The GFC clearly, in my view, demonstrated that the political positions held by both the left- and right-wing governments in the West with respect to economic policy were untenable. Both sides of politics in each major and country adopted versions of market liberalism where the overlap was more dominant than the differences. While the left maintained some emphasis on social policy and the right maintained an emphasis on individual freedom (which was more about corporate freedom than anything), the fact remains that these differences were blurred by the dominance of the free market approach in each of their platforms. It is ironic, that as a consequence of the GFC, the bureaucratic state is more dominant now than it was, especially in the European Union where the political and technical elite interacts with the so-called market to create what has been called the democratic deficit. We now have technocrats in the European bureaucracy, in the IMF, in the World Bank and other multilateral organisations who contrive to implement policies which have allowed the benefits of economic activity to be increasingly diverted to beneficiaries who are at the top end of the income and wealth distribution. Today’s blog continues reporting some of the research I’ve been doing for my next book on the demise of the Left and the subjugation of public purpose in the name of austerity. It seems that we have concentrated on fiscal austerity but the general notion of austerity, which is now the centrepiece of political positions in most advanced countries, goes well beyond just fiscal policy. The response to the recent events in Paris demonstrate how far the state is willing to centralise authoritative controls on the rights of their citizens.
Other recent blogs in this series include:
In 2001, the late Professor Claide Nicolet, who was a French historian who specialised in the study of ancient Rome as well as the study of contemporary political institutions and ideas, wrote an article – La citoyenneté française et la construction de l’Union européenne (The French citizen and the construction of the European Union).
He was thinking about how the concept of a ‘French Republic’ fitted into the idea of European integration.he made the point that when we talk about the “Republic” we are not limiting ourselves to discussions of political organisationbut recognising that it also “embodies a system of values and principles” (“d’organisation politique mais incarne de surcroît un système de valeurs et de principes”).
There is a sense of “l’exception français’, a French superiority that goes back deep into history and was at a high point during its colonial era. Certainly, after the massive German defeat in 1945, the French geopolitical ambitions for European-wide dominance were strongly articulated.
Remember, the French promotion in 1961 of the – Fouchet Plan – which would have replaced the emerging supranational European institutions with a system of intergovernmental bodies to run Europe and be dominated by France.
The proposed ‘Union of States’ was also motivated by President de Gaulle’s increasing hostility towards US involvement in European affairs under the Atlantic alliance (NATO).
The tensions increased as France twice rejected Britain’s applications to join the Community (because they feared Britain would undermine the CAP).
The situation worsened in 1965 with the stand-off concerning funding for the CAP among other matters, which became known as the Empty Chair Crisis, where France effectively boycotted the Commission.
This crisis in turn led to the Luxembourg Compromise, which entrenched the torturous political processes that still prevent speedy progress being made in current day Europe.
France clearly wanted to become the most powerful nation within the Community, if not the world, and to keep Germany and the US in check.
There was the famous private conversation between De Gaulle and the French government minister Alain Peyrefitte on 22 August 1962 about the Fouchet Plan (Soutou, 1996: 131):
‘What is the point of a Europe?’ he confided to Alain Peyrefitte on August 22nd 1962. ‘It should serve to prevent us from being dominated by America or Russia … France could be the strongest of the six members. We could control this lever of Archimedes. We could carry away the others. Europe represents the first opportunity France has to regain what she lost at Waterloo: world dominance.’
[Reference: Soutou, G. (1996) L’alliance incertaine, Les rapports politico-stratégiques franco-allemands, 1954–1996, Paris, Fayard].
Nicolet wrote that:
La souveraineté est la première des valeurs de la République. Il s’agit d’un système qui dit à tout citoyen, c’est à dire tout co-souverain : “Vous n’avez personne au-dessus de vous. Vous êtes collectivement responsables de vous-même, puisque vous faites la Loi. Vous devez la bien concevoir et surveiller ceux qui la mettent en œuvre. Outre le Parlement, vous disposez d’un outil pour réaliser ce but : un Etat républicain. Celui-ci doit être fort, parce qu’il est le garant des corrections nécessaires du réel social, de la solidarité, des transferts, de la liberté et de l’égalité de tous devant la loi”
Which says paraphrasing, that sovereignty is the first value of the Republic and that for each and every citizen of France that there is
“no one above you” and that each one is “collectively responsible for yourself, since you are the law” and the “tool to achieve this goal … [is the] … Republican State”.
