© REUTERS/ Patrick Kovarik
Whether it’s Le Pen or Macron, the next French president will have to undertake economic reforms in order to take France out of the mire of dismal growth of the past eight years; meanwhile, the Eurozone would benefit either way, as either “Frexit” or “Fremain” are deemed equally acceptable scenarios for the rest of the continent.
Kristian Rouz — France’s economic growth has been rather dismal in the past few years despite the gradual improvements in the Eurozone, inspiring the rise of the anti-EU sentiment and right-wing populism in this once-prosperous nation. With the second round of the French presidential election, set for 7 May, fast approaching, the drastic differences in proposed economic policies between the centrist candidate Emmanuel Macron and right-wing Marine Le Pen are putting the economic future of the Eurozone into question.
The main problem of the French economy is the low labour efficiency and overall productivity. Even though many other advanced economies are facing a similar challenge of stagnant productivity, the French labour market is finding itself in particularly dire circumstances, requiring an urgent reform.It is generally thought that Emmanuel Macron, the front-runner in the first round of the presidential election, would continue the economic policies of Francois Hollande, focusing on half-hearted attempts at swaying the intra-EU economic balance in France’s favour. However, the powerhouse German economy is dominating in the EU in terms of both intra-union and international trade, boasting a significant trade surplus and decisively advocating tighter monetary policies.
Marine Le Pen, on the other hand, is a reformist candidate, calling for France to leave the EU and the Eurozone altogether in order to achieve full exchange rate and monetary policy independence by reintroducing the franc.
Both candidates have solid a chance of winning the election, and the resulting uncertainty is currently impacting the Eurozone economic activity: many investors are taking a wait-and-see approach to capital allocation. Meanwhile, expectations of the possibly disruptive effects caused by a potential Le Pen victory are driving capital flight for safety, impairing business investment across the Eurozone, which will contribute to a slower Eurozone economic expansion in the second quarter.
“Reforms are absolutely necessary to give France back any economic power,” Robert Jan van der Kraat of Randstad Holding NV, a Dutch consulting firm, said. “The French market has a great supply of people due to the unemployment.”
The French economy grew 0.4pc in 4Q16 after expanding by 0.2pc in the previous quarter and contracting by 0.1pc in 2Q16.
French unemployment stood at 9.6pc in December 2016 compared to that of 3.9pc in Germany. The high jobless rate is holding down the growth in salaries and wages and is also affecting domestic consumption. In Germany, for example, solid growth is driven by the consumer, whilst solid exports only provide an additional boost to the national economy.
“We are very much dependent on the strength of the French economy overall and it is clear that France needs some improvements and some reforms,” van der Kraat said.
Macron’s target is to decrease unemployment by 3pc, but the candidate has not provided any detailed plans outlining how he would achieve such an ambitious target. Le Pen said she would hike taxes on the employers hiring foreign workers, thus encouraging French employment and also slightly improving the fiscal situation, because no economy could absolutely abstain from using foreign labour.
The French workforce, however, is amongst the most costly in the EU, due to the legacy of union activity and left-wing policies of the second half of the 20th century. This means that by encouraging domestic hiring, Le Pen would make French-made goods more expensive and thus less competitive on the European and international markets. Subsequently, France’s disadvantageous position within the EU would only get worse.
And here’s why France is leaving the EU, according to Le Pen’s planning. By reintroducing the franc and significantly devaluing the national currency, France would quickly gain a competitive edge in the international market. For the Eurozone this would also mean a higher degree of consistency in monetary policies, as quicker pace of growth in Germany and across Easter Europe would allow for more decisive European Central Bank’s (ECB) hikes in interest rates and overall normalisation of economic policies.On average, the workforce in France currently costs 20 euros ($21) an hour, compared to 4 euros in Poland and 8 euros in Portugal. If France ditches the euro and devalues the franc, the workforce costs in dollar amounts could be brought down dramatically, boosting France’s position in the global marketplace.
So far, the French economy has grown at below 2pc for a whopping 22 quarters (almost eight years) straight. Being also a heavily-indebted nation, with debt-to-GDP ratio at 96pc, and a budget deficit of 3.4pc of GDP in 2016, France is also a less attractive investment destination than its neighbours. Average budget deficit in the Eurozone stood at 2.1pc GDP in 2016, whilst Germany enjoyed a budget surplus of 0.8pc. German governmental debt also stands at 68.3pc of GDP, and the Eurozone average is 89.4pc.It is quite clear that France needs economic reforms, and whilst Macron is an ex-Minister of the Economy in the Hollande cabinet, his legacy is a near-zero economic growth during his tenure in the office between 2014 and 2016. Le Pen, on the other hand, appears to be a radical reformer, and her victory would stir an ever greater degree of economic uncertainty, just like happened in the case with Donald Trump in the US and Brexit in the UK.
US ‘Isn’t Abandoning Its Ukrainian Project – They’re Just Trying to Save a Buck’
This week, Foreign Policy provided a glimpse of US President Donald Trump’s ambitious plans to slash State Department and USAID funding by over $10 billion. Ukraine faces a hefty 68.8% reduction in aid, among of the largest. Journalist Viktor Marakhovsky explains why the current political and media establishment in Kiev is terrified by the cuts.
On Monday, Foreign Policy magazine reported, citing a State Department document, that the US plans to cut its economic assistance to Ukraine by a whopping 68.8% in 2018. The proposed drop in spending would see assistance fall from the currently allotted $570 million to just $177 million.
The slashed aid to Ukraine is just part of the $10.1 billion in proposed spending cuts that the White House is considering in its effort to reduce unnecessary foreign spending. The US Office of Management and Budget explained that it’s looking to “refocus” its activities “on priority strategic objectives.” This includes major cuts to USAID. The agency is expected to face dramatic defunding, and effectively merged into the State Department.
