The Hollande-Monti Pact: Growth Over Austerity

Exit polls suggest at the time of writing that Nicolas Sarkozy has suffered the ignominy of being a one-term French president. His loss means that for the first time in nearly a quarter of a century the French have elected a Socialist as their leader.

The result looks like it will be closer than many thought it was going to be a couple of weeks ago. Sarkozy’s rather brutal anti-Muslim appeal to the far right seems to have been rewarded with a narrower defeat. It appears the Socialist François Hollande has secured 52 percent of the vote compared to 48 percent for incumbent Sarkozy – a solid victory. And as I write, Sarkozy has conceded.

Sarkozy is only the second president, after Valéry Giscard d’Estaing, in 1981, to fail to win re-election under the Fifth Republic.

His supporters are now suggesting that this was an “unwinnable election.” That he was unfortunate in his timing: he entered office as the financial crash hit. Does this mean that no  incumbent can expect to win in the current circumstances? He is, after all, the 11th government leader to be swept from office since the financial crash struck. Does this French election hold a warning for Barack Obama?

Four percent is not a heavy defeat. While Sarkozy faced an uphill battle and was associated for many of the French with four years of crisis, the seeds for his defeat also rest with the manner of his governing. The French tend to appreciate a discreet president and Sarkozy was anything but: he chose to celebrate his victory at one of Paris’ most expensive restaurants and for several days after relaxed on a friendly billionaire’s yacht – one sporting the British Red Ensign!

As the living standards of the French dropped during his time in office and unemployment rose, the brash Sarkozy continued to project himself as a contemporary JFK, surrounding himself with beautiful women – not just his wife – and was happy to appreciate being associated with the finer things in life.

Many, I suspect, did not forgive him for this and as they went to the polls they recorded their resentment.

This marks him out from Obama. Sarkozy seemed distant from the pain. Obama doesn’t — although he doesn’t have the Bill Clinton gift of actually appearing to feel the pain. That, though, may save him come November.

There will clearly be Europe-wide consequences from this election. As far as Europe is concerned it is likely to shift the focus from austerity to growth and sets up a possible confrontation between Hollande and German Chancellor Angela Merkel.

The Economist this weekend suggested that Hollande may be rather dangerous, suggesting that he will turn the clock back to the early disastrous days of his Socialist predecessor François Mitterrand. Certainly, Hollande will be less business friendly than Sarkozy and this could well impact the growth he says he wants. But he is a sophisticated and cautious political player and some of his campaign rhetoric should be taken as just that.

Merkel was already indicating on the eve of the French presidential election that she would be open to re-thinking on the austerity-tilted European fiscal pact. She has come under strong lobbying pressure from Italy’s Mario Monti to do so.

Now that Hollande has won that pressure will simply grow on her — and with both the French and Italian leaders arguing for the pact to reflect more of a mix of reform, austerity and growth, she is likely to have to concede and sell it to the Germans.

How the bond and financial markets react is another matter. We shall have more hints on that tomorrow when they open.

Obama Can Buck The Trend

Journalists can be as slavish to precedent as judges. Most media round-ups of the U.S. presidential election stakes begin or devote much space to the fact that unemployment is running high and that no incumbent since FDR has secured re-election with it higher than 7.2 percent.

Binyamin Applebaum provides the perfect example of conventional wisdom with his piece for the New York Times on June 1, in which he asserts: “Seventeen months before the next election, it is increasingly clear that President Obama must defy that trend to keep his job.”

Precedents are there to be broken, though, and elections are littered with examples of campaigns that have bucked trends. Obviously, persistently high unemployment is something that’s likely to hurt Obama – I’m sure he’d prefer it below the magic 7.2 percent number – but it may well be that it isn’t the defining factor this time.

With incumbency and no primary challenger, Obama is already enjoying a couple of distinct advantages.

And he has another major advantage going into the election season that will, I suspect, assist him to buck the trend – namely, the weakness of the opposition. The GOP’s current candidates are about as inspiring as Bob Dole was in 1996, an election that saw Bill Clinton coast to victory on much lower approval ratings than Obama now enjoys.

Clearly, Obama is vulnerable because of the agonizingly sluggish recovery and high unemployment. Twice as many Americans think the country is on the wrong track as the right one and anger is high in key battleground states such as Michigan, Ohio and Florida. Obama will focus no doubt on continuing to try to persuade voters that without the stimulus and the takeover of GM and Chrysler, the economy and unemployment rate would be much worse.

