Saturday, December 3, 2011

One problem, two visions (part II)

Economist
December 2, 2011

The two speeches in two days by Nicolas Sarkozy and Angela Merkel reveal the many differences between them ahead of next week's European summit. I give a brief analysis in my earlier post. What follows is a more detailed exegesis (a link to Sarkozy's speech in French is here and a PDF Merkel's address in German is here):

Sarkonomics and the origin of the crisis

The French president offers a strange bit of Sarkonomics to explain that the crisis was caused by external forces – the unregulated globalisation of trade and finance – of which France is essentially a victim.
Financial globalisation established itself to compensate artificially the ravages that [trade] liberalisation without rules caused in the economies of developed countries. It was necessary so that the surplus of some could finance the deficits of others. It was necessary so that debt could compensate for the unacceptable fall in living standards of households in developed countries. It was necessary to finance a social model that was crumbling beneath deficits. It was ineluctable so that financial capital could seek elsewhere the profits that it could no longer hope to gain in developed countries. Thus was established a gigantic machine to create debt.
Mr Sarkozy says France cannot be blamed for the troubles it faces because other rich countries are in trouble too; yet he does not explain why some developed countries (Germany and several Nordic states, for example) have survived the crisis better than France despite the infernal debt machine. Later on, Mr Sarkozy says France has to cut back on state expenditure to preserve its destiny (this was tricky for him, as he had vowed three years earlier in Toulon not to conduct a policy of auterity)

Mrs Merkel, for her part, does not speak much of great uncontrollable forces unleashed by laissez-faire capitalism. Instead she emphasises the responsibility of individual states. The problem, in her view, is that countries have broken fiscal rules, and there has been nobody to enforce the limits on deficits and debt.

More

Read Part I

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