Tag: France

Denouncing the Flaws of the EU is not Extremist, it’s Necessary

The main takeaway from the French presidential election is that criticism of the European Union (EU), including the eurozone, is not well received regardless of its validity. While Europe might currently be breathing a sigh of relief, the strategy of silencing and ridiculing those who express dissatisfaction with EU policies is dangerous for its future.

Presidential campaigns in France

During the campaign for the first round of the French presidential election, two candidates touted the possibility of leaving the euro: Jean-Luc Mélenchon, representing the leftist France Insoumise party, and Marine Le Pen from the extreme right-wing Front National. Most outlets considered their attacks on the euro to be a political liability with the mainstream electorate. The media slotted both candidates as “anti-European” extremists that should be feared. However, a closer look at the platforms of these two reveals that their critiques of the EU and their desired outcomes bear very few similarities.

Marine Le Pen promised a “France-first” approach and pledged to pull France out of the eurozone and close the country’s borders. Her platform plays on racism and xenophobia, and blames France’s woes on immigrants. It is important to note that she did propose strengthening the welfare state and extending benefits, but only for French people and not foreigners.   

Mélenchon’s take on the EU was very different. His platform’s “Plan A” was to push for EU-wide reforms that aimed at bringing growth and strengthening mutual support amongst member states. He criticized the EU for becoming a place ruled by banks and finance, and his goal was to leverage France’s influence within the bloc to end austerity policies in all member states. If these negotiations with other EU members failed, then there was a “Plan B” that called for France to leave the euro and the EU in order to pursue a stimulus plan, which is not permitted under the deficit limits imposed by current EU regulation.

A large part of the media coverage received by Mélenchon centered on personal attacks, rather than on providing an accurate overview of his policies. He was accused of being a communist, both an admirer of Fidel Castro and Hugo Chavez, and a Russia sympathizer. With a significant social media following and energizing campaign, Mélenchon was able to surge in the polls late in the race. However, he did not manage to garner sufficient support to qualify for the second round of the election.

Plagued by scandals and voters’ discontent with the current administration, the candidates backed by the two traditionally mainstream parties in France, the Republicans and Socialists, did not make it past the first round. The run-off election will take place on May 7th between Le Pen and Emmanuel Macron.

Dubbed the establishment’s anti-establishment candidate, Macron describes himself as a staunchly pro-EU, pro-immigration, and pro-globalization centrist. Macron is backed by the party he created in 2016, “En Marche!,” and is successfully managing to brand himself as an outsider candidate. However, it should not be forgotten that as an economy minister in Francois Hollande’s government, who did not seek re-election due to extremely low approval rates, Macron was the architect of labor market reforms that weakened protections for workers and favored businesses. A close look at his program reveals his policies are strikingly similar to those of Hollande, just with different branding and rhetoric.

Macron’s platform consists of neoliberal platitudes that espouse values such as tolerance and acceptance of immigrants, while advocating for austerity and dismantling of social protections under the guise of increasing efficiency and “modernizing” the French economy. Macron pledged to reduce France’s deficit below 3 percent, as mandated by the EU, while also cutting taxes. To achieve both goals, Macron would undoubtedly have to slash government spending, which would most likely have a negative impact on the economy overall.

Macron’s uncritical embrace of the EU has gained him the praise and endorsement of other European leaders. Global financial markets that are reassured by his pro-EU stance are also celebrating the prospect of his victory. While his commitment to structural reforms and budget cuts is likely to please Germany and the European Commission, the question is if he can also satisfy the people of France.

Polls suggest that Macron will now win the run-off against Le Pen. However, concerns are mounting that if his government fails to deliver, the far right will be strengthened by the following election. Given how similar Macron and Hollande’s programs are (despite the different packaging) they are unlikely to deliver a different result.

The failed economic policies of the EU

The French economy struggles with high unemployment rates, particularly for young people, and is facing a decade of economic stagnation. Under increased pressure from the EU for France to abide by its deficit rules and reduce spending, previous governments have implemented harsh pension and labor reforms. These measures have failed to jumpstart the economy, and it seems intuitive that France should pursue different policies that could actually provide the much needed stimulus to its economy.

It’s not just France that is stagnating. Since the 2008 crisis, the entire Eurozone has seen a slow and uneven recovery. Particularly, the worst hit countries such as Greece, Italy, and Spain, are still dealing with the consequences of shrinking incomes and high unemployment. Nobel laureate Joseph Stiglitz showed how the structure and design of the euro were a key factors in holding back the recovery of the EU.