I happen to think he’s right but that, though, is a tough sell and comes down to defending a record rather than pitching forward and presenting new ideas. President Herbert Walker Bush was caught in that trap when he sought reelection in 1992 – in fact the economy was pulling out of recession then but people were not feeling the benefits of recovery and he got blamed for the economic pain.

Obama has another major weakness: he has failed to present a credible plan to cope with the budget deficit, currently running at almost 10 percent of GDP. His suggestion is that higher taxes on the wealthy will sort that out. It won’t.

But where is the Republican that can take Obama’s weaknesses and turn them into GOP strengths? Do they have credible plans for reducing the budget deficit while at the same time coaxing quicker growth and providing the circumstances for more Americans to get jobs?

The governors in the race – Jon Huntsman, Tim Pawlenty and Mitt Romney – have to be considered the serious candidates. (Sarah Palin, if she runs, and Michele Bachmann are the circus acts.)  But all they do is trot out the line that pleases the Tea Party consisting of slashing public spending and cutting taxes.

Pawlenty has gone off into never-never land in terms of the scale of public spending and tax cuts he wants to see – his plan has prompted groans of disbelief from the Economist magazine, hardly a publication that is in favor of Big Government or high taxes. Aside from ideologues, few respected economists see much to recommend in the bleak solutions being thrown up by the GOP candidates.

They sound like Bush the Younger when it comes to the magic of tax cuts. He claimed that “tax relief will create new jobs. Tax relief will generate new wealth. And tax relief will open new opportunities.” And how did job growth fare? Well, between pre-recessionary 2001 and 2007 America enjoyed the slowest job growth since World War II. Very impressive. And now we have the Republican candidates coming out with the same old, same old unsophisticated supply-side solutions.

Of course, taxes can be too high and in certain economic circumstances and at some points in business cycles tax cuts can be essential. The IMF is recommending them for the UK currently – and that on top of the spending reductions being planned by the coalition government in London. But for America now tax cuts would be unhelpful for economic or job growth.

Bruce Bartlett, a senior policy analyst in the Reagan White House; and deputy assistant secretary for economic policy at the Treasury Department during the George H.W. Bush administration, has been trying to explain to his erstwhile colleagues on the right about why that is the case. His latest column in The Fiscal Times scorns Republicans for tending to talk as if there is only one factor that affects growth – namely, tax rates.

As Bartlett points out corporate investment is key when it comes to economic growth. It is worth quoting him in full:  “There’s no evidence that the 2003 tax cut did anything to stimulate corporate investment. Indeed, according to the Federal Reserve, nonfinancial corporations have increased their holdings of liquid assets to $1.8 trillion from $1.2 trillion since 2003. Thus it’s implausible that a further reduction in the corporate rate, as Pawlenty and other Republicans favor, would do much to raise investment.

“The bottom line is that neither taxes nor spending by themselves are the most important government contribution to the investment climate; it’s the budget deficit. Consequently, a reduction in tax revenue which raises the deficit is unlikely to stimulate domestic investment because more money will have to be borrowed from abroad. Conversely, a tax increase dedicated to deficit reduction could well be stimulative, as was the case with the 1982 and 1993 tax increases. Contrary to Republican dogma, rapid growth followed on both occasions.”

Ordinary voters may not think in such terms. Polls suggest that the budget deficit scares the blazes out of them — as it should. But are they going to be convinced that drastically cutting public spending pell-mell is the answer or that making America’s wealthiest people even wealthier is the way forward?

One thing, I suspect, Republicans still don’t get is that they scare the majority of voters far more with their talk of radically changing Medicare, Medicaid and Social Security. And their lack of a plan to overcome the clear and present danger of structural unemployment save a shrug of the shoulders and claiming tax cuts will solve everything by magically promoting economic growth just isn’t going to cut it on the stump either.

An approach that talks about public investment in infrastructure, science, technology and education, structural reforms to boost jobs and growth, the importance of savings, cutting public spending over time and not so rapidly that it will derail recovery, retraining, government in partnership with the private sector is much more likely to resonate with voters.

As the Economist has pointed out recently, the Republican “failure on the deficit” is serious. “The deficit is simply too large to close through spending cuts alone. The overall tax take – at its lowest, as a share of GDP, in decades – must eventually rise.”

Realism is something that Americans are likely to appreciate this time round more than ever. They understand that a crossroads has been reached. So far there isn’t a candidate on the GOP side who is offering honesty to counter Obama’s half-honesty.




