Splitting the finance ministry is a bad idea

By: Wolfgang Munchau

Nicolas Sarkozy's decision to split the French finance ministry into an economics /employment and a budget ministry may be consistent with this election promises. It may even make France more compatible zith Germany, which has separated the two functions since the days of Ludwig Erhard. But it is a bad idea for two reasons. The first is that it weakens the ministry - the budget part of it - and reduces the probability of budgetrary consolidation in the years ahead. This will invariqbly lead to conflicts with Germany, where fiscal plicy is currently headed towards a balanced budget.

 

The second reason is that it weakens the probability of economic co-ordination within the euro area. At present, the finance ministers are the only group in the EU that has a specific set-up for the euro area  - the eurogrup - while the economics ministers talk only at the level of the EU. For the sake of the euro area it would have much better if Germany had merged its finance and economics ministries, rather than for France to split Bercy.

 

But we should not be surprised that Sarkozy will implement at least some of the things he threatened during the election campaign. Through the establishment of two powerful "economic planning ministries" under two powerful ministers - economics/employment  under Borloo and sustainable development/industrial policy under Juppé - the direction of the next government is set. France will be pursuing a national strategy, oblivious to the fact that macroeconomic policy - monetary policy, the exchange rate, and fiscal policy to some extent - is no longer in national control.

 

I find it difficult to see how a strategy of economic patriotism can work in the 21st century. It is inconceivable that it could work in the euro area, which itself is the consequence of a political development based on market integration, the very opposite of economic patriotism. Unlike in the early 1980s, where Mitterrand's economic socialism was quickly reversed, I would expect Sarkozy to resolve conflicts through confrontation with France's European partners and especially with the European Central Bank. This conflict will grow louder and louder, the more Sarkozy's economic strategy goes down the drain.

 

Jean-Baptiste Colbert was already wrong in the 17 century. Mercantilism is even more out of place in a century, whose main characteristic is openness - in terms of global movements of ideas, capital and people. France under Sarkozy is taking a retrograde course, and the first steps in the wrong direction are being taken right now.

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