France and Fiscal Policy: Getting Ready to Make Same Mistakes as U. S., Britain and Europe

Destroying the Myth of French Superiority, One Fiscal Policy Move at a Time

The Saturday/Sunday Edition of the Financial Times is just a great newspaper.  Yes it is oriented towards Britain and Europe, but it has plenty about America and the international perspective is just what Americans need.

A Country Where Spending is Down So
Cut Government Spending?

The FT reports that the French are just as ignorant of macroeconomic as those folks advising both Democrats and Republicans in the U. S.  Overall growth in the French economy was flat in the second quarter, after consumers slowed down consuming.  The reaction of the French,

Without the growth that was to have underpinned the country’s deficit reduction target, Mr Sarkozy now has no choice but to present France with what some economists are calling the country’s first real tough choices. “The budget for 2012 could be the first austerity budget for France,” said Jean-Luc Proutat, director of economic research at BNP Paribas.

Yes, France will cut spending to reduce its deficit, reducing economic growth which increases its deficit.  Well if everybody else is making that mistake, why exclude France.

Like the U. S., France has a Presidential Election coming up and that complicates the reduction in spending policy.

The trick will be to find savings that may well bite into a bigger proportion of the electorate, while neither damaging the president’s chances in next year’s election, nor consumer confidence or growth.

“The key will be to preserve consumer confidence while implementing the necessary reforms,” said Ms Boone. “In theory it is not that challenging. But it must be well explained.”

A potential Presidential Candidate
Entering a Courtroom

Ms. Boone is an analyst with Merrill Lynch.  What she apparently meant was that this was not all that challenging to her, for the French it is gong to be almost impossible.  the good news, President Sarkozy's strongest opponent was going to be Dominique Strauss-Kahn.  Remember him?

“These figures represent yet another focal point for investor anxiety about France and could not have come at a worse time,” said Nicholas Spiro of Spiro Sovereign Strategy, a London-based consultancy specialising in sovereign credit risk.

Actually that is not true,  Worse times are yet to come, like right after France cuts its budget in the expectation that this will make things better.