’s access to continued funding, an unsubtle threat that dominates political discourse on the island. Over the past week senior figures, ranging from the head of the inward investment agency to the Governor of the Central Bank of Ireland and the spokesman for the International Financial Services Centre have warned of the calamitous implications of rejection.
In an analysis that echoes Sarkozy’s warning that a Hollande presidency risked sacrificing French national interest to a powerplay orchestrated by speculators, John Bruton of the IFSC suggested a rejection of the treaty exposed Ireland to the mercy of “the moneylenders and the loan sharks.”
Notwithstanding the pleas of the Government that the compact is best seen as an insurance policy, a positive return is by no means assured. Even in Ireland, bruised by the total collapse of its economy and humbled by its reliance on European funding, there is a limit to capacity to endure.
Events in France do not necessarily give a rationale or justification for an Irish rejection. They do, however, provide a basis for a more balanced approach to the management of the debt crisis; an approach that necessitates questioning whether the reforms introduced address one of the fundamental causes of the crisis (i.e. a financial services sector impervious to political control).
In his news conference, Francois Hollande committed to sending written proposals to European leaders the day after the election on May 6 that focus on growth strategies. These, he claimed, would include plans to generate continent-wide infrastructural spending through the introduction of joint bonds, facilitate greater structural investment initiatives financed by the European Investment Bank and boost educational and youth spending initiatives through the introduction of a financial transactions tax.
None of these proposals necessarily negate either the fiscal compact or the need to aspire to balanced budgets over the medium and longer term. What they do highlight, however, is a determination to transcend the limitations of a political logic that has done little to stimulate moribund economies, is hamstrung by a residual lack of trust within the highest echelons of the Euro zone and has provided little basis for popular support for painful if necessary reform. How Europe responds to the entreaties will be closely monitored in Ireland and could play a crucial role in determining the outcome.
The real impact of the French election is not, as Bret Stephens’ at the Wall Street Journal points out, the elevation of the politics of conceit. Rather it is the signal it sends out that faith in market forces to solve political questions is both limited and limiting. It responds to the plea for vision embedded in the analysis put forward by his namesake at the Financial Times, that political agency is an essential ingredient in the shaping of circumstance. It is not a vision that many in the financial sector would necessarily concur with. Legitimacy, however, will rightly be determined at the ballot boxes across France. The aftershocks will resonate from the core to the periphery.
Justin writes a column for The Conversation, The ethical deal and is director of the UNSW Centre for Law, Markets and Regulation portal, where this story also appears.