Is Austerity Dead?
The French election result has huge implications for the eurozone and for the upcoming U.S. presidential elections. It’ll set the tone for future United States economic policy.
Hollande’s victory means French austerity ends.
Damn the debt, full spending ahead.
In Sarkozy’s gracious concession speech, he congratulated Hollande, thanked his own boisterous supporters and strongly called for French reconciliation and patriotism in the wake of the election results.
The U.S. Importance of Sarkozy’s Concession Speech
Sarkozy’s remarks are especially poignant given a contentious French election over a referendum on economic policy.
It prophesies sorely needed unity here in the U.S. after our elections, no matter who becomes president. The lame duck Congress will still have taxmageddon facing it this year.
The French election marks a European Spring of sorts.
The pendulum is swinging back from austerity to big government spending programs again, along with soaring sovereign debt.
People all over Europe are rioting. They demand their suffering stop. They demand that high-cost government social and retirement programs be reinstated. They demand that corporations and wealthy individuals fund them.
At Stake in the French Election
Sarkozy joined forces with Germany’s Angela Merkel to require strict austerity measures be imposed on eurozone nations seeking an EU bailout. That highly unpopular policy evolved over the last two years.
The most famous European example of imposed austerity is the bailout of Greece. Spain, Ireland and Portugal have also been forced to cut government spending drastically to get EU bailouts of their sovereign debt. The EU restricts each nation state to no more than 3% of GDP in government spending.
The French election result will change all that. The French commitment to reduce government spending from 5.4% to 3% of GDP is history. Germany will now stand alone supporting austerity as the means to deal with the EU sovereign debt problem.
Germany will surely be forced to capitulate and go with the flow. The spending hawks have won.
Francois Hollande’s Winning Formula
During the French election campaign Hollande released a document with 60 propositions that should sound familiar to American Democrats and President Obama. Among them are:
- Raise taxes for big corporations, banks and the wealthy
- Increase government spending to stimulate the economy
- Create 60,000 teaching jobs
- Create 150,000 government subsidized jobs in areas of high unemployment directed at the young
- Promote more industry growth by creating an infrastructure bank
- Grant marriage and adoption rights to same-sex couples
- Pulling French troops out of Afghanistan in 2012
- Lower the official retirement age back down to 60 from 62
Back in late January when he made his proposals, Hollande said this:
I only make promises that I will be able to keep. Everything I say will be done.
– New York Times, 1/26/2012
President-elect Francois Hollande rode a wave of anti-austerity feeling to victory. That wave is sweeping across Europe in the wake of Europe’s financial crisis.
Many European and American economists applaud the change saying that big government spending is the only way to create enough demand to return a nation’s economy back to prosperity.
That is the message President Obama will take on the campaign trail in the coming months. He may point to Hollande’s victory in France as proof.
Francois Hollande, however, is a staunch socialist. He is the French Socialist Party candidate. He calls his set of proposals a manifesto.
The U.S. Democratic Party would never describe itself or Obama’s policies as socialist, yet the clear connection with Hollande is unmistakable. Whether that is good or bad is not known.
As it looks now austerity will likely be rejected here in the U.S. as it has been today in France.
Austerity may fade into temporary hiding for a feel-good spending binge, but it will always lurk behind the scenes as long as enormous debt remains.