Sunday, October 1, 2017

Emmanuel Macron, the EU and --- Greece

French President Emmanuel Macron is the political star of the day. Many of those who, not long ago, predicted that the EU would eventually share the experience of the former USSR are now elated that there will soon be a strong EU on par as a power with the USA. Macron's wish list is remarkable:

I can see how countries like Greece will become enthusiastic when they read goals like "a bigger EU budget to fund investment and cushion economic shocks", "a guaranteed minimum wage adopted to each country", etc. My recommendation to Greece is: Beware of French bearing gifts!

In 2013, the provocative German author Henryk M. Border published a book titled "Die letzten Tage Europas: Wie wir eine gute Idee vernichten" ("The last days of the EU: How we are destroying a good idea"). Most of the causes behind anti-EU populism of today are explained in detail in this book, such as: a central bureaucratic authority, mostly self-appointed and with questionable democratic legitimacy; a central arrogance over concerns of nation states; a super-efficient central authority when it comes to minor issues and incompetent with larger issues; etc.

Anti-EU populists will not be carried away by new visions if these are not based on an honest and fair assessment of where the EU has been and where it is now; what has gone wrong along the way; which major mistakes need to be corrected and why. Anti-EU populists would remind Macron that it was a French president, the legendary Charles de Gaulle who had materially shaped European integration in his time, who was completely opposed to any European federalism and who created, in 1961, the vision of a "Europe of Nations". A vision of cooperation between governments with absolutely no loss of sovereignty and no supranational institutions. The standard answer that "today's challenges are too big for any one nation to solve on its own", however correct, will not be satisfactory to anti-EU populists. Anti-EU populists will question Macron what happened to one of the EU's major principles, the "subsidiarity principle".

Macron is the prototype product of French elitism, a truly outstanding product, for that matter. Ever since de Gaulle, French elitism has put French interests before any kind of European idealism. De Gaulle's conception of Europe was as a tool to improve France, i. e. an integrated Europe must be beneficial to France. Macron has yet to make the case that even though he is a product of French elitism, he has discarded the major elements which have shaped that elitism over decades. At this point, one cannot but share the suspicion that Macron is the most capable French elitist the country has ever produced and that he beautifully disguises French national interests behind a passionate pro-EU facade.

Macron's first major industrial policy decision was to nationalize France's biggest shipyard at St.-Nazaire rather than allow it to pass into Italian ownership. This was a classic de Gaulle move and not the move of a European visionary who wants to take the first opportunity to prove that he is willing to walk his talk. All the justifications about this only being a temporary move to allow time for a better deal and agreement to emerge notwithstanding.

Macron seems to have realized that de Gaulle's vision of France's being the supreme power in any European integration is no longer workable. He seems willing and intent to share that role with Germany. But what about the other 25 post-Brexit EU countries? Will those countries be happy to see a French-German cooperation treaty or will they feel threatened by it?

First calculations have suggested that the full implementation of Macron's wish list will require additional funding by member states in the order of 3-4% of national GDPs. Those are simply guestimates and should not be taken seriously, but still: 3-4% of GDP would translate into 5-6 BEUR for Greece at present, roughly the same amount which Greece currently receives from the EU as subsidies. Will Greece be prepared to re-allocate its EU subsidies to finance a vision of the EU?

In 2016, the controversial EU agricultural policy (CAP) amounted to slightly over 50 BEUR or 42% of the EU's budget (or more than the complete implementation of Macron's wish list according to first guestimates). The true test of an institution or policy is whether one would one would rationally decide to re-instal it if, for some reason, it disappeared overnight. Whether the CAP would pass that test is rather questionable. A true revolutionary proposal would have been for Macron to propose the elimination of CAP and to use the proceeds to finance his vision of the EU.

One of the great strengths of German federalism is that the federal state distributes its federal offices and institutions throughout its 16 states. A true revolutionary proposal would have been for Macron to propose something similar for the EU. Virtually every EU member could house an EU institution and the EU would no longer be equated with "Brussels".

