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Wall Street Journal

 

Why Europe Will Rise Again

August 18, 2012

By Guy Sorman

France’s foremost free-market economist says that Europe’s leaders won’t let the euro fail, and the EU will save France from the French.

Guy Sorman is an oddity—some might say a walking contradiction. The French economist and writer has for decades championed free markets in the birthplace of dirigisme. He is a man of the right who is guardedly upbeat about France’s future under the first Socialist president in 20 years. And he’s decidedly positive on the euro and the European Union.

The latest of his 25-odd books, "Journal of an Optimist," a series of diary-like essays on Europe and France, was published here this spring. His contrarian streak—a virtual job requirement for French public intellectuals going back to Voltaire—flies straight into the gloomiest headwinds. "The consensus is not always the truth," he says without hesitation.

The French economy will fall back into recession this year, says its central bank, and unemployment last month hit a 13-year high. New President François Hollande, who marked 100 days in office on Tuesday, has probably had the shortest honeymoon of any elected leader anywhere: One poll last week found 54% of the French dissatisfied with his job performance. Greece will likely run out of money to pay its bills, putting its financial saviors (the Germans, International Monetary Fund and the EU) on the spot again. Meanwhile, the markets show little faith in the ability of Spain and Italy to handle their economic messes.

Mr. Sorman, who is 68, offers his generation’s longer perspective to calm nerves. "Governments act like a fireman trying to extinguish the fire of the day," he says. They should instead give the media and bond traders a better sense of where the EU plans to go.

But first he wants to recall where it’s come from. "In the U.S. generally there is a kind of misunderstanding about the purpose of Europe," he says. "Europe was not built for economic reasons, but to bring peace between European countries. It is a political ambition. It is the only political project for our generation. We’ll pay the price to save this project."

Mario Draghi, the president of the European Central Bank, said in July that the bank "is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." Mr. Sorman seconds that motion on political, moral and—perhaps most surprisingly—free-market grounds.

In maintaining that the euro didn’t cause the European crisis, Mr. Sorman echoes other conservative economists. Blame instead overextended welfare states that rang up huge debts, he says, and then the Keynesian stimulus spending after the 2008 global meltdown that added to the burden. Now, hard fiscal adjustments are finally being carried out across Europe. Deregulation in these troubled countries would be nice, too, he adds.

At the EU level, he has pushed loudly for a group of European "wise men," modeled after the EU’s founding fathers of the postwar years, to draw up a revitalized "ever-closer union" originally envisioned by the 1957 Treaty of Rome, which created the common market. His new EU would move gradually but firmly toward a common European budget and tax base, and larger fiscal transfers from rich to poor areas.

These ideas were "taboo" before the crisis, he says, but are now openly debated. They remain taboo to jealous defenders of national sovereignty and to most European free-marketeers, not always one and the same group.

Mr. Sorman, who taught economics for three decades at the prestigious Sciences-Po in Paris, knows all the free-market arguments against further empowering Brussels or pooling taxes. "A federation is not the same thing as a super state," he responds. "We’re talking about a federation where free-market principles are much better implemented than they ever were when decisions belonged to each nation."

Mr. Sorman says the crisis has usefully brought quick fixes to obvious euro shortcomings. Greece cooked its budget numbers for years; Italy and Spain weren’t always open about the rot on their books. After Greece collapsed, the EU introduced transparent national accounting standards. When France and Germany broke through the EU treaty’s ceilings on fiscal deficit without any consequences a decade ago, they unwittingly encouraged bad fiscal behavior by others. No one will make that mistake again, says Mr. Sorman, and in any case the EU has strengthened its enforcement powers.

Margaret Thatcher considered Europe to be welfarism by the back door. Contra the Iron Lady, Mr. Sorman says more Europe brings more competition and more prosperity.

Brussels has wrenched open protected markets and broken up state monopolies in transport, telecommunications, energy and more. In the Sorman view, the EU has just gotten started. Its executive arm, the European Commission, "is the major free-market agent we have in Europe," he says. The euro, unveiled a dozen years ago, "is a new kind of gold standard."

By bringing currency stability and taking away the tool of devaluation from politicians who want an easy fix, the single currency has forced "each economy to be more rational, more flexible and more productive." The ECB, he adds, "is even more free-market oriented than the Federal Reserve." Its only job is keep inflation low, while the Fed has a second mandate to bring about full employment.

Doomsday scenarios also overlook differences among EU states. The Berlin Wall was replaced by a sort of sunshine curtain that separates a healthy, growing north from the basket cases of Club Med. Visit Berlin, booming Warsaw or the Estonian capital of Tallinn to escape the depressed mood of Paris. "I think you’ll have a European revival coming from Poland, the Baltic States and Finland" says Mr. Sorman. "Just look at what they’ve achieved."