Tweeting Weiner: Should He Go Or Should He Stay?

Anthony Weiner’s prospects for political survival have dimmed precipitously in the past few hours with at least six House Democrats calling for him to step down.

Rep. Allyson Schwartz, who holds a senior leadership position on the Democratic Congressional Campaign Committee, was the first to say he should quit, although the New York congressman’s prospects looked grim when the Democrat leader in the Senate, Harry Reid, earlier in the week said he couldn’t defend him. Harry has defended seem pretty indefensible things in his time, so his blank counsel to Weiner to phone someone else, if he were considering searching for advice, suggested that the salacious tweeter’s days could well be numbered.

So it hasn’t taken long for House Democrats to decide that they have more to gain politically by calling for Weiner to go rather than refraining in order to see what happens or hoping he would choose to quit without being told to go.

Certainly, there’s little evidence that the media hue-and-cry is going to die down. And why should it? It is great for ratings and allows commentators to offer the well-tried and normally successful mixture of voyeurism and condemnation — a combination that encourages a double quiver of pleasure: we can be entertained by the story while at the same secure pleasure from a self-righteous frown and tut. The UK tabloids the Sun and Daily Mail are brilliant at serving up such fare for their devoted readers.

But in the broad scheme of things should an elected representative quit over such petty stuff? Okay, he lied publicly with his claim that his Twitter account had been hacked. But he didn’t lie under oath during a legal proceeding – Bill Clinton’s great error. Yes, his credibility has been shattered by those bald-faced lies. But credibility can be restored through dint of hard work. Now it is all out in the open he’s not at risk of being blackmailed.  Okay, his judgment is questionable, both for sexting in the first place and how he handled the fallout. But none of that means he can’t be an effective representative for his constituents – and learn from past mistakes.

And surely it is up to local Democrats and his constituents to decide at the next primary and election whether they want him to stay or go, whether they can forgive him or not. That’s what elections are for: that’s where accountability happens.

Those arguing for Weiner’s departure point to the speedy resignation in February of fellow New Yorker, Rep. Chris Lee. He was found to have been soliciting at least one transsexual on Craigslist and sending her a shirtless photo of himself. But Lee is one thing and Weiner another. Lee was all family values in his rhetoric and a tub-thumping social conservative. Weiner doesn’t stand charged with sexual hypocrisy. Even so, I see no reason why Lee had to go – that was his personal choice.

Let’s be clear. The pundits are acting as though Weiner is another DSK. He isn’t. And neither am I suggesting that we should follow the pre-DSK French model whereby the political elite is given a pass on bad, poor or over-the-top behavior.  That model encouraged a widespread sense of droit de seigneur, undermining the droits des femmes. But there is a world of difference between the allegations leveled against Dominique Strauss-Kahn and what Anthony Weiner was up to — and to treat them as though they were equally egregious lacks proportion. Weiner was engaging in reckless flirtation — the modern, online style — while DSK is alleged to have been attempting to rape. The New Yorker is married but the state of his marriage is a private matter.

The voters of New York’s 9th district will have a chance to hold their congressman to account. (And no doubt his wife will hold him to account, too.) Moralists can content themselves with the fact that his high-flying political career will now be flying at lower altitudes, even if he does survive. And he can forget his chances of becoming Mayor of New York. That’s his punishment.


A Good Night for the White House

There hasn’t been much to cheer up the White House in recent weeks but last night’s Tea Party upset in the GOP Senate primary in Delaware must have prompted some pretty big smiles in the West Wing. “Tea Party Scores Big,” was the Washington Post headline this morning. But the scoring is at the cost of the GOP and the headline could easily have been instead – “Big Night for the White House.”

Tea Party activists won’t feel that way. From their perspective they are shaking up politics and disproving Speaker Nancy Pelosi’s dismissive interpretation of the Tea Party as just “Asrto-turf “ and “not really a grass-roots movement.” As Tea Party victor Christine O’Donnell said last night after her defeat of veteran GOP congressman Mike Castle, this is “no more politics as usual.”

Add O’Donnell’s stunning victory to the string of embarrassments the Tea Party has been handing out to the Republican establishment this year, from Alaska with Joe Miller’s trouncing of Sen. Lisa Murkowski in a primary to last spring’s Tea Party overturning of Sen. Robert Bennett at the Utah Republican state convention, and it hard for the activists to think anything but that history is with them.