The charity "My Europe 2100" presents a concise summary about Charles de Gaulle. Some excepts:

"De Gaulle played a major role in its implementation (Treaty of Rome) because he saw the European common market as a positive measure for the French economy. Similarly, he strongly defended the Common Agricultural Policy (CAP), implemented in 1962. He saw it as a very effective tool to modernize French agriculture. These subsidies to promote agriculture in member States, financed by all members of the EEC, benefited France particularly because of its enormous agricultural sector. Moreover, it was in this period that the modernization of the French agriculture began: mechanization and intensive farming were starting to materialize, but subsidies were necessary. All in all, the CAP served the interests of France, and that is why de Gaulle greatly favored it. This goes to show how he put French interests before any kind of European idealism. De Gaulle’s conception of Europe as a tool to improve France widely influenced the country’s position. For example, the massive rejection of European institutions and their decisions in France nowadays can be linked to the idea that being part of an integrated Europe must be beneficial to the country: if its benefits are not immediately apparent, then European integration must be given up or completely rethought ... De Gaulle was opposed to any kind of loss of sovereignty for France. He wanted it to be one of the great powers, and for that, independence was essential. This is why he advertised his conception of a “Europe of nations”, in which national governments would closely negotiate, but would never be forced to anything ...

Overall, Charles de Gaulle’s influence on Europe has been tremendous thanks to his popularity. His conviction that France was a great nation was, and still is, very popular in the country. As a result, his ideas about foreign policy remain highly respected and widely shared within France’s public and political elite."

Macron has yet to prove that while he may be the product of French elitism, he no longer shares the traditional parameters of that elitism. That while he is a child of that elitism, he has discarded its spirit. That his vision for Europe is not a disguise for pursuing French national interests.

A first step would be to revoke the nationalization of the shipyard at St.-Naziere.


  1. Long post, not very interesting in my opinion. But since it mentions funding, I thought I should say this about the ever dysfunctional Eurozone. It has become fashionable to state the Eurozone requires fiscal transfers, or to become a political union (federation) in order to function properly as a currency area. Nothing could be further from the truth. The only "reform" that the Eurozone needs is to allow the central bank to fund governments until it reaches it's inflation target. And please, let's not pretend that this can't be done cause it's illegal. It already does it through it's open market operations and Securities Markets Program. If it hadn't, the Eurozone would have collapsed by now.

    1. You are really mixing things here. Yes, a central bank can directly fund governments but only if and when its statutes allow that. The Fed and the BoE buy directly from governments because they are authorized to do so (if I recall, after 2008, the BoE bought over 3/4 of all new debt which the UK government issued). The ECB statutes do not allow this and it is less than serious to suggest that the ECB should explicitly violate its statutes. The statutes would have to be changed and you know the likelihood of that happening.

      Contrary to what you say, the ECB does NOT already do it. When it buys government bonds under QE or open market operations, it finances the selling banks and NOT the governments. It only ends up holding government risk. The ECJ had to bend over backwards to rule that even this was in line with ECB statutes. Let's not forget that this limitation was one of the commitments which had to be made to Germany in order for them to give up the DM.

      Fiscal transfers and buying bonds directly from governments are two different things. Fiscal transfers are government revenues which do NOT increase a government's liabilities nor do they cause debt service. Issuing bonds are revenues of sorts but they DO increase a government's liabilities and they cause debt service.

      The ECB embarked on bond buying from 3rd parties for two reasons: to (a) bring interest rates down and (b) to hope that the funding provided to the sellers would eventually end up in the real economy and increase inflation. The former worked, the latter did not because the funding did not go into the real economy. Did that save the Eurozone? Probably yes, because no investor would have bought government bonds at the peak of the crisis if he had not known that he could unload them to the ECB if that were desired.

      PS: I apologize for writing an article which was not interesting for you.

    2. For its signatories, the Lisbon treaty prohibits EU central banks from buying bonds directly from the Government whether they are in the euro or not. The BoE did not buy bonds directly from the government. The federal reserve act prohibits the fed from buying bonds directly from the government.

  2. Spare us the semantics, Klaus. I did say "the only reform that the Eurozone needs is to allow the central bank to fund governments", meaning I am fully aware that the current statutes don't allow it. And where would we be without statutes, eh, as Schäuble would say. And yes, for all intends and purposes the ECB is already doing it, just through a lot of smoke and mirrors. Finally, I never said that fiscal transfers and central bank financing are the same thing. I merely said that fiscal transfers are not necessary for the Eurozone's survival, hence the stingy Northerners can sleep easily at night. As for your worries about government liabilities increasing, they are never a concern when denominated in one's own currency, hence my proposal is perfectly viable.