The structure of the euro was established by the Maastricht Treaty which laid down the groundwork for how the EU and the euro area ought to be set-up institutionally. The treaty arbitrarily established yearly deficit limits for countries at 3 percent of GDP. After the crisis, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union expanded the influence of the European Commission, an unelected body, to impose policies on member states. EU institutions have used the deficit limit as justification to dictate a neoliberal agenda, characterized by imposing austerity measures and pro-business structural reforms on member states, with very little consideration on the worsening of unemployment, poverty, and other social indicators.  

Considering the shortcomings of neoliberal policies imposed by the EU, perhaps Melélnchon’s “Plan A,” to push for EU-wide reform is not that “extremist” after all. Rather than crucifying him, he should have been given the chance to advocate for reform. The current direction taken by the EU is one that through austerity measures is slowly dismantling the European Social Model, which has traditionally been characterized by a strong safety net.

What the future holds

As long as the EU imposes and encourages a platform that hurts people, far right politicians like Marine Le Pen will continue to tap into those anxieties and gain popularity. The success of the Brexit campaign should serve as impetus for the EU to reevaluate its policies.

Politicians like Macron, who chose to ignore the flaws of the eurozone and advocate for more of the same unsuccessful policies may win popularity now, but set themselves up for failure in the long run. Macron’s unconditional praise of the EU’s virtues is somewhat similar to Hillary Clinton, who under a backdrop of suffering and social crisis, responded to Trump’s slogan “Make America Great Again,” by stating “America is already great!” This strategy failed and Clinton lost, with areas where jobs were under the most severe threats swinging towards Trump.

For the European project to succeed and continue bringing peace and unity to Europe, economic policy reform is necessary and austerity needs to end. Ignoring the economic struggles of the bloc and refusing to recognize the role of EU policy in exacerbating them will continue to fuel the rise of extremist right wing politicians. Calling those who advocate for socially inclusive reforms “extremists” is a strategy bound to backfire.

Female employment rates are rising across the world, but not in the US. Why?

Japan is not exactly the country that comes to mind as a model of gender equality and high labor force participation for women. In 1995, the OECD estimated women’s employment rate in Japan at 56.5 percent, almost 10 percentage points lower than in the U.S., which had an employment rate of 66 percent for women at the time. Between 1995 and 1999, the employment rate for Japanese women grew by less than half a percentage point, while for women in the U.S. it grew by almost 3 percentage points.

However, since 2000 this trend completely reversed. Between 2000 and 2015, the employment rate for women in Japan increased by almost 14 percentage points, while in the U.S. it dropped by over 6 percentage points. Japan’s employment rate for women surpassed the U.S. in 2014. Currently, almost 65 percent of Japanese women are employed, while only about 63 percent of women in the US are employed.

In recent years, Japan has launched extensive campaigns to encourage labor force participation by women. The government took various steps such as increasing allowances given to new parents, subsidizing daycare, and ensuring both mothers and fathers benefit from paid parental leave.

A look at the employment rate for women in some other OECD countries over time shows that other countries had increases similar to Japan’s. The only country besides the U.S. where the participation of women in the labor force has decreased since 2000 is Denmark, which has seen a 1.8 percentage point drop in the employment rate of women. Despite this drop however, Denmark still boasts one the highest employment rates for women of any country in the world.

In Germany, Japan, Canada, France, and the U.K. the employment rate for women has been increasing. In the last 10 years, German women have seen the biggest gains in their employment rate, which increased by 17 percentage points. The increases in the other countries have been more modest: 2 percentage points for Canada, 11 percentage points for Japan, 4 percentage points for France, and 3 percentage points for the U.K.

By 2015 only France had a lower employment rate for women than the U.S. While France still trails behind the U.S., it has made progress in the past 10 years. The employment rate for women is on a steady upwards trend, meaning it could surpass the U.S. in the near future.

What all other countries besides the U.S. have in common is fairly generous parental leave policies for new parents. While in the U.S. new parents have no guarantee of paid leave, in Japan both mothers and fathers can take up to 58 weeks of paid leave. New mothers are guaranteed 58 weeks of paid leave in Germany, 52 in Canada, 50 in Denmark, 42 in France, and 39 in the U.K. For new fathers, France offers 28 weeks of paid leave, Germany, nine weeks, and the U.K. and Denmark, two weeks.

