More than 20 years ago, on October 19, 1976, I wrote an editorial for The Wall Street Journal with the above headline. The occasion was a call by the leftist leaders of French labor unions for a national strike, “to protest Premier Raymond Barre’s new austerity program for the sickly French economy.” Here is a bit of the editorial:
M. Barre’s program, designed to combat France’s 13% inflation rate, is precisely the kind of program we would have designed to increase the inflation rate, weaken the franc in the world currency markets, cause black markets and shortages, and increase unemployment beyond the one million or so already out of work... The anti-inflation program we recommend as a rule of thumb is to restrain money creation, reduce tax rates on businesses and individuals, and curtail government spending...
Here is what the “leftists” are protesting: A government program of restraint on wages; a government three-month freeze on prices; a 4% surtax on personal income-tax liabilities above $1,000 and an 8% surtax on such liabilities above $8,000.... In addition... the government is printing money so fast that the franc is nosediving. Some inflation program.
There’s more to this French logic. President Valery Giscard d’Estaing got the ball rolling early last year, when the French economy was still doing respectably, by ordering up a capital-gains tax ostensibly to satisfy the French left. The French left, though, fought imposition of the tax for 18 months because it hit capital accumulated by the French working class. One poll of the French Communists showed two-thirds opposed to it. But M. Giscard bulled through a watered-down version and by our lights pushed the economy into a slide.
Of course I thought of the editorial during this past weekend, as I cheered the election returns from France showing the Socialists and Communists teaming up to defeat the party of Jacques Chirac, the political heir of Giscard and Barre. When Chirac was younger, he was referred to fondly as a French Jacques Kemp, but he has not aged well, coming to more resemble Georges Buche, with an economic program designed by Nick LaBrady. What’s happening, of course, is that the Tories are being toppled all over the planet, for doing exactly what Newt Gingrich did when he got to power -- abandon growth principles in favor of austerity. In the U.K., Tony Blair did not promise to do anything more than Bill Clinton did last year, in his re-election campaign. He simply promised not to put all the burden of adjustment on ordinary people.
The idea of European monetary and political union is a sensible one, which we would love to see happen. The reason we spend so little time discussing it in our missives is that we do not see anyone on the Continent, in any political party, who knows how to do it. I have the image of 20 men deciding to build an automobile. They each build a piece of the automobile in their basement workshops and then meet in a parking lot, holding the pieces they have constructed. At the count of three, they all rush toward a central spot, smashing into each other in hopes the pieces will merge together. To even begin to understand European politics these days, you must start with this image. It is nothing new. On February 5, 1973, in the WSJ’s lead unsigned editorial, “Inching Toward Monetary Reform,” I commented gently on the international monetary reform being proposed by President Nixon’s Treasury Secretary, George Shultz: “Not that we think the world should buy the proposal as is. On the contrary, it seems awfully mechanical and complex, as if it were pieced together by a committee, which it was. It relies on frequent adjustments through a variety of allowable techniques when a nation is experiencing persistent movement of its reserves in one direction or another. And it requires that at the outset all countries agree on the proper ‘base level’ of reserves that each country should have.”
If Europe is “inching” toward monetary reform, as I wrote 24 years ago, it is going at a pace of about an inch per year. The Eurocracy doesn’t know what it is doing and it is not getting any help from the United States. I watched James Hoagland of The Washington Post this week mouth the conventional wisdom on why the French electorate voted down Chirac in a way that makes it almost impossible that the Euro can remain on track: The ordinary people of France are not smart enough to know that the Euro will be good for them. What the French politicians have to do is repackage the austerity plan to make it look like a growth plan, and the voters will buy it. Hoagland, as you might gather, has spent too many years inside the Beltway.
Will there be a European Monetary Union? Of course there will. It may even happen on time. All it needs is an abandonment of the idea that each Euro country needs to squeeze its economy out of shape to fit the design. The EMU is not an automobile, after all, but only its carburetor. It can have tail Finns, Swedish square headlights, French tires, a German engine, British exhaust pipes, Italian brakes, and a Spanish flywheel. Some Euro countries can have deficits and some surpluses, some high debts and some low, high tax rates and low, but in order to run smoothly, there must be a source of liquidity that can always meet the demands of the whole.
Here we are, closing in on the 1999 Euro deadline, and there has as yet been no discussion on what the carburetor should look like. Will it shut down when Greece runs too fast? Will it speed up if Eurowide GDP numbers fall below 2.1%? Who will decide whether the European stock market is irrational or not in its exuberance? When the Eurobank monetizes debt, which country’s debt will it be? When it withdraws reserves, from which country will it be? Does it even matter? Will the Euro have a relationship with the dollar? With the yen? What mechanism do the Eurocrats have for making management of the system accountable to the citizens of Europe? Who ultimately decides the question: Do we tighten or do we ease? One of these days, we hear, a committee will be appointed to ask these questions and try to answer them. Meanwhile, we’re to believe the French voters are too dense to realize all the answers will be to their liking.
One of the neat things about democracy, which Karl Marx understood, was that a Communist gets an equal vote with a plutocrat. The plutocrats edge themselves into positions of power with promises of economic growth, as they did in the 1980s here and in Europe, but then decide to rig the game to benefit themselves and their friends. With secret ballots, the masses of common people hold their noses and point their “leaders” back to the drawing board.
The U.S. could of course help enormously, if President Clinton were to sign an executive order fixing the dollar/gold price. The Eurocrats would then have a carburetor, around which they could easily build a Eurocar. That can’t happen, though, because Deputy Treasury Larry Summers, who wants to be Fed Chairman under President Gore, says it can’t be done.