Certainly there are pollsters and commentators eager to confirm that view. Writing in the Washington Examiner, pollster Scott Rasmussen and political consultant Douglas Schoen launch on a breathless paean to the Tea Party’s importance, arguing that the movement is “demonstrating a level of activism and enthusiasm that is both unprecedented and arguably unique in recent American political history.”

While they are right to castigate the press for dismissing the movement earlier this year, and while they are surely correct in arguing that the Tea Party has been “one of the most derided and minimized and, frankly, most disrespected movements in American history,” I am not so convinced that the Tea Party movement is that different from the third-party challenge of Ross Perot back in 1992.

Many of the things claimed for the Tea Party were claimed also for the Perot movement – one as inchoate  as the Tea Party. It was going to shake up politics and repaint the political landscape permanently. The activists were highly active and incredibly enthusiastic and glowing with the self-righteous  belief that their time had come. And what did it in practice do? Act as a major factor in the defeat of George Bush and the election of Bill Clinton.

And that is exactly what the Tea Party is likely to achieve. Their victories are not over the Democrats, supposedly their real foes. Their triumphs are over party allies and each time they win they are underscoring the civil war that continues to rage within the GOP, thereby weakening Republican prospects come November.

O’Donnell inadvertently revealed that when she said last night in her victory speech that, “This is more of a cause than a campaign.” Causes tend not to do too well when it comes to general and congressional elections and they can inflict incredible harm on the party they are trying to capture. The anti-war movement did no favors to the Democrats and succeeded in assisting Richard Nixon to victory in 1968. The ugly anger of the Buchanan Brigades and their challenge to Bush in the 1992 primaries only added to the hurdles the incumbent president had to try to jump.

Compare the poll numbers Rasmussen and Schoen outline in their article. One of their surveys finds nearly one quarter (24 percent) of the electorate self-identified as being members in the Tea Party movement. That’s about what the Perot movement was polling in the summer of 1992.

Admittedly, the Perot movement was taking votes and support away from the GOP; Tea Party activists claim they will bring votes to the Republicans come November. But is this really true? Most Tea Party activists vote GOP when push comes to shove and for every new vote they may attract to a Republican candidate, they will turn off an independent voter or centrist who could have been enticed to vote GOP.

Take a look at what happened to John McCain’s presidential prospects after Sarah Palin joined the ticket. Yes, he got an opinion poll jump for a few days after his pick but once the broader electorate got to know Palin more, his numbers plummeted.  She was meant to reflect McCain’s “change credentials” and help him appeal to urban women. In fact, her selection was a turning point in the campaign for the Democrats and along with the Republican crack-up was a determining factor in his win.

Senior Republicans know this. Last night, the silence from GOP Sen. John Cornyn, the NRSC chairman, who issued no statement congratulating O’Donnell, was telling. O’Donnell’s win in Democrat-tilted Delaware has jeopardized the chance of the GOP in winning the Senate seat there in the fall. She is too conservative for the state and the Tea Party is too conservative for a lot of the electorate.

Earlier this week I suggested that President Obama would be hard pushed to reverse the GOP tide. Last night he might have found a new ally in the Tea Party. Yup, it was a good night for the White House.

It Was Ever Thus

Steve Clemons in his Washington Note blog slams “Communication Corrpution at the White House.” According to Clemons, access is being granted to members of the White House press corps on the understanding of favourable coverage. Clemons notes also that “many White House correspondents and other top tier journalists want to write Obama books” and that such books need “inside access” and journalists are only getting it “when favors are part of the arrangement.”

Clemons says: “What I have learned after discussions over the last several days with several journalists who either have regular access to the White House or are part of the White House press corps is that there is a growing sense that access is traded for positive stories — or perhaps worse, an agreement that things learned will not be reported in the near term.”

In his post, Clemons acknowledges in a parenthesis that this might have happened during previous presidencies. From my personal experience, it was hard to secure access from either the White Houses of Bill Clinton or George W. Bush when you were writing critically of them.

When I was a “Whitewater” journalist investigating various allegations being levelled against President Clinton, it was impossible to get phone calls returned let alone any other kind of access. Likewise, journalists who were supportive of the Bush administration in the run-up to the Iraq intervention got plenty of one-on-one briefings and those of us who were sceptical found doors firmly shut at both the White House and the Pentagon.

Rumours abounded during the last Presidential election campaign that several of the journalists travelling with Obama were pulling their punches because they were planning books. It would be interesting to hear from a journalist who covered previous Presidencies and is covering also this one whether the problem is worse or the same.