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Economy

ORIGINAL FRENCH ARTICLE: Comment éviter le piège de la dette

by Pierre Ivorra

How to Avoid the Debt Trap

Translated Saturday 3 September 2011, by Gene Zbikowski and reviewed by Gene Zbikowski

Nicolas Sarkozy wants the question of reducing sovereign debt and public expenses to become a major theme in the 2012 electoral debate. It is in the interest of the left to avoid the trap and to treat the problem differently.

To justify his plan to write the necessity of austerity into the French constitution, president Sarkozy states that is “neither a right-wing nor a left-wing” issue. And yet, everybody can see that this is truly a right-wing way to deal with it. Since the right wing is truly following its vision in pretending to solve the problem by slashing budgets that are useful to the people, the left would go astray in following such a program.

Insufficient resources.

The plan will not solve anything, first off because public debt, which combines both sovereign debt and the debts of the social security system and local governments, is not essentially due to too many expenses, but rather to insufficient resources. The explosion of the public debt is obviously linked to the 2007-2008 crisis, but that is not the whole story. The management of the country’s affairs by Nicholas Sarkozy’s team, and the management of Europe’s affairs by right wing leaders and socialist left leaders, before, during and since the crisis, have ill prepared us to absorb and meet the shock. No more proof of this is needed than the tempest that is shaking the euro zone, the deep uncertainties that have been expressed since early 2011 regarding economic growth in France and Europe, and the continuation of a 9% average unemployment rate in the countries of the European Union.

The impact of the crisis is visible to the naked eye. Between 2008 and 2009, the value-added tax income received by the government fell from 159 billion euros to 154. But while income tax revenue has fallen from 49 billion euros to 44.9, this is not simply due to the economic crisis. Government measures in favor of those earning the biggest incomes have contributed to this drop. As much can be said of the tax on fortunes that the right wing is dreaming of eliminating after 2012. But there is even worse. Last October, the Council on Obligatory Withholding revealed a 172-billion-euro shortfall in 2010 for public finances due to tax and social security exemptions granted to corporations. The Council notably pointed out that the usefulness of a 22-billion-euro reduction in business contributions linked to low-wage workers is not blindingly obvious. One might add that the measures that benefit capital that have been taken since 2007 – the extension of the research and development tax credit, the elimination of business tax – have reduced even more the means at the disposal of the national government, the social security system, and local government.

It is not just tax income that has been given special treatment; the same goes for expenses as well. During the crisis, unprecedented means were mobilized by the government and the European central bank. Essentially, they aimed at saving the financial and banking system from collapse and at permitting the big corporations to regain a profitability weakened by the crisis: loans to banks, to auto makers, various forms of aid… Moreover, the job-cutting engaged in by companies and the worsening of unemployment have borne heavily on the social budget. This manner of dealing with debt has already failed.

The poor and the working class have already paid a lot.

Is there a different, left-wing, way of dealing with the debt? Is it enough to propose sharing the sacrifice? The poor and the working class have already paid a lot. In truth, making the debt the number one question for relaunching the French economy already amounts to falling into the trap set by the right wing and by the fans of the euro plus pact, which has been proposed by Nicolas Sarkozy and Angela Merkel. First off, because there are good debts and bad debts. Going into debt to make war in Libya is a waste of public monies. Going into debt to engage in vast programs in education, training, research, and culture is another matter. Going into debt to promote human development is giving oneself the means to increase the level and the efficiency of production and to push down unemployment. Moreover, plain talk is needed: even the boldest tax reforms, as necessary as they may be, cannot alone provide the country with the means to get out of the crisis, to relaunch growth, and to cancel the right-wing counter-reform of the retirement system.

So, where is the money to be found? France’s debt has been contracted on the financial markets, in particular with foreign investors. Are we to continue going down that road? Our debt reduction fans – supposedly to save Greece, and in fact in good part rather to save the banks that speculated on Greek debt – are ready to add another 15 billion euros to France’s debt. Indeed, how do they intend to find the money to prevent Athens defaulting? By contracting new debts on the financial markets. We are therefore to pay the Greek debt by contracting new debts!

There is a means of financing that is much greater than the budgets of the governments and much more advantageous than having recourse to financial markets. It consists in using the power of the banks, in particular the European central bank, to create money. This money would be used to finance, according to social criteria, useful public expenses, and to stimulate ecological and effective growth and job creation.

* * * * *

Emmanuelli acuses Sarkozy of “violating” the French constitution.

In a letter addressed to the president of the French national assembly, Bernard Accoyer of the UMP party, Socialist deputy Henri Emmanuelli requests that Accoyer refer the matter of French president Nicolas Sarkozy’s letter to the Constitutional Council [the French Supreme Court]. In his letter, which he sent to the French deputies and senators, Sarkozy used coded language to ask the parliamentarians to adopt the constitutional amendment on the “golden rule” in Congress at Versailles. The “golden rule” aims at forbidding budget deficits and submitting the national budget to the supervision of European authorities for the validation of its general orientation. According to Henri Emmanuelli, the French president’s move constitutes “a blatant violation” of the French constitution, which guarantees the separation of the executive and legislative branches of government.


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