Tag: France

Which European leader is serious about economic recovery?

Merkel gives self and ministers pay rise

Merkel, her ministers and their parliamentary secretaries of state will see their wages rise in three stages between now and August 2013, until they all get 5.7 percent more. It is the first pay raise that the German cabinet has taken in twelve years. [..]

She has been the chief advocate of austerity in the eurozone during the debt crisis, earning her criticism from some quarters, notably Greece and more recently France, whose new leader Francois Hollande wants to focus on growth.

As opposed to this:

France Hollande: Ayrault government takes pay cut

France’s new government has held its first cabinet meeting and announced a 30% pay cut for President François Hollande and all his ministers.

A campaign promise, the cut reduces Mr Hollande’s monthly salary from 21,300 euros to 14,910 (£12,000; $19,000).

The cut contrasts sharply with predecessor Nicolas Sarkozy’s decision to increase his pay on entering office.

Austerity?

H/t Chris in Paris @ AMERICAblog

Greek, French and German voters went to the polls this past weekend and rejected pretty much told the European leaders they were very unhappy with the austerity measures that were being forced on them to bail out European banks. It took until yesterday for the world markets to react to this new reality with the Dow closing below its inflated 13,000 mark. Germany, the chief cheerleader for austerity, is not happy with France and very displeased with the new Greek leadership that blithely told Germany what to do with its austerity measures:

Alexis Tsipras, whose bloc came second in Sunday’s vote, said Greek voters had “clearly nullified the loan agreement”. [..]

The European Commission and Germany say countries must stick to budget cuts.

European Commission President Jose Manuel Barroso said on Tuesday: “What member states have to do is be consistent, implementing the policies that they have agreed.”  [..]

Mr Tsipras made his position clear to reporters in a five-point plan:

 

• Cancelling the bailout terms, notably laws that further cut wages and pensions
• Scrapping laws that abolish workers rights, particularly a law abolishing collective labour agreements due to come into effect on 15 May
• Promoting changes to deepen democracy and social justice
• Investigating Greece’s banking system which received almost 200bn euros of public money
• Setting up an international committee to find out the causes of Greece’s public deficit and putting on hold all debt servicing

It looks increasingly like the Greeks will be abandoning the Euro, it’s just a matter of when:

“Germans are now predominantly of the opinion that they would be better off if Greece left the euro zone,” said Carsten Hefeker, a professor of economics and an expert on the euro at the University of Siegen. “If the country really is continuing on the path they are taking now, it would be hard to justify keeping them in. How do you deal with a country that says we don’t want to keep any of the commitments we have made?” [..]

Perhaps the one card Greece has to play is the danger its exit could pose to other, much larger members like Spain and Italy, with far greater consequences. If Greece were pushed out, Mr. Hefeker said, the bond markets would start betting on the next country to be kicked out. “Then Spain or Italy would be put under pressure, and the danger would be of the whole euro zone collapsing,” he said.

There are few options are open for the European Union, the European Central Bank and the International Monetary Fund which is holding most of Greece’s debt and easing the threat to the banks.

First, the so-called “troika” could release just enough funds to keep the government running until the political situation stabilizes;

The terms of the agreement could be renegotiated with the creditors:

Or, lastly, the “troika” could just refuse to give Greece any money, as the IMF did over 10 years ago when Argentina faced similar economic crisis. This actually turned out well for Argentina over a shorter recovery than is predicted for Greece under the current terms.

Perhaps it is past time for Greece to go it on its own and let the Eu continue the blood letting without them.

“Europe is watching us, I am sure that when the result was announced, in many European countries there was relief, hope and the notion that finally austerity can no longer be the only option.

“And this is the mission that is now mine — to give the European project a dimension of growth, employment, prosperity, in short, a future. This is what I will say as soon as possible to our European partners and first of all to Germany, in the name of the friendship that links us and in the name of our shared responsibility.”

“We are not just any country on the planet, just any nation in the world, we are France.”

