Spending cuts and the threat to democracy

What America should learn from Europe and the Middle East.

The "sequester", which began on 1 March, is the American form of austerity, or cut-backs in government spending during a recession. Austerity, or stingy government in Europe has kept employment extremely depressed compared to what it would have been with government stimulus, as Paul Krugman argues.

On Saturday, there were massive protests throughout Portugal against Scrooge policies by the government, which have so destroyed the country’s economy that 2 per cent of the population has fled abroad for jobs in the past 2 years alone. On Friday, Greek workers staged a huge general strike. In Italy, anti-austerity feeling made grumpy comedian Beppe Grillo and his party the swing vote in the new parliament. Grillo may single-handedly destroy the eurozone. European newspapers rather amusingly demanded that Grillo now "take responsibility" and "tell us what he wants". He is a contrarian comedian. It would be like having Robin Williams or Tracy Morgan as the swing vote in Congress, with the press hounding them for their agricultural policy and asking them about the dangers of deflation. But Grillo's ascendancy, while less alarming than the resurgence of the Greek far right, is a manifestation of the rejection by the Italian public of the long dreary road prescribed by the "troika", (The International Monetary Fund, the European Union, the Central Bank), of further government cut-backs, reductions in minimum wage, high unemployment, no hope.

While for some odd reason the Middle East does not usually get analysed with the same social science tools as Europe, the political crisis in Egypt is related to the Muslim Brotherhood government’s austerity program. The latter, as Samuel Knight argues, is being pursued under pressure from the International Monetary Fund. Secretary of State John Kerry is in Cairo, also urging acceptance of the austerity program. Austerity is estimated to have reduced Egyptians’ real income by 3 per cent in January alone. Tunisia is doing better than Egypt economically, but the parliament, dominated by the religious Right, is also tempted by austerity measures, seeking to trim a point off the budget deficit this year while seeking 4.5 per cent growth. While letting the value of the Tunisian dinar fall would hurt consumers with regard to imported goods, it would make Tunisian textiles and tourism more affordable for those abroad. Tunisia's exports are hurt by European economic problems, and the country would do well to develop more Asian customers (Brazil has had success reorienting exports to the Pacific Rim). Likewise, although Yemen's economy improved in 2012 after a 10 per cent drop in the revolutionary year of 2011, if anything the government budget deficit of 5.5 per cent is not big enough to stimulate the economy properly.

Reducing the state budget at a time of economic contraction is the opposite of what the great economist John Maynard Keynes prescribed. When the economy is in the doldrums, the businesses are skittish about investing their money, and so keep it in the bank. The only force, Keynes argued, that can and will risk putting a lot of money into the economy during a deep recession is the government. Of course, the government has less money at that point, too, since tax receipts are reduced. So it will simply have to spend money it doesn't technically have, i.e. go into deficit and print extra paper money. The extra paper will, obviously, lose some of its value. But that loss can have benefits, too, since it will make the goods produced by the country less expensive abroad, and spur exports.

This argument is straightforward for most countries, and it is mysterious why European and some Middle Eastern governments reject it. It is complicated in the US by the position of the dollar as a reserve currency and by the fall of manufacturing to only 20 per cent of the US economy. The former means that large budget deficits don't necessarily reduce the dollar's value significantly, because the US only holds about a third of the world's dollars and there is a lot of confidence in its value. The latter means that even when the dollar falls against the yen or euro, the jump in exports is limited to a fifth of the economy and domestic services don’t get much of a boost. But actually these peculiarities of the US economy are not arguments for austerity; on the contrary, the reserve dollar allows the US to do stimulus without as much pain as one would otherwise expect.

Instead, the Tea Party has forced the US into an artificial crisis with the "sequester", taking $100bn a year out of the economy for the next ten years, which will cut half a point of economic growth and harm workers, keeping unemployment high – not to mention the harm it likely will do to medical research, higher education, etc. That this austerity is being pursued by the GOP in part in hopes of disillusioning voters with President Obama in his second term is fairly obvious, but it is also in order to protect the 2003 Bush tax cuts for the wealthy, 80 per cent of which have been retained. Sequester, as usual with these things in the US, is actually a tax on the middle classes to benefit the wealthy, since it preserves undeserved tax cuts for the latter by reducing government services for the former.

That austerity does not work economically should be clear. But that it creates populist discontents that are shaking southern Europe and could derail Middle East democratisation is even more alarming. The world needs stimulus, not Scrooge government if it is to pull out of the crisis kicked off by corrupt bankers in 2008.

