France
As I sat down to write, French Prime Minister Michele Barnier was making last minute adjustments to his budget before presenting it to the National Assembly.
So, there may be a few unintentional omissions from this piece, but not too many because the problems of the French economy have been widely circulated in advance of the Barnier budget.
On Friday morning Barnier was widely expected to introduce an austerity budget of cuts and higher taxes totalling $66 billion – or two percent of the French GDP. Two-thirds will come in cuts in government spending and one third in tax increases.
The savings will come from a six-month delayed pension increase and $20 billion in cuts to government departments. The newly-appointed Barnier also wants to cut local government subsidies for businesses. To raise money, Barnier plans to introduce a temporary super tax on firms with more than a $1.1 billion turnover and households with earnings over $547,000.
The super tax is likely to have no problem in the French legislature. There is very little sympathy in France – or most everywhere else – for the rich. Pensioners are another problem. National Rally leader Marine Le Pen has already accused the government of “stealing from the elderly.” As for government cuts, the devil is in the detail and those details will only become clear in the coming weeks of debate.
It is clear, however, that something must be done to deal with the government deficit which is expected to exceed six percent of GDP in 2024.
President Emmanuel Macron had a reputation as a good money manager. And back in January 2020 he appeared to have the economy under control. Then the pandemic struck. Macron pledged to “protect” the French people “whatever it costs.” Government spending leapt to 59 percent of GDP – more than Germany or Spain or any other OECD country.
As the pandemic eased, Russia invaded Ukraine and the price of oil and grain rapidly rose along with almost every inflation marker. Macron’s economic plans went out the window.
But the parlous state of the French economy is not Barnier’s only problem. He is prime minister of a minority government with France’s left and right wing parties broadly united in their opposition. But not completely, Le Pen’s RN favours cuts in government but not cuts in pension payments. The left joins them on behalf of pensioners but also opposes any cuts in government spending.
Barnier’s hope is to gain broad support from the Gaullist parties and then play off the left and right over specific aspects of France’s finances.
The budget has to be agreed by December. If Barnier fails to win the support of a majority of the National Assembly then he has the option of using emergency measures to push it through. But that is highly unpopular and could easily lead to the collapse of his government.
United States
Trump may have broken the law – again. This time the law in question is known as the Logan Act.
The Logan Act was passed in 1799 shortly after the creation of the United States. It makes it illegal for private individuals to conduct diplomacy or negotiations with foreign governments without authorisation from the federal government. Breaching it can cost a fine and three years in prison
The law makes sense. The Secretary of State – or any of his officials – don’t want their efforts being contradicted or undermined by an individual negotiating with a different agenda.
According to the latest book by investigative journalist Bob Woodward, Donald Trump spoke with Russian president Vladimir Putin at least seven times since leaving the White House. Of course, they may have just been exchanging recipes or discussing when to send Putin the latest health care products. That, however, seems unlikely given wars in Ukraine and the Middle East.
However, there are problems with prosecution. The first is that it appears to conflict with the First Amendment’s free speech provisions. The second is that in 225 years no one has been successfully prosecuted under the Logan Act.
Mind you, there have only been a handful of attempts. The first case was against Pennsylvania state legislator George Logan (after whom the act is named) who engaged in unauthorised negotiations with the French government. Logan was indicted but by the time his case was ready for trial, the diplomatic problems had been resolved by Thomas Jefferson’s purchase of Louisiana.
The act was dusted off again in 1803 and 1852. But again, the defendants were indicted but never brought to trial. In modern times, Republicans tried to use the Logan Act against Senators George McGovern and John Sparkman, but that effort failed because the senators cleared their visit with the State Department.
So, the inclination is not to put too much hope in the Logan Act. But who knows, maybe it can succeed where other laws appear to be failing.
United States continued
Trump has won. On a whole range of issues his demands from the 2016 and 2020 election campaigns feature in Kamala Harris’s literature.
Take tariffs as an example. Trump was the first to moot the question of their imposition. Now Kamala Harris is saying she will put tariffs of up to 25 percent on Chinese goods and services.
Ms Harris would also keep most of the tax cuts which Trump introduced in 2017 and are up for renewal next year. She has also become a convert to fracking, although the vice president might balk at Trump’s call to “drill, baby, drill.”
On immigration, Kamala wants to shut down asylum applications whenever there is a glut of migrants.
The only domestic issue which seriously divides them is abortion, and even there, Trump is back-pedalling in a desperate search for votes.
Foreign policy is a bit different. Kamala Harris’s diplomacy is built on values and alliances. Trump’s is entirely transaction which means that he deals with other countries on the basis of what that country can do for America. That means worries about NATO with Trump and, of course, Ukraine. On China and the Middle East there is an overlap between Harris and Trump.
