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Thursday, May 03, 2012

Electoral consequences

As voters go to the polls across Wales, Scotland and much of England today to cast a verdict on their local council, Benedict Brogan in the Telegraph writes that this Sunday's election across the channel could have far-more devastating consequences for the UK Government than the predicted loss of council seats for Conservatives and Liberal Democrats.

He says that the prospect of a change in the Élysée has set off alarms in the Foreign Office, the Treasury and Downing Street this week:

They fear a triumph for Europe’s least-modernised Left will trigger another round of uncertainty about the future of the euro that will add to the woes of the British economy. They worry, too, that Britain will lose a valuable Atlanticist ally: Mr Hollande has vowed to rush for the exit in Afghanistan, and while Franco-British defence cooperation will continue, it is hard to imagine him joining Mr Cameron in taking on Muammar Gaddafi.

Most alarming of all, ministers can see that the groundswell of opposition to austerity that has built up in Europe threatens to sweep away the economic consensus that George Osborne put at the centre of his economic policy. It already looks shaky in Spain, Portugal and Ireland, and has been knocked back in the Netherlands. A victory for Mr Hollande would be a monumental fillip for those arguing for more state borrowing to boost growth, and more taxes instead of less spending to contain ballooning deficits. It is bad enough that even Mario Draghi, the governor of the European Central Bank, has called for a growth pact; Mr Hollande has demanded a renegotiation of the euro treaty if he wins, and will try to tilt the EU’s Franco-German motor away from austerity and towards stimulus by borrowing. Ed Balls will be delighted.

Westminster may be distracted by the Leveson circus, but a socialist win across the Channel should strike fear into the Conservatives, who can ill afford to have French politics demonstrate what can happen to an incumbent who loses touch with the electorate, or how a political nerd can tap in to public disquiet about the role of elites in politics. A win for Mr Hollande is a morale boost for Ed Miliband.

These really are interesting times.

If Ms Hollande wins and impliments a "growth strategy" which works it will indeed be a boost for Milliband and Balls and hence bad news for the coalition. If the growth strategy doesn't work (see below *)it will plunge the Euro zone into another even deeper crisis which will also be bad news for the coalition.
Heads you lose, tails you... err lose.
*There is no painless way out of this mess. We in the "rich west" have to accept a significant reduction in our wealth(probably around 20 -25%). Those who talk of a return to growth are living in a distorted reality zone.
So Hollande wins, making Sarkozy the eleventh Eurozone leader to be rejected by their electorate since the crisis began. Perhaps Hollande can pursuade the Germanys that the current Eurozone policy restricting budget defecits is sure to result in an economic depression.
We need to start seriously figuring out how we are going to manage a zero growth society. Peter I would be interested in your views (no jokes please)
Maybe we should see how sustainable Hollande's policies are first and how the markets will react vis-a-vis the Euro and interest rates on French debt.
Either way the Eurozone and countries that depend on its markets are in for a very long period of financial instability and nett zero growth. So I think we should start to develop public policy to meet this new paradigm.
No more time to waste.
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