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France

Hollande’s economic restart falls flat amid domestic drama

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Nothing screams ‘sexy’ more than… a payroll tax cut.France Flag Icon

With the French press salivating over French president François Hollande’s surprisingly sordid love life, Hollande tried to refocus his administration’s agenda last week at a press conference to announce a planned cut in France’s payroll taxes and other measures to boost France’s competitiveness.  It’s a bid to win back some control over his unravelling public image.  Hollande suffers from massively low approval ratings —  just 22% of French voters support Hollande (somewhat of an improvement over polls in November that gave him just 15% approval).  There’s even talk that his administration could augur the collapse of France’s Fifth Republic.

But Hollande’s policy revamp has been lost in the furor over Hollande’s alleged dalliance with actress Julie Gayet.  Tabloids showed photos of the French president sneaking off to meet Gayet on his scooter (pictured above), and the news seems to have sent his current partner, Valérie Trierweiler, to a Paris hospital for over a week.  Elected on the premise that he would bring decorum and normalité to the Élysée after the ‘bling-bling’ presidency of Nicolas Sarkozy, Hollande’s love life began overshadowing his presidency within days of his inauguration.

Trierweiler tweeted in support of Olivier Falroni, a dissident parliamentary candidate in June 2012, who was running against Ségolène Royal, Hollande’s former partner and the 2007 presidential candidate of the Parti socialiste (PS, Socialist Party).  Royal lost that race, despite Hollande’s support.  A reporter for Paris Match, Trierweiler fulfills the role of France’s first lady, complete with budget and staff, notwithstanding that she and Hollande never married.  Hollande and Royal also never officially married during their nearly 30-year relationship, which produced four children.

Trierweiler left the hospital after more than a week on Saturday afternoon, but the discord between France’s first couple continues to dominate headlines, with Le Journal de Dimanche reporting that presidential advisers are calling the relationship ‘finished.’  So much for Mr. Normality.  Though Sarkozy and his two predecessors, Jacques Chirac and François Mitterand, were both known for active love lives, the nature of media has changed since the French press kept Mitterand’s longtime mistress a secret from the public in the 1980s.

At a policy level, none of Hollande’s domestic troubles should matter.  But they come at exactly the wrong time, overshadowing Hollande’s push to make France’s economy more competitive.  At the center of Hollande’s proposal is a €30 billion payroll tax cut for French businesses, continue pushing forward with plans for €15 billion in budget cuts this year, with €50 billion more to follow over the next three years.  Though Hollande hopes that will make France’s businesses more willing to hire French workers, it seems unlikely to erase the mistrust Hollande has engendered by pushing a top income tax rate of 75% on incomes over €1 million, a troubled policy that seems set to take effect after facing legal problems in France’s top constitutional court.  Hollande and his leftist parliamentary majority pushed through a labor market reform in January 2013, but it was a relatively minor first step that merely streamlined the process for conducting layoffs.

Hollande would have engendered much more goodwill if he’d announced a retreat from the iconic 75% rate or announced a much bolder labor market legislation.  But that carries with it the risk of a full-scale revolt on the French left.  Continue reading Hollande’s economic restart falls flat amid domestic drama →

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14 potential game-changers for world politics in 2014

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2014crystalball

Though I rang in the new year with a list of 14 world elections to watch in the coming year (and 14 more honorable mentions to keep an eye on), I wanted to showcase a few more thoughts about what to watch for in world politics and foreign affairs in 2014.

Accordingly, here are 14 possible game-changers — they’re not predictions per se, but neither are they as far-fetched as they might seem.  No one can say with certainty that they will come to pass in 2014.  Instead, consider these something between rote predictions (e.g., that violence in Iraq is getting worse) and outrageous fat-tail risks (e.g., the impending breakup of the United States).

There’s an old album of small pieces conducted by the late English conductor Sir Thomas Beecham, a delightfully playful album entitled Lollipops that contains some of the old master’s favorite, most lively short pieces.

Think of these as Suffragio‘s 14 world politics lollipops to watch in 2014.

We start in France… Continue reading 14 potential game-changers for world politics in 2014 →

Israel, United States

Why Stanley Fischer is such an inspired choice as US Fed vice chair

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It’s really quite incredible that there’s been more ink spilled over the decision of the American Studies Association, a US-based academic group, to boycott Israel than the potential nomination of Stanley Fischer, the former governor of the Bank of Israel, to become the next vice chair of the US Federal Reserve.ISrel Flag IconUSflag

It’s somewhat ironic that at a time when many critics are attacking the ASA’s decision (is it morally right to boycott the exchange of ideas, academic debate and discussion?), Fischer’s transition from Israeli central banker to US central banker would be a spectacular opportunity — for Fischer, for the Fed, for Israel, for the United States and, if the initial reaction holds, world markets, too.  Reuters reported late last week that Fischer was offered the spot, though there’s not been an official announcement.

