piigsty

Matthew Feeney of Reason.com – the rightwing libertarian e-magazine – has penned a particularly thought provoking article that merits some analysis. Feeney identified 5 individuals lurking in the shadows (somewhat…) who might just hold the future of Europe in their hands. PIIGSty will supplement Feeney with its own analysis to give an enhanced overview.

1. Pierre Moscovici French Minister for Finance

The French electorate proved quite the predicable bunch. Francois Hollande as prospective (and ultimately, nominated) Socialist Party (PS) Presidential candidate, led incumbent Nicolas Sarkozy of the Gaullist Union for a Popular Movement (UMP) in the run off opinion polling since August 2010. Hollande won in May 2012 and his PS won the companion legislative election in June. Leftist parties, including the Greens and Radical Party won over 300 seats in the 577 seat French parliament.

During the election, the PS sought a mandate with a policy platform which bucked the ‘deficit reduction’ and ‘reform’ agenda which Europe has assiduously followed since 2009. With the Merkozy ‘austerity consensus’  shattered by the ballot box (those pesky voters!) Hollande sought to promote his plan for ‘growth’ over austerity i.e. an end to cuts for sake of cutting and a halt to pulling money out of European economies for the sake of ‘building confidence’ by returning to sustainable economies. But France after all, was not one of the unruly PIIGS and as the second largest EU economy refused to rustle in the same trough to be thrown scraps by the master. The new French government, under PM Jean-Marc Ayrault, would have a tightrope to walk to protect the welfare state while maintaining growth and stability.

Without cuts , the alternatives to balance the books are always the same – shifting the debt burden onto those who can ‘well afford to pay’ i.e. the upper crust.  Financial gymnastics is never easy. Luckily for Ayrault, the burden for action falls on the Finance Minister Pierre Moscovici. As promised, the election tax plans were realised in July when the new government outlined plans to tax incomes greater than €1m at 75% and incomes up to €1m (over €150,000) as high as 45%.

But with Hollande and Ayrault sticking to their election promises, there are already accusations of watering down and compromise with deficit reduction measures. Raising the minimum wage by 2% has been met with scathing criticism from the left for being too low.

Despite low borrowing costs (bond yields) with French unemployment hovering at 10%, flat growth and weak consumer spending –the tripartite of Hollande, Ayrault and Moscovici are significantly constrained in their efforts at home and are likely to seek to front load cuts in public sector costs to give them more breathing room.  They’re sugarcoatng this by striking an interventionalist tone with the private sector – throwing their oar in with the workers in rejecting Peugeot’s plan to cut 8,000 workers and using state owned financial providers to pump money into cash strapped local government.

Ultimately though, you can’t square a circle – something has to give.

With speculation abound that Moscovici and German Finance Minister Schaeuble could split the chairmanship of the Eurogroup upon the departure of Jean-Claude Juncker (although this is seen as unlikely), the French Finance Ministry’s say in European finance has rarely been so strong in recent years.  The French, unlike the Germans, are warm to the idea of Eurobonds – while both are on the same page when it comes to growing the power of the ECB and enhanced fiscal union.

As Feeney sums it  up “Because France wields a huge amount of influence in Europe, and with the eurozone collapsing, Moscovici’s influence will become more apparent and dominant in the coming months.” Dramatic American journalists…you gotta love ‘em.