French Macroeconomic Policy Improvisation

I’m confused nearly macroeconomic policy nether François Hollande. When he came to ability inward 2012 he made deficit reduction a priority. The adventure to atomic number 82 about opposition to the dominant policy of austerity was lost. However where French policy did seem to differ from another Eurozone countries was that taxation increases rather than spending cuts would play a prominent constituent inward deficit reduction. As I noted inward this post, the Commission’s austerity enforcer, Olli Rehn, was non pleased.

However policy inward French Republic instantly seems to take away maintain taken a rather dissimilar turn. In Jan Hollande announced cuts to social charges paid past times business. Many exterior comments declared that this was a movement ‘to the centre’. His vocalization communication likewise seemed to imply that he had buy the farm a convert to Say’s Law. But maybe at that topographic point was a to a greater extent than modern logic to this policy: past times reducing occupation costs, mayhap the authorities was trying to engineer an ‘internal devaluation’.

Yet to a greater extent than recently, Hollande has appeared to pledge taxation cuts to middle degree voters. With non-existent growth in addition to a ascension budget deficit, the macroeconomic logic behind this policy escapes me. Many taxpayers volition quite reasonably assume that whatever taxation cuts volition plough out to live on temporary in addition to volition hence salvage a adept proportion of them, in addition to so the touching on need volition live on weak compared to the cuts inward world spending required to pay for them. Influenza A virus subtype H5N1 deflationary balanced budget cutting inward spending is the concluding affair yous desire amongst an estimated negative output gap of 3% or more. On a to a greater extent than positive note, he likewise appears to live on trying to shape alliances to loosen the eurozone financial straightjacket, although what success he volition take away maintain remains to live on seen.

The latest OECD forecast predicts a gradual pickup inward growth, despite a sudden financial contraction, although this financial contraction is non plenty to stabilise the debt to gross domestic product ratio past times 2015. The danger is the past times instantly familiar one: that financial contraction volition inhibit growth past times to a greater extent than than forecasters expect, which volition generate pressure level to undertake additional financial contraction. Is at that topographic point a clear strategy to avoid this outcome, or is Thomas Piketty right when he says: "What saddens me is the ongoing improvisation of François Hollande.”