Bad news for Hollande as austerity bites

Hollande's focus on cutting deficits with revenues hasn't saved him from the downsides.

The French economy is on the rocks, in a move which threatens to derail president Hollande's economic reforms. The Observer's Kim Willsher reports:

The French leader has been hit by soaring unemployment figures, further factory closures and job losses, and plummeting popularity on top of growing fears that he and his Socialist government are failing to address the country's problems. Members of the opposition right-of-centre UMP have accused them of being "amateurs".

The news is bad, both for Hollande, and for proponents of revenue-side austerity. It is probably too soon to write-off the effects of the controversial 70 per cent tax rate – the pernicious effects of which are supposedly flight of high-net-worth individuals, rather than just a retardation of growth per se – but at the same time, it is clear that Hollande's agenda is, at best, no better than Sarkozy's was.

Despite the unpopularity of those revenue-raising measures amongst the economic elite, a meeting with members of various international organisations today – including the IMF and OECD – will reportedly focus on supply-side reforms "to improve France's competitiveness on the world market and restore confidence at home and abroad". The French labour market, with its ring-fenced working hours, worker protections, and strong unions, is frequently seen as being counter-productive to economic health.

The other major reason why the OECD and IMF are unlikely to press too hard on the question of high marginal tax rates is that, despite the fact that it has led to Hollande's government being seen as a standard-bearer for the left, they still fit very strongly into the narrative of "austerity".

The socialist government has made much the same pledges to be "realistic about the deficit" and practice "fiscal restraint" as we are used to hearing from all the parties in the UK. Where it has differed is in the method by which it has tried to reduce the deficit, focusing on increasing revenue rather than decreasing spending.

While this has driven some economists, like GWU's Veronique de Rugy, mad, it is a perfectly fair application of the principles behind austerity. What it also does, though, is expose the contradictions between those who genuinely desire to reduce deficits, pay down debt and "win the confidence of bond markets", and those who have used those as a convenient excuse to argue for shrinking the state.

Whether-or-not revenue-based austerity is as effective as spending-based austerity, however, it is clear that both are austerity. To those who have argued that, in a recession characterised by depressed consumer confidence and low aggregate demand, the state needs to temporarily push for deficit-funded spending, the bad economic news for France is yet more evidence in favour.

François Hollande. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Arsène Wenger: how can an intelligent manager preside over such a hollowed-out team?

The Arsenal manager faces a frustrating legacy.

Sport is obviously not all about winning, but it is about justified hope. That ­distinction has provided, until recently, a serious defence of Arsène Wenger’s Act II – the losing part. Arsenal haven’t won anything big for 13 years. But they have been close enough (and this is a personal view) to sustain the experience of investing emotionally in the story. Hope turning to disappointment is fine. It’s when the hope goes, that’s the problem.

Defeat takes many forms. In both 2010 and 2011, Arsenal lost over two legs to Barcelona in the Champions League. Yet these were rich and rewarding sporting experiences. In the two London fixtures of those ties, Arsenal drew 2-2 and won 2-1 against the most dazzling team in the world. Those nights reinvigorated my pride in sport. The Emirates Stadium had the best show in town. Defeat, when it arrived in Barcelona, was softened by gratitude. We’d been entertained, more than entertained.

Arsenal’s 5-1 surrender to Bayern Munich on 15 February was very different. In this capitulation by instalments, the fascination was macabre rather than dramatic. Having long given up on discerning signs of life, we began the post-mortem mid-match. As we pored over the entrails, the curiosity lay in the extent of the malady that had brought down the body. The same question, over and over: how could such an intelligent, deep-thinking manager preside over a hollowed-out team? How could failings so obvious to outsiders, the absence of steel and resilience, evade the judgement of the boss?

There is a saying in rugby union that forwards (the hard men) determine who wins, and the backs (the glamour boys) decide by how much. Here is a footballing equivalent: midfielders define matches, attacking players adorn them and defenders get the blame. Yet Arsenal’s players as good as vacated the midfield. It is hard to judge how well Bayern’s playmakers performed because they were operating in a vacuum; it looked like a morale-boosting training-ground drill, free from the annoying presence of opponents.

I have always been suspicious of the ­default English critique which posits that mentally fragile teams can be turned around by licensed on-field violence – a good kicking, basically. Sporting “character” takes many forms; physical assertiveness is only one dimension.

Still, it remains baffling, Wenger’s blind spot. He indulges artistry, especially the mercurial Mesut Özil, beyond the point where it serves the player. Yet he won’t protect the magicians by surrounding them with effective but down-to-earth talents. It has become a diet of collapsing soufflés.

What held back Wenger from buying the linchpin midfielder he has lacked for many years? Money is only part of the explanation. All added up, Arsenal do spend: their collective wage bill is the fourth-highest in the League. But Wenger has always been reluctant to lavish cash on a single star player, let alone a steely one. Rather two nice players than one great one.

The power of habit has become debilitating. Like a wealthy but conservative shopper who keeps going back to the same clothes shop, Wenger habituates the same strata of the transfer market. When he can’t get what he needs, he’s happy to come back home with something he’s already got, ­usually an elegant midfielder, tidy passer, gets bounced in big games, prone to going missing. Another button-down blue shirt for a drawer that is well stuffed.

It is almost universally accepted that, as a business, Arsenal are England’s leading club. Where their rivals rely on bailouts from oligarchs or highly leveraged debt, Arsenal took tough choices early and now appear financially secure – helped by their manager’s ability to engineer qualification for the Champions League every season while avoiding excessive transfer costs. Does that count for anything?

After the financial crisis, I had a revealing conversation with the owner of a private bank that had sailed through the turmoil. Being cautious and Swiss, he explained, he had always kept more capital reserves than the norm. As a result, the bank had made less money in boom years. “If I’d been a normal chief executive, I’d have been fired by the board,” he said. Instead, when the economic winds turned, he was much better placed than more bullish rivals. As a competitive strategy, his winning hand was only laid bare by the arrival of harder times.

In football, however, the crash never came. We all wrote that football’s insane spending couldn’t go on but the pace has only quickened. Even the Premier League’s bosses confessed to being surprised by the last extravagant round of television deals – the cash that eventually flows into the hands of managers and then the pockets of players and their agents.

By refusing to splash out on the players he needed, whatever the cost, Wenger was hedged for a downturn that never arrived.

What an irony it would be if football’s bust comes after he has departed. Imagine the scenario. The oligarchs move on, finding fresh ways of achieving fame, respectability and the protection achieved by entering the English establishment. The clubs loaded with debt are forced to cut their spending. Arsenal, benefiting from their solid business model, sail into an outright lead, mopping up star talent and trophies all round.

It’s often said that Wenger – early to invest in data analytics and worldwide scouts; a pioneer of player fitness and lifestyle – was overtaken by imitators. There is a second dimension to the question of time and circumstance. He helped to create and build Arsenal’s off-field robustness, even though football’s crazy economics haven’t yet proved its underlying value.

If the wind turns, Arsène Wenger may face a frustrating legacy: yesterday’s man and yet twice ahead of his time. 

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 24 February 2017 issue of the New Statesman, The world after Brexit