Monday, May 24, 2010

France Set to Get Tough on Debt

Nicolas Sarkozy proposes debt-limiting constitution

As Europe desperately attempts to stave off a complete economic collapse precipitated by the fiscal irresponsibility of the Greek government -- possibly to be followed by the Italian, Spanish and Irish governments -- French President Nicolas Sarkozy has reiterated his commitment to limiting France's public debt.

Sarkozy is prepared to go so far as to amend France's constitution. The propsed amendment would require any French government that runs a deficit to commit to a five-year plan to balance the budget and pay off the debt.

"Without budgetary adjustment, our growth and our social model are threatened," Sarkozy explained. "That is what lies behind the decisions I have presented."

Not only is Sarkozy proposing to constitutionally mandate fiscal responsibility, he's also moved to set a strong example. His government will reduce France's deficit to 6% of its Gross Domestic Product in 2011, and to 4.6% in 2012.

"From 2011 onwards, we will rigidly strengthen spending controls, we will not allow ourselves any generalized rises in taxes, we will go at the pace of the economic recovery and will pursue reforms that will put growth back on its feet," Sarkozy announced. "It's not austerity, nor is it laxity, but responsibility."

Sarkozy is apparently prepared to be as tough as he needs to be with the kind of spending reductions necessary to make his fiscal reforms possible. Overall spending on health insurance will be limited to 3% of GDP in 2010. That's reduced from 3.3% in 2009.

Sarkozy is likely responding to pressure from German Chancellor Angela Merkel for other countries to adopt measures similar to Germany's balanced budget law.

The cuts will be difficult to make in a country with a traditionally high unemployment rate, but Sarkozy's promised constitutional commitment to lower taxes could, in time, lead to the kind of economic growth necessary to reduce that historical trend.

France's example will be one for the rest of Europe to follow -- if they can only get a grip of the Kanellos' of the militant left.


  1. This story is already my pick as the most important financial story of the year, and the sad thing is most people do not realize it. (Though historians surely will.)

    Balanced-budget legislation and amendments are the future, from Sudan to Sweden, Montana to Manitoba. As transnational financial elites and creditor nations such as China finally begin to pull the plug on centralized, debt-based Western welfare states, Western politicians themselves will find they have no choice but to adopt 'straightjacket' measures such as balanced-budget and debt-limitation rules.

    Of course, Sarkozy doesn't WANT to do this. His European big-government conservatism would likely prefer to avoid resort to drastic measures like this. What this represents is the Revenge of the Bondholders. While the central state has enjoyed two centuries of more or less unchallenged expansion and advance, the creditors who pay the piper finally understand they have real economic power. Much more than they currently realize, in fact.

    For my part, I will confess: I hope the bondholders take no prisoners. The Keynesian welfare state deserves nothing less. Although nobody realizes it, the financial carnage that happens in Europe over the next ten years will likely represent a watershed moment in our economic history. Although I'm no fan of the financial elites, I find I am much less of a fan of the bureacratic central state. Although my personal ideal is 'anarchic' decentralization of power to small communities, I will also confess: If it resulted in the dismantling of nanny-state maternalism, I would honestly prefer the rule of a nakedly self-interested plutocracy than the hypocritical phoniness of the left-wing authoritarians we have now.

    Viva la revolucion!

  2. Well, the Keynesian welfare state doesn't reflect the optimal level of government intervention in the economy, and I'd daresay that the kind of economic crises produced by it reflect this.

    The alternative -- pure free marketeer-ism -- doesn't either. The nature of the crises it produces -- such as the one we see right now -- also speaks for itself.

    What I like about the proposed French amendment is that it allows for emergency deficit spending, particularly in helping to contain and control an economic crisis.

    The government can still run deficits for the purpose of necessary economic intervention, but is required to legislate a plan to eliminate that deficit; one that future governments are constitutionally mandated to produce a deficit-reducing alternative to if they want to deviate from it.

    It may not work in other jurisdictions -- the French political system is as such that the President is effectively a democratically-elected dictator, and so is uniquely empowered to ram these kinds of measures through.


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