In its own words, the Budget Office is looking “to reduce or end direct funding for international organizations whose missions do not substantially advance US foreign policy interests, are duplicative, or are not well-managed.”
Ukraine, it seems, may soon fall into the category of nations where US spending does “not substantially advance” Washington’s interests, in the Trump administration’s estimation.
In percentage terms at least, Ukraine isn’t the hardest hit in the proposed cuts. Poland, which currently gets about $3 million in so-called USAID Economic Support Spending, faces a 100% cut in assistance. Armenia, Azerbaijan, Belarus, and Montenegro are also facing a 100% cut in aid, with Albania and Moldova facing cuts between 47-65%. The proposed slash in spending affects USAID to countries all across the world.In reality, RIA Novosti contributor Viktor Marakhovsky explained that the absolute dollar amounts involved are more important than the percentage figures.
For a country like Poland, he noted, “$3 million a year won’t have much of an impact on this sufficiently viable state. Those lucky fellows in Belarus who currently get $8 million for the ‘development of civil society’ have bigger problems. And it will be even sadder for Moldovan civil society activists, government officials, and so on, to lose their $15 million” in aid.
But for Kiev, Marakhovsky stressed that “losing $460 million will be a catastrophe of global dimensions, since Ukraine rakes in the majority of US aid slated for Europe, and in terms of scale is close to countries such as Afghanistan (which gets over $800 million), Tanznia (over $600 million) and Zambia ($436 million).”
“Unlike the above-mentioned countries, whose populations need first and foremost to be fed (and have their natural resources looked after), in Ukraine, USAID had developed a long-term effort to ‘reformat’ society, the economy and the state apparatus.”
The long list of initiatives in these areas includes things like professional education initiatives, meant, in Marakhovsky’s view, to train the ‘right’ kinds of journalists, officials, managers, etc. It also includes programs to ‘strengthen civil society’ (including efforts by traditional USAID contractor George Soros and his Open Society Foundations), legal reform, media development, and political studies initiatives. Naturally, it also includes the ‘OPORA’ civil network (which provided direct funding for the activists-turned-fighters who clashed with police in the run-up to the Maidan coup), etc.
For now, the journalist suggested that, it’s difficult to get a handle on just how many of Ukraine’s major and minor political and civil society actors are being fed by US grants. “We can only guess just how much of the $463 million in possible cuts were planned for use on the creation of ‘ideologically correct’ content for Ukraine’s media space.”A kind of benchmark has already been established by former Assistant Secretary of State for European Affairs Victoria Nuland, who admitted back in 2014 that the US had spent over $5 billion to assist Ukraine in developing its “democratic institutions” and achieving its “European aspirations.”
As if to confirm Moscow’s consternation about the US aid spending being designed to undermine Russian-Ukrainian ties, William Taylor, the former George W. Bush-era US ambassador to Ukraine, made clear this week aid was explicitly designed to do so.
“One of the major themes, purposes and directions of US policy in Ukraine has been to encourage them to move toward European institutions. It’s in our interest that they don’t move toward Russian institutions,” Taylor said, speaking to Foreign Policy about the ‘dangers’ posed by the administration’s planned cuts to the USAID budget.
Ultimately, Marakhovsky noted that it is important to emphasize that the proposed cuts in US spending were not an indication that Washington is ‘dumping’ or ‘giving up’ on its Kiev project. “It’s just that the current administration wants to save some money, particularly on spending that is no longer considered a priority.”
The journalist stressed that as far as the US is concerned, in Ukraine, “all the necessary operations have already been carried out. The Ukrainian government is more anti-Russian than that of any Western nation. So too is the media space and the political space. All the significant economic enterprises that could be taken under control have been. All those [industrial] branches that were once elements of the Russian defense industry no longer are, and many have already been liquidated. Further, Ukraine is in Europe, and it would be only fair, from the US point of view, if Kiev were to become the EU’s headache.”
The remaining $177 million, according to Marakhovsky, will be enough to support the institutions that the US considers key.
Finally, the journalist noted that “it’s worth repeating that this is just the wish list of the Trump administration. In the past several months, we have seen how a unanimous bipartisan lobby among the US elite can pull the plug on Trump’s initiatives, despite their powerful running starts.”
For now, and until the 2018 budget is actually confirmed, Kiev has been left trying to make the best of a bad situation. On Wednesday, Ukraine’s Embassy in the United States said that the reports of a 68.8% cut were erroneous, and that the actual proposed cut was only around 30%. The Embassy also expressed hope that US aid in 2018 would actually be raised by about $90 million.
US Missile Defense Allows Covert Nuclear Strike Against Russia – General Staff
US missile defense creates an opportunity for a covert nuclear missile strike against Russia, first deputy chief of the General Staff’s Main Operational Department, Lt. Gen. Viktor Poznikhir said on Wednesday.
“The presence of US missile defense bases in Europe, missile defense vessels in seas and oceans close to Russia creates a powerful covert strike component for conducting a sudden nuclear missile strike against the Russian Federation,” he said.
The results of computer simulation confirm that the US missile defense is directed against Russia and China, Poznikhir said.
“Russian representatives have often appealed to the US side, drawing their attention to the danger the global missile defense system poses to the strategic balance of forces in the world. But facts are ignored. The US claims its missile defense system is not directed against Russia and China. But… the results of computer simulation testify to the contrary,” he said.
The Lt. Gen. said that other countries are forced to take measures in response to Washington’s actions.
“The buildup of the US missile defense stimulates an arms race, first of all strategic weapons, makes other countries take responsive military and technical measures,” he said.
The global missile defense system poses a threat to the free use of space by any country, Poznikhir added.