Kamala Harris has adopted many of Trump’s 2016 and 2020 policies simply because they are vote winners. Trump, however, feels the need to differentiate himself from the opposition. He has done that by becoming more extreme. Tariffs against Chinese products are now proposed to jump to as much as 100 percent on some products. And during his campaign, Trump’s tariffs on other countries have leapt from 10 to 20 percent. Immigration now involves mass deportation. As for tax cuts, Trump’s mantra is “reduce, reduce, reduce.”
Regardless, the Democrats clearly cherry picked policies which they think will win votes. Their strategy appears to be to narrow the policy differences between the two candidates and accentuate the character differences—a former state attorney general who impressed Joe Biden enough to make her his vice president vs. a misogynistic, racist convicted felon who has a string of indictments hanging over his head.
Russia
Russia is winning the information war. In fact, President Vladimir Putin would like us to believe that he is warning the actual war in Ukraine war as well.
But the war – like life – is a bit more complicated than that. Russia is clearly advancing. Earlier this month Volodomyr Zelensky was forced to pull his troops out of Vuhledar in order to prevent their encirclement and capture.
A similar fate appears to await Toretsk further to the north. It is more strategic than Vuhledar as it sits atop a hill which dominates the surrounding countryside. Also under threat is Pokrovsk which controls an important road/rail junction.
The problem for the doomsayers is that each inch gained by Russian troops is at an increasing cost in men and materiel. Ukraine’s strategy appears to be to concede as little ground as possible while inflicting as much damage as possible on advancing Russian troops.
According to the Royal United Services Institute (RUSI) over the past year the Russians have suffered casualties of a thousand troops a day. And in the Pokrovsk region alone, they have lost five divisions of tanks and armoured vehicles in the past year.
Despite the pledges of Kim Jong-un, North Korea is failing to provide Putin with the artillery shells he needs, while the Ukrainians’ supply from America and Europe is starting to pick up. A year ago, the Russians were firing ten rounds for every round fired by a Ukrainian howitzer. Now it is 2.5 to every Ukrainian round.
Ukraine has also had success in bombing Russian ammunition dumps and the Russians are having problems dislodging the Ukrainians from Kursk.
But the information (aka propaganda) war is another matter. The Russians are having some success in persuading Western politicians that the plucky Ukrainians cannot win against the mighty Russian military machine. Russia, argues Putin and his diplomats, has an inexhaustible supply of men and machines while Ukraine isn’t even a quarter the size of their neighbour. The argument is starting to take root in the West with some politicians arguing against money being spent on a lost cause. The problem is that this argument has the seeds of the self-fulfilling prophecy.
* Tom Arms is foreign editor of Liberal Democrat Voice and author of “The Encyclopaedia of the Cold War” and “America Made in Britain".
19 Comments
Thank you for all the work put into this article.
To whom is the French national debt owed?
What are the relevant terms and conditions?
When it comes to countering Russian disinformation among the best sources are the testimony of exiled Russian dissidents. Aleksandr Solzhenitsyn,’s “The Gulag Archipelago” shone a light on the USSR methods of repression that countered much of the pro-Soviet propaganda that was prevalent in the 1970’s and was influwential in the development of the political views of the Grand Chessmaster and Russian political activist Garry Kasparov
Speaking about Kasparov in 2007, former KGB defector Oleg Kalugin remarked: “I do not talk in details – people who knew them are all dead now because they were vocal, they were open. I am quiet. There is only one man who is vocal and he may be in trouble: world chess champion Kasparov. He has been very outspoken in his attacks on Putin and I believe that he is probably next on the list.”
Kasporov has written “The point of modern propaganda isn’t only to misinform or push an agenda. It is to exhaust your critical thinking, to annihilate truth.”
He has said something along the lines of every country has its own Mafia. In the case of the Russian Mafia, it has it’s own country. If the American journalist, David Satter, is right about the culpability of Putin and the FSB in the 1999 Moscow apartment bombings David Satter claims Russian apartment bombings led to Putin’s risethe Al Capone would ve a choirboy in comparison to Vladimir Putin.
“The apartment bombings appear to be the keystone of a plot to confuse Russian public opinion, to create terror, to distract the Russian public, to redirect their anger away from the corruption that had flourished under Yeltsin, and toward the Chechens who had had for a number of years a semi-independent government in Chechnya and in that way create the conditions for the Russian people to vote in what they absolutely consciously did not want, which was a successor to Yeltsin who would protect Yeltsin.”
France doesn’t have its own currency in the same way that the UK and USA do. If it did it would naturally vary in value to suit the needs of its own economy. It uses the euro. So the natural stabilisers that can be relied upon to rectify a national economy, when it needs rectifying, aren’t there any longer.