Mr. Sorman has advised the South Korean president Lee Myung-bak since 2009 ("without much result," he says) and lived for a year recently in China. This up-close look makes him skeptical of the rising East hype and eager to halt Europe’s premature burial.

Look at the number of international patents registered annually, he says, a good measure of innovation. America comes first—"the future still belongs to the U.S.," he says. Europe is next. By that reasoning, if a revitalized EU lessens regulatory, tax and other burdens on the private economy, great entrepreneurial energy is waiting to be tapped.

I suggest that he may be whistling past the graveyard, and that Greece, and possibly the single currency, could already be beyond redemption. There isn’t enough money in German coffers to save all of southern Europe. The ideas for federation that he supports are long shots.

"The only tomb that’s now prepared is for Greece," Mr. Sorman shoots back, But the Greeks won’t willingly get into it, and in any case the EU won’t let them. Greece’s exit from the euro would be an economic and "political disaster," he says. Modern Greek democracy is three decades old. The wounds from the civil war are fresh, and an electoral win by the far left or fascists can’t be counted out, he says. Europe can’t afford to "lose Greece." He doesn’t think Spain or Italy are in any danger of leaving the euro.

Mr. Sorman’s case for the EU boils down to something you hear often from an Italian, or a Belgian and other citizens of ill-governed EU states and almost never from, say, a Dane or an Englishman. "Only Europe can protect the French from the French," he says. "If we weren’t part of Europe, imagine our electricity bill or our phone bill. We might not even have the Internet."

This cri du coeur pour l’Europe comes three months into Mr. Hollande’s presidential term. The men know each other well. In the mid-1980s, during a brief spell as a journalist at the now defunct Le Matin de Paris, the Socialist party operative attacked Mr. Sorman’s essays on economic liberalism. At the time Mr. Sorman was a rare French defender of Reagan.

Three years ago, on a television talk show, the future French president suggested that Mr. Sorman take his liberal economic ideas and himself out of France. "This was a kind of anti-Semitic, bourgeois attack," says Mr. Sorman, who is Jewish. He says Mr. Hollande afterward told him he went too far and apologized, "and I said, ’I don’t know if you went too far, but it does express your deep conviction.’"

"For me," he adds, "Mr. Hollande is quite the conservative bourgeois type of provincial France—the people who hate money, who hate capitalism, who hate business. They think all these ideas are quite foreign to French culture and French genius." Much of the French right has also stayed faithful to what’s called "a certain idea of France." From Charles de Gaulle on, presidents have glorified the small shopkeeper and kept their distance from more cosmopolitan CEOs of multinationals.

As with Europe, Mr. Sorman takes a longer view. Upon coming to power in 1981, France’s first and last Socialist president, François Mitterrand, nationalized industry and banking, thrice devalued the franc and threatened to pull France out of the European common market. Two years later, he reversed course. The current crop of Socialists "are not extremists anymore," says Mr. Sorman. "The big difference today with the 1980s is that nobody believes in socialist solutions. This alternative has disappeared. The only alternative is status quo—or a return to traditions of French entrepreneurship."

Mr. Sorman offers two hopeful scenarios. In the first, the new president uses a fresh electoral mandate to liberalize rigid French labor markets, streamline the entitlement state and improve conditions for doing business. His support from public unions can shield against a backlash. Gerhard Schröder, the center-left German chancellor, pulled off this Nixon-to-China trick a decade ago and laid the foundations for Germany’s economic renaissance.

The early signs in France aren’t encouraging for the small band of free marketers. In addition to various planned tax increases, the new government has proposed to protect industry and resisted spending cuts.

Yet Mr. Hollande’s promise to bring the budget deficit to 3% next year from 4.5% to meet the euro-zone fiscal rules shows that the government knows it has to keep financial markets happy. His falling poll numbers reflect growing economic anxiety that might force his hand. The economy is spiraling down so fast, says Mr. Sorman, that France will be forced "to revert to free-market solutions." This is his other optimistic scenario.

"It’s very rare that a nation chooses decline," he continues. "I don’t think the French will choose decline. It’s a young nation with many young people who want to find work."

De Gaulle had a famous line about the impossibility of governing a country with "246 different kinds of cheese." Mr. Sorman sees it differently. "The problem," he says, "is not the number of cheeses. The problem is the false consensus propagated by the chattering classes that the ruling government elite knows best what is good for the country, that the genius of France is to be ruled from above by a clairvoyant state bureaucracy, that the free market does not belong to French history—and if you are against this you are a traitor."

Before French audiences, Mr. Sorman often invokes the names of Frédéric Bastiat, Alexis de Tocqueville and Jean-Baptiste Say to show that liberal economic ideas aren’t alien to French soil. "I tend to feel lonely," he says.

Original Source: http://online.wsj.com/article/SB10000872396390444375104577592850332409044.html?mod=WSJ_Opinion_LEADTop

 

 
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