Furthermore, child care costs in the U.S. are extremely high, and are growing at a much faster pace than overall inflation. The rising costs of childcare make it unaffordable for many parents, especially for low-wage workers. The Economic Policy Institute found that childcare costs in some areas can take up more than a quarter of a family’s income. In some states, costs for daycare are higher than for college tuition.

This post originally appeared on the blog of the Center for Economic and Policy Research.

Germany Does Have Unfair Trade Advantages

In one of Donald Trump’s rants, he claimed the reason why there are so many German cars in the U.S. is that their automakers do not behave fairly. The German economy’s prompt response was that “the U.S. just needs to build better cars.” However, this time, probably without even realizing it, Donald Trump was on to something – Germany’s currency setup does give it unfair trade advantages.

While China is commonly accused of currency manipulation to provide cheap exports, the IMF has recently decided the renminbi (RMB) is no longer undervalued and added it in its reserve currency basket, along with other major currencies. However, an IMF analysis of Germany’s currency found “an undervaluation of 5-15 percent” for the Euro in the case of Germany. Thus for Germany, the Euro has a significantly lower value than a solely German currency would have.

Since the Euro was introduced, Germany has become an export powerhouse. This is not because after 2000 the quality of German goods has improved, but rather because as a member of the Eurozone, Germany had the opportunity to boost its exports with policies that allowed it to maintain an undervalued currency.

Germany and France are the largest Eurozone economies. Prior to joining the Eurozone, both countries had modest trade surpluses.

In the above figure we can see how following the implementation of the Euro, the trade balances of Germany and France completely diverged. The French moved to having a persistent trade deficit (importing more than they export), while Germany’s surplus exploded (exporting much more than they import). After a brief decline in the surplus in the immediate aftermath of the crisis, it is now again on the rise.

In the early 2000s Germany undertook several national policies to artificially hold wages down. These measures were seen as a success for Germany globally. By being part of the Eurozone and holding down wages, the Germans could export at extremely competitive prices globally. Had they not been part of the Eurozone, their currency would have appreciated, and they would not have the same advantages.

In the aftermath of the European debt crisis, Germany took a tough stance on struggling debtor countries. Under German leadership, the European Commission imposed draconic austerity measures on countries such as Greece to punish them for spending irresponsibly. Spearheaded by Germany, The EU (along with the IMF) offered a bailout to Greece so that it could pay the German and French banks it owed money to.

This bailout came with strict conditions for the Greek government that was forced to impose harsh austerity. The promise was that if the government cut its spending, the increased market confidence would help the economy recover. As a member of the Eurozone, Greece had very limited monetary policy tools it could use. Currency devaluation was no longer an option, the country was stuck with a currency that was too strong for its economy.

Meanwhile Germany prospered and enjoyed the perks of an undervalued currency. Being able to supply German goods at relatively low prices, Germany’s exports flourished. At the same time, Greeks, and other countries at the periphery of the union, were only left with the choice to face a strong internal devaluation, which meant letting unemployment explode and wages collapse until they become attractive destinations for investment.

Germany consistently broke the rules of the currency area, without ever being punished. When it first broke the deficit limits agreed upon by Eurozone members in 2003, the European Commission turned a blind eye. Germany is often considered to have set an example for other EU nations by practicing sound finance, and having a growing, healthy economy.

Greece, on the other hand is blamed for spending too much on social services, and many of its problems are blamed on being a welfare state. When you compare the actual numbers, however, Greece’s average social spending is much less than that of Germany. Between 1998 and 2005, Greece spent an average of 19 percent of GDP, while Germany spent as much as 26 percent.

To address these vast differences in the trade patterns of the EU nations, the European Commission introduced the so-called “six-pack” in 2011. These regulations introduced procedures to address “Macroeconomic Imbalances.” However, as found in the Commission’s country report “Germany has made limited progress in addressing the 2014 country-specific recommendations.”

Germany’s trade competitiveness comes at the price of making other members of the Eurozone less competitive. This is something that Germany needs to be aware of when responding to the problems other economies are facing. Currently Germany is demanding punishments for countries whose have few policy tools available to stimulate growth as Eurozone members.

However, Germany should keep in mind that the Euro is preventing the currency adjustments that would take away its trade competitiveness. Without a struggling EU periphery, there wouldn’t be a flourishing Germany.