As a matter of Treaty obligation and to satisfy the rules of the SGP Barnier has to cut the deficit from 6% of GDP to less than 3% of GDP. He’s probably thinking he might be able to get away with a 2% fix this year. We have an austerity budget of cuts and higher taxes totalling $66 billion – 2% of GDP. Two-thirds will come in cuts in government spending and one third in tax increases.
However there’s a problem. If we, as individuals, need to close our deficits we do indeed to tighten our belts. The reason this works for us, and helps limit our debts, is that our income is independent of what we decide to spend our money on.
In other words, if we don’t buy that new car, our income will not diminish, and so our deficit will shrink. But the state’s budget is nothing like this. A Govt’s tax income is highly dependent on its spending.
Limit spending and Govt limits its income.
The gap won’t narrow anywhere near as much as calculated and may even widen.
French Finance Minister Antoine told France 2 TV “”Facing a spiralling deficit, we must act and that is exactly why we presented a recovery budget yesterday. We absolutely need to regain control over our debt and our deficit,” French government defends budget squeeze against claims of unfairness
France has been here before on a number of occasions. In 1926, John Maynard Keynes, wrote an open letter to the then French Minister of Finance
“consider coolly how best to reduce the claims of the rentier. Three methods offer themselves: first, a general capital levy; second, a forced reduction of the rate of interest on the public debt; third, a rise of prices which would reduce the real value of the rentier’s money claims. Unquestionably, the first is preferable on grounds of virtue, justice, and theory. For Britain in a similar fix I should advocate it. But I think it so probable that such a project would be defeated in France to-day by the same political and administrative difficulties which stand in the way of further taxation, that I should not lose my time on it. The second method is attractive, if only because it offers no administrative difficulties. I believe that some authorities in France have favoured it. Nevertheless, I should decline this expedient also, if I were in your place, because, unlike a general capital levy or a depreciation of money, this species of discrimination is truly named Repudiation, and Repudiation of the National Debt is a departure from financial virtue so extreme and so dangerous as not to be undertaken but in the last emergency.”
Thanks to Peter Martin and Joe Bourke!
Might there be a difference between a « National Deficit » and a « National Debt »?
@ Joe,
France did have its own currency in 1926 so there isn’t really a parallel between now and then. However, France was in the process of going back on to a gold standard so they were limiting their fiscal options unnecessarily. Just ten years later they made a decision to come off it. France has struggled with the euro for far longer and they can’t simply make a decision to withdraw from that.
Bill Mitchell predicts “more More misery and dysfunction coming for France – as the fiscal rules bite”. Good news for the far right there! Does anyone doubt that he’s right?
https://billmitchell.org/blog/?p=62044
@Peter Martin …
All the EU supporters that contribute to this site including those in the comments sections – need to read the attached article Peter has supplied …It’s a sobering reminder of what a member state sacrifices..
‘…income is independent of what we decide to spend our money on.” No, it isn’t. We may need that new car in order to get to work.
GBP exchange rates unlike USD, which is a reserve currency, are largely determined by market forces, which is why they have never recovered from the drop at the time of the 2016 referendum.
Base Interest rates are determined by central banks independent of governments.
Governments borrow long-term from the markets. In the UK this is done through an agency of the Treasury, the UK Debt Management Office. The rate at which the government borrows is largely determined by market forces particularly the market’s view of the government’s fiscal competence.
A deficit is when you’re borrowing simply to meet your debts and is wholly advantageous to the lender, who get liquidity for free and can use it to inflate asset prices. Viewed simplistically it’s an engine of inequality.
In short, you can’t buck the markets, as Liz Truss found out. If that’s neo-liberalism then so be it.
@ Matt Frankel,
You’re making the point that a person’s income could be higher if they spend money on the right things? I’d go along with that. It applies to government even more I’d say. BTW, I used to cycle to work after my wife learned to drive and we couldn’t afford another car!
The US$ also varies in value as market forces change. It’s just less obvious because the $ is used as a “fixed” reference for all other currencies. Except it isn’t really fixed. A reserve currency is one that attracts a capital inflow or reserves to offset an outflow in the current account. So the pound is also a reserve currency but, of course, a much less important one in the world economy. The euro could also be a reserve currency but isn’t due to the economic decisions of the member countries. Largely Germany of course.
Part of the problem is the UK is that we’ve always had a “higher the better” mentality about the level of the exchange rate as your use of the word “recover” would indicate. Other countries have a more balanced view and deliberately keep their exchange rate down to help their exporters. Denmark could easily have a significantly higher value for its krone for example.
The independence of central banks is something of a myth. Like the BoE, all by itself, thought it was a good idea to accumulate some £800 bn of Treasury gilts?
@ Matt (cont)
The £800 bn is proof (I was going to say evidence) that the gilt market isn’t quite as free as you make out.
