Francois Hollande's Freedom Fries

By: Andrew_McKillop

Jumping the Atlantic, the shockwaves from Europe's rapidly changing political landscape are starting to wash up on American shores. French fries could or might go off the menu and revert to Freedom Fries - time will tell.

Already Hollande is on record for a total withdrawal of all French combat troops from Afghanistan by December 31st, is raising taxes on the rich, handing out more government cash to low income families and recruiting sixty thousand more teachers. He wants growth, and to him and most others that means Keynesian style priming the pump - with tax cuts for companies that recruit, and more cash for the poor using cash that doesn't exist. It has to be borrowed, but talking around that reality is called politics.

To be sure, what is happening in France is at present only a muted and tamed version of what Greek politics is doing: throwing down the gauntlet to German austerity cures, erecting the street barricades, moving ever nearer to the deadly breakpoint where Greece simply abandons the euro or is booted out by other Eurozone countries, with Germany at the head of the boot boy list.

The contagion effect across the Atlantic could or might be strong, above all for Republican hopes of a Federal budget cliff, over which Obama and the Democrats will jump like dumb bison pushed and enticed to the edge by crafty Red Indians, even if Obama is almost certain to be re-elected. Contagion from Europe's now rapidly unfolding political transformation away from austerity politics will also spread to China and Asia, in the shape uncertainty on what this means for trade, tariffs, investment and exchange rates on a euro that in theory at least, should only wilt.

WHAT WERE AUSTERITY CURES ?
The old-style model featured IMF programmes for fiscal rectitude and a squeaky clean economy in Third World countries - many of them today enjoying 5% a year growth rates - through starving and beating them into submission. When prices for their raw materials and natural resources exports turned up, from 2000, they paid off their IMF loans and kicked out the last remaining IMF commissars out of their economics and finance ministries. Today, playing "nothing forgottten, nothing learned" the supposed one way street for European salvation is the same Third World austerity, at least for the PIIGS, we were told hand-on-heart in countless Merkel-Sarkozy interviews on primetime.

But reality is so very different. Countries sitting on hundreds of billions, even far north of one thousand billion euros of debt aren't "austere". Exactly like free spending, freely borrowing Obama and Japan's shifting leaderships the Europeans set to work cranking up debt like there was no tomorrow, from before the 2008 crisis, during the 2008 crisis and after the crisis. The debt balloon only got bigger, and for some countries like Greece, it took on a lead balloon otherwordly look. It was literally nothing to do with the economy or Greece anymore, the lead balloon had learned to fly.

Even in 2007, France's ex-president Sarkozy was mumbling about the need for cutting the deficit and trimming national debt "by radical means". His means were never explained, they got lost in translation on the way to a luxury meal with people celebrities at the Fouquets restaurant in Paris, so unlike the downmarket Phuket restaurants of Thailand. Ex-president Sarkozy even explained to the people that on a temporary basis of course, he might have to increase debt, to pay off debt. A master stroke of logic.

His ministers explained that they also were doing what they could to contain French debt - by spending more. Surprising to them, but not to persons able to read and write, debt only increased and the budget stayed deep in the red as French deficits on trade, every month, went on growing along with unemployment and street crime. Surprising to anybody, Sarkozy was only beaten by a couple of million votes in the May 6th runoff with Francois Hollande. The fear of the apocalypse factor was huge.

CAN EUROPE REDEFINE GROWTH AND AUSTERITY ?
What Europeans need to know, and Americans want to know is the answer to this question. For France, the redefinition of growth - from growing debt to growing the economy - is already being mapped out, at least talked about by future ministers in Hollande's coming government. Michel Sapin, a possible minister of finance, favours taxes on everything except consumption while a not so possible minister, the Ecology party's Eva Joly and her friend Cecile Duflot want a massive green energy and public transport programme. Hollande's oldest socialist allies, like Jean-Pierre Chevenement want to build more nuclear power plants, because French EPRs are so good, they say, but they have nothing against a few dozen square kilometres of offshore windfarms, here and there, to impress voyagers on cruise liners. Nationalizing all the banks also features among programmes favoured by some of Hollande's closest aids, like Arnaud Montebourg.