Janet Yellen, the current Fed vice chair, is US president Barack Obama’s nominee to chair the Fed after Ben Bernanke completes his second term on January 31, 2014, and she is expected to be confirmed as the new Fed chair by the US Senate in a vote later this week.

Fischer, as the number-two official at the Fed, would bring with him eight years of experience setting monetary policy for Israel and the rock-star status of one of the world’s most accomplished economists.  As a longtime professor at the Massachusetts Institute of Technology, he not only served as thesis supervisor to Bernanke, the current Fed chair, but also Mario Draghi, the chair of the European Central Bank.

As The Financial Times reported last week, Fischer has a ‘dream resumé’ for the position, topped off by an eight-year stint as Israel’s central bank governor that is universally acclaimed:

Some clues to how Mr Fischer thinks about monetary policy come from his tenure as governor of the Bank of Israel. He was one of the country’s most respected public figures; when he announced he would be stepping down earlier this year, one commentator said the country was losing its last ”responsible adult”.

His eight years as governor coincided with fast economic growth, low unemployment – currently 6 per cent – and low inflation. Israel survived the financial crisis in 2008-9 without seeing a single bank collapse.  Unlike his predecessor Jacob Frenkel, who had a tight focus on fighting inflation, Mr Fischer is credited with broadening the Bank of Israel’s remit to influence growth and employment. His decisions were marked by pragmatism: he slashed interest rates in the wake of the financial crisis, then abandoned economic dogma to try to hold down Israel’s currency, before raising rates as the economy recovered.

Fischer was so successful in stabilizing Israel’s economy that the Bank of Israel was already raising interest rates by September 2009 — if it hadn’t been for his age (he’s 70 today), he would have been a strong candidate to succeed Dominique Strauss-Kahn as managing director of the International Monetary Fund in 2011.

Born in what is today Zambia, Fischer spent his childhood there and in what is today Zimbabwe (and what was then the colonial apartheid state of southern Rhodesia).  Fischer first came to the United States in 1966 for his Ph.D in economics at MIT, and he remained there as a professor through 1988, when he took a position as the World Bank’s chief economist for two years.  From 1994 to 2001, he served as the first deputy managing director of the IMF during the Asian currency crisis of the late 1990s and other financial crises from Mexico to Argentina to Russia.  After a brief stint in the private sector with Citigroup, he was appointed governor of the Bank of Israel in 2005 by then-prime minister Ariel Sharon — and recommended by the finance minister at the time, Benjamin Netanyahu.  He holds dual Israeli and US citizenship, and he would have been as credible a candidate to lead the Fed as either Yellen or former treasury secretary Lawrence Summers.

As Dylan Matthews wrote earlier this year for The Washington Post, Netanyahu and Sharon took a big chance on Fischer, who wasn’t an Israeli citizen at the time of his nomination:

No matter — Fischer’s results were more than enough to assuage any doubts. No Western country weathered the 2008-09 financial crisis better. For only one quarter — the second of 2009 — did the Israeli economy shrink, by a puny annual rate of 0.2 percent. That same period, the U.S. economy shrank by an annual rate of 4.6 percent. Many countries, including Britain and Germany, fared even worse.

So what would his appointment mean for the Fed?  Continue reading Why Stanley Fischer is such an inspired choice as US Fed vice chair →

France

As Hollande marks one year in office, would Dominique Strauss-Kahn have been better for France?

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DSK

Today is the one-year anniversary of François Hollande’s inauguration as the new president of France, having swept to the Elysée Palace with a mandate for a more subdued presidential administration and a leftward turn after the ‘bling bling’ administration of center-right president Nicolas Sarkozy.France Flag Icon

Hollande won’t face voters again for four more years, and by 2017, Hollande’s reputation may well have recovered, but at the one-year mark, he’s had a horrific presidency so far:

  • France slipped back, as a formal matter, into recession today, with a GDP growth rate of -0.2% for the first quarter of 2013 with an unemployment rate of over 10% and eclipsing the previous high in 1997. 
  • Barely a month into his administration, Monsieur Normal appeared to be unable to stop a fight between his current partner, Valerie Trierweiler, and his former partner, Segolène Royal, when Trierweiler tweeted her support for Royal’s opponent, thereby ending Royal’s chances to become the president of France’s parliament, the Assemblée nationale, and making Hollande look as if he couldn’t even control matters within his own relationship.
  • The traditional Franco-German axis that’s powered European integration for decades remains at a frigid impasse, despite the widespread belief that German chancellor Angela Merkel has outfoxed Hollande and is winning the policy war on how to address the ongoing eurozone economic crisis.
  • He worked to implement a 75% income tax rate on income above €1 million per year, though France’s constitutional court has ruled it unconstitutional on technical grounds, all the while keeping in place strict targets to reduce France’s budget deficit and retaining a rise in the retirement age from 60 to 62 implemented by the Sarkozy administration.
  • Budget minister Jérôme Cahuzac stepped down in April 2013 after it was revealed he had a Swiss bank account and had potentially committed tax fraud.
  • Altogether, Hollande’s approval ratings are the lowest of any president after one year in office, and fully 73% of French voters are dissatisfied with Hollande and 68% are dissatisfied with his prime minister, Jean-Marc Ayrault.