I’m not quite sure what you mean by lenders and deficits. You perhaps need to start by explaining where the money comes from in the first instance before it is available to be borrowed or taxed back by Govt.
You and I can’t buck the markets – that’s true. But the Govt is a currency issuer and it can. I refer once again to the £800 bn as proof of that. It has a lot of other potential measures such as currency and exchange controls which it could use, but probably wouldn’t, unless we become embroiled in another major war.
@Martin Grey, @Peter Martin
“All the EU supporters that contribute to this site including those in the comments sections – need to read the attached article Peter has supplied …It’s a sobering reminder of what a member state sacrifices..”
Of course the merits or otherwise of Euro membership was almost completely irrelevant to the UK’s erstwhile membership as we had a de jure exception from the requirement to join (as Denmark still has). The other EU Member States who are not currently Eurozone members, e.g. Sweden, merely enjoy a de facto exemption—while they are theoretically required to join once they meet the criteria, they are under no obligation to make any effort to do so.
Thanks for this summary.
@ Daniel,
It’s not just the use of the euro which is/was the issue. The rules that go with it: The Stability and Growth Pact and the European Fiscal Compact are just as much a problem. In fact, using the euro might not be a problem at all if we were exempt from the rules. But we had it the other way around. We were signed up to the rules by Treaty obligation even though we didn’t use the euro.
The other factor that affected us was being part of a trade block which consists of countries which are either highly mercantilist, which is the only way of having a healthy economy whilst sticking to the euro rules, or in a state of near permanent economic recession.
So whilst we had a large trading surplus with the ROW we always had an even larger trading deficit with the EU.
Closer to home is the article below which analyses the obscurity, lack of ease of accessibility and inaccuracy of information on our national debt.
It also makes the case that this lack of clarity and straightforwardness is/can be used to keep the citizens of an alleged democracy in ignorance and so more easily manipulated.
Might the L. D. party follow this up?
“Without accurate information, it is extremely difficult to impossible, for the individual citizen to come to objective conclusions and to make intelligence use of political rights.” [From Albert Einstein
024/10/14/rachel-reeves-has-to-get-her-numbers-right-and-those-on-the-national-debt-are-very-wrong/
P. S. in case the attachment is not live, it comes from Richard Murphy’s blog “Funding the Future”.
https://www.taxresearch.org.uk/Blog/2024/10/14/rachel-reeves-has-to-get-her-numbers-right-and-those-on-the-national-debt-are-very-wrong/
@ Steve,
Richard Murphy is right to highlight the problem of how to define the National Debt. The official version is a mess. Much as I dislike Rachel Reeve’s economics it’s not really fair to blame just her. The USA has all sorts of similar problems and according to their own rules they can get rid of their own National Debt by issuing 35 plastic tokens! Google {Trillion Dollar Coin}
The usual dispute is over whether to include the £800 bn or so in bonds owned by the BoE. It should be counted, because in a rational definition of debt, we would say the debt is created when the money (an IOU) itself is created. That it is swapped for a different form of IOU ( a bond) later is incidental and doesn’t affect the total.
All this probably be irrelevant come January and the Trump Presidency. We will be entering a dark age.
Thanks to Peter Martin!
Here is a definition from the Cambridge Dictionary:
« debt: something, especially money, that is owed to someone else »
Might this definition indicate that the c.£800 Ben in question is not a debt but some sort of inter-departmental transfer between parts of the same organisation,or entity, as it does not, in reality, go « to someone else »?
In either case, might it be a significant indication of an avoidable lack of clarity/straightforwardness between a government and its citizens?
The £800 billion of bonds currently held by the BofE were acquired by crediting the accounts of commercial banks with the payments for these bonds. The debt is the money owed to the private banks held by them as interest-bearing deposit with the Bank of England. The commercial banks in turn have corresponding debts/liabilities to their depositors, bondholders and shareholders.
In the follow-up to the 1926 political and monetary crisis in France (reference in comment above), a new government attempted to restore monetary stability by restructuring public debt. A sinking fund was missioned to withdraw short-term public bills (war bonds) from money markets. This policy disorganized the largest Parisian banks of the time, as they relied on these bills to manage their liquidity. Without developed domestic money markets, no other asset could absorb the excess liquidity freed by the withdrawal of these bills, and these leading banks faced a low-rate environment. In search of yield, they expanded their activities abroad a few months before the 1929 Wall Strret crash.
About one third of French banks failed between 1929 and 1936. This is in sharp contrast with England, for example, where only some important merchant banks suffered. The banking crisis in France started just after the October 1929 stock market crash and was already very severe before the 1931 international shocks (Kreditanstalt failure and then Sterling devaluation).
There is nothing new under the sun (Ecclesiastes 1:9).