~François Hollande, President-elect of France~

François Hollande is the new President of France defeating Nicholas Sarkozy. With half the votes counted, M. Hollande won a narrow victory with 50.8% to Sarkozy’s 49.2%, as per the French Interior minister. According to exit polls, the vote is closer to 52% for M. Hollande.

Crowds roared at the center-left candidate’s campaign headquarters as the exit poll results came out Sunday evening.

“Many people have been waiting for this moment for many long years. Others, younger, have never known such a time. … I am proud to be capable to bring about hope again,” Hollande said in his victory speech.

Celebratory car horns blared along the Champs-Elysees in Paris.

“It’s a great night, full of joy for so many young people all across the country,” said Thierry Marchal-Beck, president of the Movement of Young Socialists.

Hollande will be the nation’s first left-wing president since Francois Mitterrand left office in 1995.

His victory and the elections in Greece and Germany are sending economic shock waves through Europe:

François Hollande’s election threw down the gauntlet to Angela Merkel, the German Chancellor, who has railroaded the eurozone into agreeing a new “fiskalpakt” treaty enshrining Germany’s austerity doctrine.

The economic doctrine of austerity, to cut the burden of state spending to free up the economy, has ruled supreme with the support all of Europe’s leaders, the European Union and financial markets.

But political leaders were on Sunday night conceding the consensus had been shattered beyond repair.

With Europe’s economies plunging further into recession and as unemployment in the eurozone breaks record levels, voters demands for a new approach had finally become to great to ignore.

The popular backlash to EU imposed austerity to the centrist New Democracy and Socialist parties in Greece threatens the existence of the euro itself.

While in Germany, Chancellor Merkel was sent a message from German voters:

Exit polls by German broadcaster ARD put Mrs Merkel’s Christian Democrats at 30.5 per cent, just one per cent more than the left-wing Social Democrats.

But the Free Democrats, Mrs Merkel’s ailing coalition ally, scored a lowly 8.5 per cent, meaning that the coalition that has ruled the rural state on the Danish border since 2009 faces the prospect of being unseated.

Experts predict that the Social Democrats will try to cobble a coalition together with the Greens, the third biggest party, in order to take control of the state. [..]

While the Free Democrats appears to have avoided the humiliation of being wiped out all together in Schleswig-Holstein the continuing unpopularity of the party could force Mrs Merkel to search for a new coalition partner come next year’s federal elections.

I don’t think this is a surprise to most Europeans. It should be a clear message to the leaders of countries who are considering only austerity measures as a solution to debt.

The French Presidential election will take place this Sunday, May 6. Meanwhile, the campaigning has ended Friday evening with the Socialist challenger, François Hollande, still predicted to defeat current President Nicholas Sarkozy:

The last Ipsos poll for French television and Le Monde puts Hollande on 52.5% with Sarkozy closing the gap but still behind on 47.5%. The poll was taken before the dramatic decision by centrist François Bayrou to throw his weight behind Hollande in the second round.

The vast majority of voters appear to have made up their minds, with 92% saying they know who they will vote for, and 82% saying they will definitely turn out.

Many are seeing this as not just a referendum about Sarkoszy’s “hyperactive” style but the start of a revolt against austerity which many now believe has slowed the recovery from the recession. Wolfgang Münchau wrote in the Financial Times that Hollande is start of progressive insurrection:

. Nicolas Sarkozy does not look like a president, talk like a president, or act like a president. But there is a better reason why he deserves to be ejected. He won the 2007 campaign with a promise of ambitious economic reforms. He was one of the few European politicians with a mandate for big changes. He flunked it for a reason that already became apparent during the 2007 campaign: he was hyperactive. Reforms are for boring politicians. [..]

The main reason why I look forward to a Hollande presidency is for its impact on Europe. At present, all the large, and many of the small, eurozone countries are governed by centre-right governments. Angela Merkel is their undisputed queen. Mr Hollande is not going to be a comfortable partner. On some issues, such as the fiscal pact, he will challenge her outright.

I would welcome a Hollande presidency on the grounds that it would introduce a much needed shift in the toxic narrative about the eurozone crisis and its resolution. According to this narrative, the crisis was caused by fiscal irresponsibility. Its prescription is austerity and economic reforms. The tool to achieve the former is the fiscal pact, which Mr Hollande has said he will not sign unless it is complemented by policies to boost economic growth.