For France's extreme right and extreme left, whose candidates scored around 35% of all votes cast in the first round of presidential elections, April 22, none of this is enough. France has to quit the Eurozone, declare a moratorium on debt, impose punitive tariffs on imports from China (and even from Germany), build 500 000 new homes a year, reinvent the wheel and patent that new French invention, increase immigration, or totally ban it and deport the unwanted millions as Marine Le Pen roared at every one of her raving campaign meeting. Oh yes, Europe still has imagination.

Hollande has to steer a real world course, and along that sea voyage the first iceberg is called Merkel. Showing her declning certitude of absolute power to solve Europe's future - through IMF austerity for smaller or weaker economies - Merkel has already backtracked on her initial icy iceberg reaction to Hollande's existence: she was certainly not going to meet the man before the elections. She is surely going to meet him now. Can Hollande and Merkel patch something together now the Merkel-Sarkozy double act has hit the skids ? How about Eurobonds ?

Doing something that has the enticing smell of infrastructure spending is surely high up the list: but apart from green energy what is there ? High speed trains were already tried out, 30 years ago, by Hollande's supposed political mentor Francois Mitterand, who was also a fervent builder of nuclear power plants, sometimes racking up 3 or 4 new plants each year. The fantastic costs, let alone the needs and the building times for that feat, today, takes it straight off the menu. So green energy is a certain default choice, but as Obama and others have found, even the Chinese, there are problems with racking up the spending on green as the glitzy start up New Energy Corp.'s fold one by one.

The real default choices are only radical. Debt moratorium isnt nice to talk about on primetime, and is nice to deny, but is one real alternative to Europe's debt rout. All EU27 debts could - in fact should - be "federalized", says Jacques Attali, the long-serving economics spin doctor and witch doctor to several presidents, even Sarkozy. Merkel and the Germans would probably love it, after a small amount of ritual whining, he says, adding that creditors would of course be cheated by this, but slowly and nicely, with decorum, with real European style. Above all the apocalypse would be avoided.

WHAT APOCALYPSE ?
Political earthquake in Europe makes it about even betting it is Apocalypse Now. There are only radical options, now. Europe has to be totally federalized, or the Union has to be abandoned and revert to an economic trade pact and customs union, maybe with go-anywhere euro travel checks, but also with nationalized banks and credit unions in some countries. The European Commission could be shrunk almost to nothing, states rights would be reasserted. It could go extreme left and extreme right, as national identity was cranked back up as a rallying flag. It could accelerate its economic downsizing, Japanese style, it could do this, that and the other.

The options are being discussed out loud every day, massive changes like the Sarkozy defeat loosen up tongues, held in check for years as muddle through liberalism ruled the roost. For France, but as yet few say it outright, the end of "Sarko" was also the end of era. He tried everything, and had failed. He was an artist of liberal failure, recycling one-liners from the Thatcher-Reagan years - from another century - and trying them out one more time. In their day, there was fat to trim and to burn and waste, but the larder is bare today. Old tricks of the "regalian" Mitterand era, like building trains and nuclear plants do not have the residual aura of Great Works, they also didn't work.

The apocalypse of the Jacques Attali type is so easy to map. The Eurozone falls apart when Greece is ejected or pulls out before it can be booted out - defaulting on its debts and declaring all of the Merkel-Sarkozy debt packages null and void with no remaining effect. Other Club Med countries will be surely and sorely tempted to also save their onions, the same way. The Northern League countries, with Hollande's shcizophrenic France not knowing which side of the barricades it belongs, will go it alone, but market reaction will be deeply and utterly hysterical.

The euro can fall to 1 dollar, or less. Inflation will be back and be dangerous in Europe, very dangerous. Gasoline prices, already close to $9 a US gallon, can spiral even further. Food prices can only rise, but real estate prices will crash - not crumble. Attali's Apocalypse can be now and will be fast if it happens.
Real austerity will quickly replace fake austerity, even as the debt mountains disappear in a puff of smoke and mirrors. At that moment in time, perhaps by the end of 2012, in less than 8 months what was feared as a nightmare endgame will have happened

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

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