The state “must be strong” because it can ensure there are necessary transfers to maintain solidarity and ensure there is “freedom and equality of all before the law”.
He decried the increasing centralisation of power within Europe saying that “plus de la moitié des normes légales et réglementaires qui s’imposent à la France sont d’origine étrangère” (“more than half of the legal norms and regulations which apply to France are of foreign origin”.
He claimed that the European Commission in Brussels override French legislation and force the French government to adapt. He chided the French political class on both sides of politics for failing to comprehend that the increased development of the European Union, especially with the introduction of the Eurozone, debased the capacity of the French state to pursue well-being for all French citizens.
He noted that the UK had been able to retain a significant amount of independence even though they had joined the EU. He asked “La France ne pèse-t-elle pas autant que l’Angleterre” (“Isn’t France as important as England”).
The reality that he says is painful for the French to admit (the “Douloureuses cicatrices” – painful scars) is that “la France n’est plus une grande puissance, depuis 1815” (“Since 1815, France has not been a grand power”).
Despite the huge errors that Napoleon made, the French population still hang on to the idea of greatness. He lists a sequence of French disasters – for example, instead of recognising the defeat of 1870, he says the French eulogise the 1871 Paris commune.
He lists a number of examples like this (the first battle of the Marne, Marshall Pétain urging the French to adopt the idea that they would “Plutôt Hitler que Blum” (Rather Hitler than Blum).
In De Gaulle, he saw a crafty leader who he said “Il n’avait aucune illusion sur la puissance réelle de la France” (“had no illusions about the real power of France”). Instead, he argues that De Gaulle pursued a strategy to “ou qu’ils veuillent bien faire semblant de croire – que la France n’était pas complètement finie” (“to try to convince others or at least pretend the believe that France was not completely finished as a power”).
De Gaulle’s sense of the greatness of France is typified by his response to the financial crisis in 1968, which began a year earlier with the Six-Day War between the Arab states and Israel.
Europe was in recession and Britain faced massive pressure on the pound from its increasing external deficit and net capital outflow.
The British government would normally have introduced a domestic policy contraction under the fixed exchange rate system to cope with the external deficit. But as it was already in recession, political pressures were forcing it to introduce fiscal stimulus.
The British government had to face the reality that to defend the mounting pressure on the pound it would have to invoke a harsh recession and drive unemployment up further.
The stop-go growth pattern of the 1960s, which was typical for nations running trade deficits under the Bretton Woods system, had come firmly up against the political constraints.
This conflict between economics and politics is one of the major reasons fixed exchange rate systems fail and clearly has relevance for the modern-day EMU.
The British government ultimately realised that hanging onto the fixed parity would fail and only result in more dire consequences than the nation was already facing. As a consequence, it devalued by 14.3 per cent against the US dollar on November 18, 1967.
But that didn’t solve the wider problem facing external deficit nations who were intent on maintaining the fixed exchange rate parities as a sort of symbol of national strength.
In May 1968, the French franc came under extreme pressure as a result of the civil unrest led by the student strike. Investors quickly moved funds from France to Germany, which undermined the capacity of their central banks to maintain the agreed exchange rate parities.
The Bundesbank responded by dropping interest rates to encourage capital outflow. The pressure continued to mount throughout 1968 and led to the extraordinary closure of foreign-exchange markets on November 21 and 22, which was a sign that the international monetary system was incapable of dealing with the situation.
Just before the closure, the Bank of International Settlements (BIS) brokered a deal with the German and French central banks whereby they would approach their respective governments to revalue the German mark and devalues a French franc. De Gaulle refused to devalue the franc because he considered it would dent the national prestige.
The German government also refused to revalue and argued that it was the responsibility of the French, UK and US governments to rein in the inflationary surge with restrictive policy (leading to a decline in imports). They considered that would help to reduce the pressure on the mark as the trade surplus fell.
De Gaulle held that position despite an increasing external deficit, which placed continued downward pressure on its exchange rate. It was clear that the trade fundamentals between Germany and France were at odds with the fixed currency parities of both nations, the franc was significantly overvalued in the mark undervalued.
It was only after De Gaulle resigned in April 1969 that the French government realised it could no longer maintain that parity and on August date, 1969 it finally devalued the france against the price of gold by 11.1 per cent.
