The French government spends 56.1% of GDP, one of the highest ratios in the world. Even the relatively left-wing Hollande thinks that’s enough. But believe it or not there is (or was) a faction in the government that thinks France’s problems are caused by not spending even more. Here is the FT:
François Hollande has purged his embattled Socialist government of leftwingers opposed to EU austerity after a revolt led by Arnaud Montebourg, the flamboyant economy minister.
Mr Montebourg quit the cabinet on Monday, delivering a blistering attack on what he called “absurd” austerity policies – supported by Mr Hollande – which had brought about “the most destructive crisis in Europe since 1929”.
The outspoken minister said in a televised statement that the eurozone’s fiscal stance was “the cause of the unnecessary prolongation of the economic crisis and the suffering of the European population”.
The cabinet crisis was triggered by figures this month showing there had been no growth in the French economy in the first half of the year, with unemployment continuing to rise.
So where did Montebourg get the crazy idea that even more spending would solve France’s problems? Here’s the BBC:
Did Paul Krugman help topple the French government? According to Business Insider’s Rob Wile, the New York Times columnist “deserves some of the blame”.
The proximate cause of French President Francois Hollande’s decision to call on PM Manuel Valls to form a new government was when two senior ministers criticised the nation’s economic austerity policies. Mr Holland has requested that the prime minister form a new cabinet – certainly without the two offending officials – by Tuesday.
Wile notes that one of the officials – economic minister Arnaud Montebourg – directly quotes Krugman in his controversial comments to Le Monde. Here’s Mr Montebourg’s response after being asked whether Europe has tilted too far toward austerity:
That’s not my observation, that’s the diagnosis of financial institutions across the world, starting with the IMF which, whose director, Christine Lagarde, warned European leaders about an excess of budget consolidation. Paul Krugman, a Nobel laureate, also wrote on Aug. 13, “The nightmare scenario in Europe is not a hypothetical. The news that industrial production has ground to a halt raises the prospect of a new recession in Europe – its primary cause, austerity.” These warnings have also been sounded by other leaders of world powers including Barack Obama.
If Mr. Krugman’s views are no longer welcome in Paris, I wonder what country would be willing to adopt his strategy. Cuba’s G/GDP ratio is at 66%, probably a tad high for even Paul Krugman. And don’t forget that this is the guy who thinks market monetarists are a failure because our views aren’t popular with GOP Congressmen.
PS. Mean-spirited Sweden’s government scrapes by spending a measly 51.2% of GDP.
HT: Patrick Sullivan