YESTERDAY for the second time in two months, much of France came to a standstill as hundreds of thousands — union organizers claimed over one million — of workers protested the economic reforms of President Nicolas Sarkozy, which include cuts to taxes, welfare and public sector jobs. Yet the irony is that the presidential reforms, which would have been hard enough without the recession, are probably currently unaffordable as the administration pours billions of euros into failed French banks and struggling automakers.
The demonstrations are, therefore, as much about recession-induced hard times as they are about the fundamental budgetary reforms on which Sarkozy won the presidency in May 2007. But what makes France’s demonstrations different from the currently muted public protest elsewhere in the EU is that France is the country that invented people power and revolution. Citizens’ respect for due political process is always tempered by the understanding that at some point public protest is a legitimate alternative.
On the face of it, the French have plenty to complain about with unemployment already past two million and rising along with the cost of living, while wages, with overtime a rarity these days, are falling. But there is a deeper dissatisfaction here that probably extends beyond the aims of the left-wing trades unions that coordinated yesterday’s demonstrations in 200 towns and cities. That discontent is increasingly focused on the EU of which France was a founder member and in which, until recently it played such a leading role.
The EU has changed radically with the arrival of Eastern European members, particularly Hungary, the Czech Republic and Poland. The French now find their voice only one among 25 and no longer have their past influence on the EU’s agenda. Where once it was the British who used to bemoan the growing interference of Brussels in seemingly absurd and unnecessarily areas, it is just as likely now to be Frenchmen. French farmers in particular have been hard hit by the redirection of subsidies under the Common Agricultural Policy toward Eastern European agriculture.
In France, the EU no longer looks such a good idea. Indeed in 2005 French, along with Dutch voters rejected the proposed EU constitution. Many remain angry that virtually the same document, repackaged as the Lisbon Treaty, was not put to them again but was instead pushed by Sarkozy through the ratification process in the French Parliament. If the French public’s impatience with the power and influence of Brussels continues to grow, exacerbated by their domestic economic troubles, there could be trouble ahead for the EU. While most EU leaders — Sarkozy excepted — are warning against protectionism, in reality each is seeking to grapple with the recession in purely domestic terms. Despite lofty words, Brussels has had little influence on what happens in individual member states. It has not even suspended any burdensome legislation to curry popularity. As governments hunker down, the EU risks appearing redundant and presenting a fine target for angry public protest, initially in France but thereafter, if history is any guide, wider afield.
Understanding the financial crisis
THE Times of London yesterday commented on Lord Turner’s review of the global banking crisis, saying in part:
The chairman of the Financial Services Authority (FSA) yesterday published his review of the global banking crisis and the regulatory response. It provides a useful framework for understanding the crisis. But it goes only part of the way to addressing how to achieve financial stability. The regulators themselves need to become more expert and less inclined to defer to the judgment of bankers.
The proposed reforms, which aim to curb banks’ ability to take excessive risk, pass the dual test of relevance and practicality. They recognize that asset markets are susceptible to bubbles and crashes, and that an asset-price collapse will contaminate the banking system. Banks are tied together through the wholesale lending market. If one bank has a problem with bad debts, then other banks will be reluctant to lend to it.
The financial crisis has gone through each of these stages: The collapse of the housing market; the failure of a bank (Northern Rock) with a ferociously irresponsible business strategy; and a contagious effect of bad debts throughout the banking system. The outcome is a steep economic downturn as credit facilities are withdrawn from businesses and consumers. The rise in UK unemployment to more than two million testifies to the depth of the recession. This is the background to Lord Turner’s review. While the remedies to the recession lie in monetary and fiscal stimulus, there is an obvious need for regulatory reforms. The business cycle is a permanent part of a market economy, with its periodic expansions and contractions. But structural weaknesses in the financial system are not. Better regulation is needed to create financial stability. Lord Turner raises the right issues.