These developments reflected on the way the French approached European integration even after De Gaulle had gone.
The ‘la tradition républicaine’, which emerged after the French Revolution had disposed of the monarchy espoused a strong secular state which would assume a central role in economic management from education and training through to final production and sale.
State elite institutions (the ‘Grandes Ecoles’) were formed, and provided the private sector with cadres trained in the tradition that politics rather than the market would drive economic policy.
Similarly, the powerful State Planning Office exercised control over industrial policy (starting with ‘Le Plan’ under Jean Monnet 1947–53).
So how does this historical tradition fit into the growing French activism for the creation of European-level institutions that would ultimately compromise French national sovereignty, as Claude Nicolet so clearly indicated above.
The French embrace of the creation of European level institutions was more about ensuring Germany would never again go to war with them than any grand desire for a supranational entity.
Even the proposal to establish the European Coal and Steel Community, which was advanced by the French Planning Office in 1950 was designed to “make it plain that any war between France and Germany becomes not merely unthinkable, but materially impossible”.
Further, the French were openly hostile towards the relinquishment of power to the supranational level and, instead, demonstrated a willingness to establish intergovernmental institutions to advance a sense of Europe
They also clearly were sticking to the hope that they could somehow make some progress towards a monetary union, which would see stable exchange rates and a funding mechanism for the Common Agricultural Policy – which amounted to the French farmers enjoying a German fiscal transfer.
Giscard d’Estaing reaffirmed to the French National Assembly on May 13, 1971 the Government was determined to maintain the fixed parity for the france, despite the international currency turmoil that would soon lead to the end of the Bretton Woods system (effectively in August 1971).
The French image of itself as being superior to the other European nations, particularly Germany and also the United States, led it to form the view that it could dominate an integrated Europe, thus restoring the glorious national prestige that it last enjoyed during the colonial era, without compromising its national sovereignty as expressed in each Republican traditions.
It was like being in possession of ‘fools gold’. It was delusional and as we have seen totally failed political strategy. But it drove French policies towards Europe and ultimately French participation in the Maastricht outcomes, even though it was obvious to outsiders, not caught up in the illusion of French greatness, that it would be a detrimental step in relation to the well-being of French citizens.
At this time, however, another major intervention occurred in the policy milieu.
While the traditional rivalries between France and Germany and the desire to maintain fixed exchange rates were at the centre of the Eurocentric negotiations about economic and monetary union in the late 1970s, a new, even more insidious factor, the increasing dominance of free market economics entered the picture.
This factor was a major catalyst for the sequence of events that took Europe to Maastricht and resulted in the flawed EMU that exists today.
I deal with the rise of Monetarism and the impact it had on the French position concerning Europe, particularly the role that the Left would play in advancing the monetary union, in detail in my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015).
As the Monetarist insurgency spread from American academic institutions (for example, the University of Chicago) into the mainstream political debate, big changes were also underway in French politics, which significantly altered economic policy, not only domestically, but also with respect to the European Project.
These changes would have a major impact upon the European Left as time passed.
Valéry Giscard d’Estaing was elected President in 1974. In the traditional struggle between the French policy makers in the Planning Ministry and the technocrats in the Ministry of Finance (who were more amenable to the German position on integration and economic management), Giscard d’Estaing was in the latter camp.
Giscard d’Estaing was a believer in ‘free markets’ and appointed Raymond Barre as the Minister of Economy and Finance. The Barre Plan, a vicious austerity experiment was the first real Monetarist policy intervention that Margaret Thatcher more or less copied later in the 1970s for Britain.
The austerity failed badly which temporarily undermined the credibility of the emerging neo-liberal policy dominance.
At the same time, the latest currency crisis led to yet another iteration of the failed fixed exchange rate system, this time it was in the form of the 1978 agreement to set up the EMS and the associated Exchange Rate Mechanism (ERM). Very early on in the operation of that system the Bundesbank took control and forced the other central banks into a subjugated position.
If the French had wanted any clearer signal that their ambitions for European dominance were delusional then the Bundesbank’s tough approach to price stability within the EMS should have been it. But delusions are just that.
The political fallout associated with the sharply rising unemployment in France demonstrated the poverty of Barre’s austerity policy framework and led to the election of François Mitterrand as President in May 1981.