This is a cross-post from Juan Cole's blog Informed Comment

Barack Obama holds a cabinet meeting at the White House on 4 March. (Photo: Getty.)
Getty
Show Hide image

Emmanuel Macron's power struggle with the military

Reminding your subordinates that you are "their boss" doesn't go as far as listening to their problems, it may seem.

This is the sixth in a series looking at why Emmanuel Macron isn't the liberal hero he has been painted as. Each week, I examine an area of the new French president's politics that doesn't quite live up to the hype. Read the whole series.

It had started well between Macron and the army. He was the first president to chose a military vehicle to parade with troops on the Champs-Élysées at his inauguration, had made his first official visit a trip to Mali to meet French soldiers in the field, and had pulled a James Bond while visiting a submarine off the Brittany coast.

It’s all fun and games in submarines, until they ask you to pay to maintain the fleet.

“Macron wanted to appear as the head of armed forces, he was reaffirming the president’s link with the military after the François Hollande years, during which the defence minister Jean-Yves Le Drian had a lot of power,” Elie Tenenbaum, a defence research fellow at the French Institute for International Relations, told the New Statesman. The new president was originally viewed with distrust by the troops because he is a liberal, he says, but “surprised them positively” in his first weeks. Olivier de France, the research director at The French Institute for International and Strategic Affairs, agrees: “He sent good signals at first, gathering sympathy.” 

But the honeymoon ended in July, with what Tenenbaum describes as Macron’s first “real test” on defence: the announced cut of €850m from the army’s budget, despite Macron’s (very ambitious) campaign pledge to rise the defence budget to 2 per cent of the country’s GDP by 2025. A row ensued between the president and the French army’s chief of staff, general Pierre de Villiers, when the general complained publicly that the defence budget was “unbearable”. He told MPs: “I won’t let him [Macron] fuck me up like that!”

Macron replied in a speech he gave to military troops the day before Bastille Day, in which he called soldiers to honour their “sense of duty and discretion” and told them: “I have taken responsibilities. I am your boss.” After the general threatened to quit and wrote at length about “trust” in leadership, Macron added a few days later that “If something brings into conflict the army’s chief of staff and the president of the Republic, the chief of staff changes.” That, Tenenbaum says, was the real error: “On the content, he was cutting the budget, and on the form, he was straightening out a general in front of his troops”. This is the complete opposite of the military ethos, he says: “It showed a lack of tact.”

This brutal demonstration of power led to de Villiers’ resignation on 19 July – a first in modern French politics. (de Villiers had already protested over budget cuts and threatened to quit in 2014, but Hollande’s defence minister Jean-Yves Le Drian had backed down.)

Macron did his best to own up to his mistake, assuring the military that, although this year’s cuts were necessary to meet targets, the budget would be rised in 2018. “I want you to have the means to achieve your mission,” he said.

But the harm was done. “He should have introduced a long-term budget plan with a rise in the coming years right away,” says de France. “It was clumsy – of course he is the boss, everyone knows that. If he needs to say it, something is off.” The €850m will be taken out of the army’s “already suffering” equipment budget, says Tenenbaum. “There are pressures everywhere. Soldiers use equipment that is twice their age, they feel no one has their back." The 2 per cent GDP target Macron set himself during the campaign – a “precise” and “ambitious” one – would mean reaching a €50bn army budget by 2025, from this year’s €34m, he explains. “That’s €2bn added per year. It’s enormous.”

Read more: #5: On immigration, Macron's words draw borders

Macron has two choices ahead, De France explains: “Either France remains a big power and adapts its means to its ambitions” – which means honouring the 2 per cent by 2025 pledge – “or wants to be a medium power and adapts its ambitions to its means”, by reducing its army’s budget and, for instance, reinvesting more in European defence.

The military has good reason to doubt Macron will keep his promise: all recent presidents have set objectives that outlast their mandates, meaning the actual rise happens under someone else’s supervision. In short, the set goals aren’t always met. Hollande’s law on military programming planned a budget rise for the period 2018-19, which Macron has now inherited. “The question is whether Macron will give the army the means to maintain these ambitions, otherwise the forces’ capacities will crumble,” says Tenenbaum. “These €850m of cuts are a sign than he may not fulfill his commitments.”

If so, Macron’s row with the general may only be the beginning.  It didn’t help Macron’s popularity, which has been plummeting all summer. And the already distrustful troops may not forgive him: more than half of France’s forces of order may support Marine Le Pen’s Front national, according to one poll. “It’s hardly quantifiable and includes police officers,” Tenenbaum cautions. All the same, the army probably supports right-wing and hard-right politicians in higher numbers than the general population, he suggests.

James Bond would probably have known better than to irritate an entire army – but then again, Bond never was “their boss.”