    1. Right, government liabilities are never a concern when denominated in one's own currency BUT: there is no government in the Eurozone which has its own currency. All Eurozone governments operate in a foreign currency, a currency which they cannot print. Your cynical comment about Schäuble ignores one key aspect: if all EU politicians had acted as seriously and responsibly as Schäuble (including Germany when it first violated Maastricht), there would never have been a Euro-crisis. I have no doubt about the fact that history will look back upon Schäuble as the "European giant" of his time.

    2. The euro isn't 100% a foreign currency (too many loopholes for that), but it isn't 100% a domestic currency either. In the end, it doesn't matter. With the exception of Greece, the ECB is already doing what I described but, hey, if it helps you sleep at night, keep telling yourself that the ECB finances banks rather than governments through the backdoor.

      Maastricht? Seriously? That's what you came up with to defend Schäuble? The treaty that Spain and Ireland never violated and yet ended up with a severe crisis? Very disappointing of you to suggest that, Klaus. Maybe if Schäuble was such a titan of integrity, he should have held to another rule that got thrown out of the window, that of no bailouts.

    3. Here is a more objective article about Schäuble, the "European giant" (lol). The article is written by a German.

      "Part of the reason why the crisis did not end sooner were Schauble’s policies and his diplomacy."

  3. I think you messed up on the guesstimates for Macron proposals' impact on EU budget:

    Current gross contributions are around 1%GNI (about 1% GDP)
    I doubt Macron's measures add up to 3 or 4% GDP (3 or 4 times current budget!!!)

    You probably meant 0.3 or 0.4% of GDP (which would be more in line with CAP expenses)
    But then the impact on Greece gross contribution is also off...
    (btw, why look at the impact on Greece gross contribution? If they see 300mil euros come back for every 100mil they put in, that's still a deal they'd be happy to accept)


  4. I think you put too much spin on the St Nazaire shipyard story:
    There were reasons to doubt Macron's intentions in the summer but no longer:
    Fincantieri is going to have effective operational control of STX France with a 51 percent stake.

    In other news, Siemens and Alstom are merging their Rail operations and Siemens will have slightly more than 50% of the combined company.

    Maybe it is time for you to accept that "the justifications about this only being a temporary move to allow time for a better deal and agreement to emerge" were founded.

    1. Just think what the reaction would be if Tsipras were to do something like the shipyard deal.

  5. @ kleingut.
    I find it ironic that just to mention the "subsidiarity principle" is enough to be called anti-EU populist or nationalist or even xenophobic. I would call it pro-EU, the EU that the citizens voted for. It is not a perfect EU, but it is not given much of a chance either, all laws and rules are being broken. Now Macron suggest we introduce some more rules, but we never really tried to live by the old ones, what makes him think we will abide by the new ones? You have mentioned it yourself before, a society that can/will not impose its own laws will perish. Indeed, "where would we be without statutes?" In the jungle.

  6. Counterpoint (not necessarily more convincing):

    What a conundrum this is! A "prototype product of French elitism" or a typical product of what has come to define elitism east of the Rhine (although the ones concerned would loathe to admit it), that is a "Mutti" for the German people or a German "Mutti" for Europe?

    Or, closer to how you yourself would have put it:"the European giant" of our times…

    It's obvious you've made your choice; but the fact I have no doubt about is that the only thing obvious about your choice is how obvious it is you would have made this choice.


  7. Thanks for the tip to Henryk Broder's "Die letzten Tage EUROPAS". A moralist with a sense of humor is always worth reading.

    1. Lennard, was this Switzerland? Not sure, I may be misguided in adding you to this threatened democratic species in the Middle of Europe.

      But, to what extant is Broder's morality ethnically based? To what exact is it to all of us? I surely do have these question concerning your no doubt "funny/entertaining moralist".

      Brevik meets Broder? In hindsight, I didn't, I have to admit I didn't quite understand earlier alerts at times before 9/11. But post 9/11 it was hard to ignore:

      This is a random choice. Admittedly I wasn't surprised at the time.


  8. Occupation...

  9. "When you look at his foreign policy, it seems a very classical, French national foreign policy,there are a few pan-European initiatives, but he's also interested in France being at the table with Russia and with the US."