The NYT Lectures France on How to Restore Its Aaa Rating

Arguably the main reason that France and the rest of the euro zone countries are facing recession and debt downgrades is the failure of the European Central Bank (ECB) to act as a lender of last resort and promise to back up the debt of its member states. This failure, coupled with its obsession to curb inflation even at the expense of growth, would seem to be the main source of the euro zone's economic problems at the moment.

However the NYT sees it otherwise. In an article on Standard & Poor's downgrade of French debt it told readers:

"France will have to work to restore its financial luster, especially if it is subsequently downgraded by other ratings agencies. French officials say their priority now is to demonstrate that the euro area is solid, while also showing that France is working to improve its own finances.

Mr. Sarkozy’s austerity programs, including higher taxes on items like some food and beverages that kicked in across France recently, are aimed at whittling the country’s budget deficit to 3 percent of G.D.P. by 2015."

Austerity is of course one route, although if it leads to further weakness in the French economy, it is not clear that it will be a successful route. Another possible route would be for France to pressure the ECB to adopt sounder policies.

The NYT seems to have ruled this path out for France, but the French people might see changing ECB policy as preferable to tax increase and spending cutbacks that will have an uncertain impact on the deficit and France's financial standing.

Just French Desserts - Let Them Eat Freedom Fries
written by izzatzo, January 14, 2012 8:12 AM

What goes around comes around after France opposed the Iraq War. Economic justice follows political injustice.

Stupid liberals.

-5

...
written by skeptonomist, January 14, 2012 9:07 AM

The ECB has a responsibility to buy the short-term bonds of all its member countries to keep interest rates under control, but those member countries also have a responsibility to keep bond issuance within reasonable limits, or in other words not to let their debts get out of line relative to the others. The more fiscally-responsible countries, especially Germany, will obviously do what they can to force the peripheral countries not to overwhelm the system with debt - like it or not, the union will not work if some countries run up unlimited debt.

Most "liberal" US economists seem to be unaware of the class elements of the situation. Conservatives, who control most of the powerful governments, want the budgets of the peripheral countries to be brought under control with cuts in social programs and action against unions, as do conservatives in the US. The real budget problem in Greece and Italy is probably failure to collect taxes from those who have the money - as it is in the US. Also a major reason that Germany has had a trade advantage over the last ten years is that real wages have not increased in that time.

Shouldn't "liberal" economists be more concerned with more equitable compensation and taxation instead of thinking of the best ways to beat down real wages in the struggling countries?

ECB Is Truly Not Independent
written by Juan, January 14, 2012 2:30 PM

What should be clear to everyone by now is the ECB is not an independent central bank like the Fed or the japanese central bank. Hoping the ECB to implement policies that goes against Germany's wishes is not going to happen.

"Austerity is of course one route" WHAT???
written by Paul, January 14, 2012 2:47 PM

The austerity route is the Highway to Hell. Isn't that crystal clear by now?

The ONLY way forward is to increase demand and investment, just as Keynes said 76 years ago. Apparently nothing has been learned after all this time.

Downgrade, so what?
written by Barkley Rosser, January 16, 2012 12:23 PM

Bond yields in both France and Austria declined after the downgrade. Same thing happened in US and also in Japan. So what they got downgraded?

The NYT Lectures France on How to Restore Its Aaa Rating

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