By Anatole Kaletsky, Charles Gave, Francois Chauchat – GaveKal
As we look forward to the coming year, we can bet our bottom drachmas that French and Italian trade deficits are going to continue to crater. Industrial production in most European countries will continue falling (who will invest given the uncertainty and the constant changing rules?). Unemployment is going to go ballistic.
This is because Europe’s problem is fundamentally not one of excess debt (look at how Japan, the UK or the US are dealing with debt). The true problem is that half of Europe is uncompetitive and falling into debt traps (see page 5). As a result, budget deficits are going to explode. Remember that Greece after the first fix was supposed to grow in 2011?With hindsight, this looks like quite a joke. Though not a very funny one.
Nearly a decade ago, in the ad hoc Communist France vs Capitalist France (or in French the book Des Lions menes par des Anes), I wrote about the growing weight of government sectors (and employment) in the economy of France. It seems to me that everything that happened in the latest EU summit was about saving the “communist economy” (by guaranteeing its financing at a low rate); even if that meant sacrificing the “capitalist economy”.
It is also hard for me to imagine that much in the way of reform will actually take place—why should one reform if money is readily available from one’s domestic banks? Because we have signed on to a tougher, tighter fiscal treaty? We did not even manage to respect the previous, easier, treaty. Why assume that it will be any different this time? Fool me once, shame on you; fool me twice…
The media all over the world, but especially in France, are presenting the crisis as a financial one, as if the governments and the politicians have no responsibility. This crisis is in fact very typical of a communist system arriving at the end of its ability to borrow and make the productive system service the debt it has accumulated, simply because the productive sector is going bust.
And nowhere is it more visible than in France. The “communist sectors”—which I define as the sectors in which there are no market prices and lifetime employment—have grown remorselessly since 1980. The market sectors are falling by the wayside one after the other as everybody can see:
This is not a banking crisis but a political crisis, and as Toynbee wrote, political crises always occur when the elites have betrayed. For reasons that I have never really understood, such crises tend to end either with reforms (in countries where people drink beer) or in revolutions (where people drink wine). As far as France is concerned, it seems to me that we drink both, but with a marked preference for wine.
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