by Yves Housson
Translated Monday 29 August 2011, by Gene Zbikowskiand reviewed by
Economist Jean-Christophe Le Duigou points to the underlying causes of sovereign debt and calls for a policy to confront the financial markets.
The government deficit and sovereign debt have been raised by the government to the rank of worry number one. Is this really the problem, in your opinion?
Jean-Christophe Le Duigou: Control of government debt is a legitimate objective. But how are we to accomplish it? This is the real issue. What do we find? For the past twenty-five years, successive governments have put their heads into the noose of finance. This situation dates back to the bank reforms of 1984-1986, to the internationalization of sovereign debt decided by Pierre Bérégovoy in the late 1980s, to the privatization of the banks decided by Edouard Balladur. France is bound to the financial markets. As a consequence, to meet the first phase of the crisis, private debt (companies, households, banks) was massively transformed into government debt, the government having had to either take over a certain number of debts or increase the deficit to prevent a collapse of economic activity. The response made to the first phase of the crisis wasn’t a real answer, and it only chained us a little more to the financial markets.
Isn’t it necessary to remember what was, basically, the trigger of the first phase of the economic crisis, in 2008 ?
Jean-Christophe Le Duigou: Private debt, and then government debt, resulted largely from the reduced space that was given to jobs and wages over the past twenty-odd years, when we accepted chaining ourselves to the financial markets. Private and government players went into debt to prop up the consumer markets. It is necessary to insist on the fact that this economic crisis, although certainly financial, has a fundamental social and economic dimension.
Austerity in government spending is presented to us as the inevitable means to pull out of the crisis, at the risk, however, of thus burdening economic growth and therefore, in the final analysis, aggravating the budgetary imbalance…
Jean-Christophe Le Duigou. There is indeed a vicious circle. The government plan announced on August 24 needs to be put in the perpective of the heavy austerity logic that is already in place. Remember that the impact of the 2010 reform of retirement pensions is put at 20 billion euros by the Public Treasury, that is to say, one percent of GDP. The general revision of public policy represents 10 billion euros. And in the future, the euro plus pact means more value added tax and restrictions on health care expenses and on the expenses of local government. In other words, austerity at every level of government. What’s threatening France is getting sucked into the same logic as Greece, Italy and Spain, which are not at the first stage of austerity, but in the second, third, fourth, or fifth stages of austerity. These austerity plans weigh down on economic growth, and the more growth shrinks, the bigger the problem posed by debt.
How can this vicious circle be broken?
Jean-Christophe Le Duigou : By relaunching a policy of development, of industrial and job growth. To do that, different problems have got to be dealt with. The question of government spending is not taboo. There is useful spending which has to be preserved and even developed: job training, education, research, health care… Other spending is a real waste, like the TEPA law (12 billion euros), which the government is very partially going back on, the Copé tax loophole (22 billion euros), the research tax credit (4 billion euros), and the reform of the tax on big fortunes. Then there is the tax angle. Means are needed to modernize and develop public services and to create better incentives for job development. The whole debate on the reform of income tax and of corporate tax is quite justified. But it isn’t enough. It’s not just a matter of finding a little more justice in the austerity; a policy that confronts the financial markets is needed. And that can’t be envisaged without new sources of financing. Today, most of the financing goes to the Stock Market, to the development of financial assets. The creation of a financial and banking pole in France, with a counterpart at the European level, and the resumption of government participation in the capital of French banks is therefore an absolute necessity. This is a means to get back control over the financial and banking system. On the other hand, the European Central Bank, which today is buying up government debt to guarantee the banks’ loans, ought to be dedicating this power to create money to the development of jobs and economic activity.