As I argue in this blog – Mitterrand’s turn to austerity was an ideological choice not an inevitability – François Mitterand’s blush with Keynesian policies, the traditional policy expression of the European Left, was short-lived.
The currency crises continued under the EMS and by the third currency realignment in March 1983, the French were at the crossroads and the incompatibility of these competing ambitions was obvious.
At that point, France had a choice. It could retain its policy sovereignty and pursue its legitimate domestic objectives by floating the franc or remain within the EMS and subjugate its domestic policy freedom to the dictates of the Bundesbank.
Unfortunately, for the French and for Europe in general, they chose the neo-liberal path, however culturally alien this was to them.
The dream of European domination was over but the French hadn’t yet woken up and the Left were still intent on supporting increased European integration as an expression of modernity and sophistication, and French greatness.
The New York Times article (January 16, 1991) – Mitterrand’s Cynical Gaullist Posturing – argues that Mitterand maintained the Gaullist pursuit of French greatness in relation to the emerging Persian Gulf problems (largely constructed by the Americans).
It said that Mitterand’s approach:
… was a mixture of muddled policy, trying to have it both ways, ingrained cynicism, Gaullist-style posturing and domestic politics …
Being accused of toadying to the U.S. is considered a political problem not only between parties but within Mr. Mitterrand’s Socialists, still more feared than any charge of toadying to aggressive dictators. National interests can be defended by America, but are to be asserted against it.
Then why not cravenly opt out? No way, Mr. Mitterrand says. France wants to be in at the settlement, so it must take part in the action.
It quotes Mitterand as saying:
It’s the responsibility of a permanent member of the Security Council … France is a great power.
De Gaulle would be cheering him on from the grave and by then the French Left had really abandon any ambitions to be a progressive political force and honour its traditions.
The article in Foreign Affairs (January/February, 1995) – Mitterrand’s Legacies – that reflected on Mitterand’s legacy concluded that:
Mitterrand has been a typical French president in his geopolitical unease with American power. Even with the Soviet Union gone, power is power, and geopolitical concerns endure even among friendly states. Americans exasperated by French policy will find it less puzzling if they consider France’s constant struggle with greater German dynamism next door, greater American strength internationally, and the lurking “eastern question” of Russia.
That article carried the subtitle “The De Gaulle of the Left”.
This discussion also overlaps with the growing trend away from democratic participation in the major developments in Europe that we signalled at the beginning of the blog.
The French geopolitical specialist Pierre Verluise argued in his article (January 2004) – L’Union européenne, une démocratie paradoxale – that the progressive enlargement of the European Union coincided with a decline in the engagement of citizens in community building – I am paraphrasing from the French-language article here.
He argued that it was paradoxical that was a breakdown of the Soviet Union there was an upsurge in referendums to determine the future direction of them respective nations whereas the existing EU Member States were actively avoiding popular participation in decision-making.
He notes that by the early 1990s (Maastricht Treaty time), it was frowned upon to talk about a democratic deficit in Europe (“Au début des années 1990, il est généralement mal vu d’évoquer le ‘déficit démocratique de l’Europe'”).
However, the way nations were press-ganged into agreeing to the introduction of the common currency, increasingly led to the idea of a ‘democratic deficit’ being promoted in the literature and among the commentariat.
He argues that the promotion of the “doctrines of deregulation and privatisation” was not the work of the European Commission, but rather reflected the “gradual convergence of political and economic elites around these objectives” (“la promotion des doctrines de dérégulation et de privatisation n’est pas l’effet direct de la Commission, qui connaît elle-même des différends à ce propos en son sein, mais le résultat d’une convergence progressive des élites politico-économiques autour de ces objectifs et moyens”).
In other words, the spread of Monetarist and its related neo-liberal ideas, seduced the politicians on all sides of politics and allowed a cozy relationship to form between the economic technocrats in the various agencies such as the European Commission, the IMF, the World Bank and the political classes.
This infestation spread through both the Right and the Left and has defined the demise of the latter as a progressive force in world politics.
This is on-going work and I will continue to report on it as my thinking unfolds. It is relatively slow going because a lot of the literature is not in English and it takes me a little longer to really comprehend the nuances in some cases.
I hope to finish this book sometime later in 2016. There are other projects that need to be finished before it.
That is enough for today!