It’s been, from a political perspective — and even from a policy perspective — a bit of a disaster.  Hollande’s chief accomplishment, enactment of same-sex marriage in France, has been accompanied by vigorous opposition from Sarkozy’s party and from the far right, inspiring massive anti-marriage rallies and even an uptick anti-gay violence.

It’s enough to make you wonder — what would have happened if Dominique Strauss-Kahn had never been alleged to have sexually assaulted a maid in a New York hotel, had stepped down with his head held high as managing director of the International Monetary Fund to run for an almost certain nomination as the presidential candidate of France’s Parti socialiste (PS, Socialist Party) and proceeded to challenge Sarkozy?  Strauss-Kahn today, as a matter of coincidence, re-emerged to open a bank in South Sudan, one of his rare appearances since the debacle that led to his arrest in May 2011.  Although U.S. prosecutors dropped charges of attempted rape and other sexual abuse charges in August 2011, Strauss-Kahn’s political career was finished.

Though it’s subject to a ‘grass is always greener’ caveat, there’s good reason to believe that a Strauss-Kahn presidency would have been a smoother affair than the embattled Hollande administration.

Despite whether it would have been better or worse, a Strauss-Kahn presidency would have been an incredibly different beast from the outset.

It seems unlikely that Strauss-Kahn would have ever campaigned on a pledge to raise the top rate of tax to 75%, let alone attempted to enact it, when it’s such an outlier among peer tax regimes.  It seems more likely that Strauss-Kahn, as a relative moderate within the Socialist Party, would have been more receptive to implementing labor market reforms designed to make France more competitive — perhaps a gentler variant of the Hartz IV / Agenda 2010 reforms that Germany enacted under social democratic chancellor Gerhard Schröder in the early 2000s.

But as a former IMF chief and a former finance minister under the government of prime minister Lionel Jospin from 1997 to 1999 who worked to reduce the budget deficit to prepare for French entry into the eurozone, Strauss-Kahn would have come into office with an unrivaled economic credibility that would have allowed him to challenge Merkel on the direction of economic policy in the eurozone with vigor — and then some.  It’s not hard to imagine Strauss-Kahn pursuing a relatively ambitious reform program domestically while simultaneously calling for less punishing austerity measures in the more devastated southern European economies.

Certainly, Strauss-Kahn’s candidacy and his presidency would have been plagued with the same sort of scandalous affairs that brought his career to such a  screeching halt in 2011.  It’s difficult to imagine Strauss-Kahn being emasculated in his first month in office (fairly or not), unable to stop a very public spat between a current and former lover, one of whom happens to have been his party’s 2007 presidential candidate and a leading political figure in her own right.  Strauss-Kahn would have come to the French presidency after a career in the public eye, unlike Hollande, who had chiefly served a behind-the-scenes role — when he was half of France’s power couple, it was Royal, not Hollande, who was the public star.  Hollande, from 1997 to 2008, was the first secretary of the Socialist Party and, unlike Strauss-Kahn, he was never a minister in the Jospin government and he was certainly not among the presidential contenders in 2007.

Four years are a long time in politics, French or otherwise, and Hollande can at least point to a military intervention earlier this year in Mali that went relatively smoothly by accomplishing a narrowly defined goal, and the Mali operation represents the Hollande administration at its best.  Hollande could engineer his own comeback, especially if the economy improves this year or next — it’s hard to believe he can sink much lower in public opinion.  For now, Strauss-Kahn will still have some ways to go until he, if ever, reaches political redemption in France.  But he’s a formidable economic and political talent, and comebacks aren’t altogether unheard of in France.  Just look at the return of former prime minister Alain Juppé as foreign minister in the final 15 months of the Sarkozy administration, despite his 2004 conviction for mishandling public funds.

With such an uninspiring administration, Hollande could well turn to a cabinet shakeup in the future to replace Ayrault or other top minister, including finance minister Pierre Moscovici — and he might do well to bring Strauss-Kahn or Royal, whose political talents remain unutilized, back into the top tier of government.