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January 05, 2017

French Socialist primaries - old wine in new bottles

The Socialist primary race is on. The seven candidates are under scrutiny with their programmes and their campaign choices. The French press is also full of who is supporting whom, but the important question is still whether the voter will see in these primaries the election of a potential future president or not. If the Socialists are considered as out of the race already, then what difference does it make who wins? 

Manuel Valls still thinks that experience trumps the desire for revolt, writes Cécile Cornudet. His campaign plays up his credentials - he is the only one of the candidate who has been prime minister - and singled out an adversary - Francois Fillon - to carve out an image of the socialist reformer for himself. Compared to his adversaries in the primaries, he is the only one to promote fiscal stability with a deficit not surpassing the 3% limit, though he won’t go as far as targeting a balanced budget.

Other candidates have big spending plans and progressive tax plans. The most radical proposal is the merger of the general social charges (CSG) and the income revenues, as advocated by Vincent Peillon, Benoît Hammon and Arnauld Montebourg. They want the CSG (€90bn in revenues) and the income tax (€75bn) to transform into a strongly progressive tax, though all with different emphases. With the exception of Montebourg, no proposal seems to be counter-financed. L’Opinion warns that the middle class could end up paying the price. A study from 2012 showed that such a fusion could affect 9m taxpayers. After they revolted already under Hollande, they are unlikely to be unimpressed by these sorts of proposals, so the article.

Montebourg just tabled some numbers. His plans would raise expenditures by €24.4bn per year, a sum that may look moderate compared to his earlier ambitions, writes Les Echos. This covers a CSG cut (from 8% to 1%) for lower income households, and his investment projects. He also advocates a supertax on banks to raise €5bn, and would not shy away from nationalising one. He half-jokingly remarked in a conference that Donald Trump stole his method. Montebourg has long been an outspoken advocate of protecting French economic interests and of keeping jobs and companies in the country. 

Mediapart traces back the common history of the four major candidates - Valls, Peillon, Hamon, Montebourg. They were the driving force of the new confrontational generation in the mid 1990s, when these four men were considered the new hopefuls in the Socialist party. Since then they were able to rally their forces together only briefly before their egos pulled them apart again. The latter three were part of the current NPS - nouveau parti Socialiste - but it did not last since the men could not agree on a common strategy. And so these four once-promising men now end up competing against each other in a depressing primary that looks more like a settling accounts among those ambitious men who waited too long for their finest hour to arrive.

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January 05, 2017

Le Pen's hard ecu

Marine Le Pen came out with an astonishing proposal of France's future in the eurozone. She wants to go back to the Ecu - as a parallel currency as opposed to a single currency - which reminds us a bit of John Major's infamous hard ecu proposal.

Taking France back to a national currency while remaining affiliated with the eurozone is a milder version of a promised breakup, so we don't regard this as a softening of her euro exit position in substance. Polls suggested that a complete break also with the EU is unpopular among the French electorate, and Le Pen did tone it down in her rhetoric. A return to the Ecu is, of course, complete nonsense, since the basket of national currencies no longer exists as it has turned into the euro. So, is this a sort of new parallel currency proposal? Or does she expect to get an opt-out? This seems to be a case "Frexit means Frexit".

An issue that could serious rock her campaign is her links to Russia and the funding of her campaign. French banks have refused to finance the Front National so the party has got its funding from abroad. The FN uses a Russian lender, the Moscow-based First Czech Russian Bank, from which it received €9m in 2014, but FCRB lost its license in July. Le Pen is now struggling to raise €20m for her presidential campaign. The party last week said that Le Pen is cautious to avoid more ties to Russia as this could play badly in the French Press. A US investment bank pulled out in the last moment in August, so will Le Pen turn back to Moscow in the end? She will have no trouble finding funds there, according to Bloomberg.

The idea of a new parallel euro currency is a non-starter. What is possible is to remain, formally, a member of the eurozone, and introduce a parallel currency for domestic transactions. We are not sure that France would have much to gain from such an arrangement, and a lot to lose. The calculation could be different for Italy and Greece, however.

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January 05, 2017

Will Tusk get a second mandate?

One of the big political questions this year will be whether Donald Tusk gets a second and final term as president of the European Council. He was nominated in December 2014 for a term of two and a half years, but at the time his own Civic Platform was still governing Poland. The current Polish government has stepped up its criticism of Tusk, and it is now in question whether he will have the necessary support for a second term. Poland cannot veto his reappointment on its own because the vote is by qualified majority voting, but the appointment of a Polish citizen as president of the European Council against the Polish prime minister's vote could see further deterioration in Polish EU-relations, something everybody is keen to avoid. Other countries, especially from central and eastern Europe, might also decide to support the Polish government, and might build a blocking minority. 

We have been looking for signs of a weakening in Poland's position towards Tusk but this hasn't happened. Poland's foreign minister Witold Waszczykowski said Tusk had until May to change his attitudes towards Poland. He said Poland wanted to be active in discussions about the future of the EU, and Brexit, but Tusk had frustrated those attempts. "He is an icon of evil and stupidity", Waszczykowski added for good measure. This is not the kind of thing you would say if you wanted the problem to be solved. Jaroslaw Kaczynski, the leader of the Law and Justice Party, already said Poland should not support a second term for Tusk.

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January 05, 2017

Themes of 2017

We are no big fans of the seasonal crystal-ball gazing articles, and this not only because of what happened in 2016. But there are a couple of forward-looking themes we picked up over the holidays and which are worth highlighting.

The German media is now focusing increasingly on Italy after the MPS bailout, and is shocked by what it perceives as a persistent breach of the treaties. We urge our readers to take this stuff seriously, whatever you may think of the merits of such criticism. In addition to the many problems the EU is already facing, the conflict between Germany and Italy is becoming viral. Germany's unhappiness with every aspect of eurozone policy is becoming increasingly apparent.

Werner Mussler has a comment in FAZ this morning in which he argues that the Commission’s demonstrative lenience towards Italian fiscal policy is a huge error - a case of populism in the fight against populism, as he puts it. The Commission considers itself political but is running the risk of accepting a breach of EU law, which it will do if it allows the MPS state aid to pass, and Italy to breach the fiscal rules. He concludes that the EU has not learned from the financial crisis. This is hardly a recipe against populism.

On the broader theme of populism, the best contribution we have read over the holiday season is Adam Tooze’s discussion in the London Review of Books of Wolfgang Streek’s book "How will Capitalism end". Streek, a German political economist, is calling for the dismantling of the eurozone. Tooze disagrees with Streek, but more importantly he says that Streek’s idea could become very important in the context of a possible Red-Red-Green coalition in Germany (which may not happen this year, but will happen at some point). Here is Tooze’s conclusion. He says the danger is not a collapse of the eurozone, but its permanent under-performance.

“If Die Linke, driven by its Lexit wing and concerned with the threat to its voter base in the East from the AfD, were to swerve onto the protectionist, anti-EU line that Streeck and others have been advancing since 2013, it would be hugely counterproductive. It is here, operating within the delicate politics of a Red-Red-Green coalition, that Streeck’s intellectual authority and relentless advocacy of the Lexit position could do real damage. The result to be feared is not a new dark age, or the imminent collapse of capitalist democracy, the Eurozone or the EU, but merely the depressing continuation of both Europe and Germany’s failure to live up to their potential, the continued foreclosure of the ‘presumably possible’."

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