I wish that Mr Hollande would go further because austerity will snare countries in a low-growth trap. No set of structural policies will change this. I understand the political reason why he does not want to go further. He does not want his presidency to start with an existential fight with Germany – and the dreaded prospect of another panic attack by global investors.

While, as Paul Krugman as noted, the prospect of a Hollande presidency has generated some “hysteria” in the financial world:

Today’s FT is all Hollande, all the time. Some of it is sensible; some of it is like, well, this piece by Josef Joffe, which declares that Hollande’s likely victory is “a bleak prospect for all but new Keynesians and old socialists.” [..]

Joffe is, however, useful as a guide to the German view, which is basically that we got ourselves competitive and restored growth, so why can’t everyone else. Somehow he never mentions that Germany’s recovery in the 2000s was driven by a huge move into trade surplus; is everyone supposed to do the same thing, all at once? What’s the Germany for “fallacy of composition”?

The voting ends at 8 PM Paris time and the results will be reported here Sunday afternoon around 2 PM EDT.

With the first round of elections over, the campaign for the Presidency of France between the two top candidates, François Hollande and Nicholas Sarkozy begins under the cloud of most of Europe in economic recession. Just how much the latest news of England slipping back into recession under the weight of the Cameron government’s austerity measures along with increased taxes, remains to be seen but there are signs that it is already having an impact:

To the left: a likely new direction for France and Germany

If a new austerity-sceptic alliance emerges across the Channel, will Cameron and Osborne end up as Europe’s last deflationists?

Quite suddenly, there is talk of change in the eurozone’s economic strategy and, in particular, of the need for urgent action by the European Union to reverse the downward spiral of negative growth and rising unemployment. The likelihood that François Hollande will be elected as president of France next weekend has injected an important note of dissent into the pro-austerity consensus. Even more important than the French elections, however, may be the indications that even the political debate in Germany is now changing its tune.

The opposition German social democratic SPD hopes for election victory in the key state of North Rhine Westphalia on 13 May, as well as in the German general election next year. The SPD has already signalled that it will support the French Socialists in support of an investment-led EU strategy to boost growth and jobs. Moreover, the German social democrats and the German Green party also back the creation of euro-bonds and using the proceeds of a tax on financial transactions to finance a return to growth.

Chancellor Angela Merkel is a bit nervous about a Hollande government:

It is unclear at this time whether next year’s German general election will lead to an SPD/Green coalition government or to a “grand coalition” of the SPD and Chancellor Merkel’s Christian Democrats. But Angela Merkel has already sent some of her top advisers to Paris to explore the proposals of the French Socialists and to see to what extent she and a future President Hollande might be able to salvage a Franco-German partnership in the EU.

The conservative German government is resolutely opposed to any formal re-negotiation of the “stability and governance treaty” which has been cited to justify the crippling austerity measures imposed on Greece and other eurozone “peripheral” economies. But Hollande is now focussing on a series of “additional measures” rather than actual “changes” to the treaty. These additional growth measures would include a major boost to the resources of the European Investment Bank to allow it to put far more capital to work, especially in the hardest-hit economies. Second, the French Socialists would like to see the European stability mechanism given the status of a bank, so that it can receive funding from the European Central Bank and thus be better able to contain any future crisis affecting the euro. Third, they argue for widening the mandate of the ECB so that it is obliged to pursue growth objectives as well as price stability.

Unsurprisingly, a number of sympathetic noises off are being heard from Rome, Madrid and other EU countries, where centre-right governments which are struggling against economic suffocation by obsessive austerityitis.

President Nicholas Sarkozy, who is behind Hollande 54% to 46% in the polls, has said that there would be no coalition with the far right wing National Front Party, whose candidate, Marine Le Pen garnered 17.9% of the vote placing third:

“There will be no pact with the Front National,” he told France Info radio, adding there were too many issues on which they disagreed to imagine giving the party cabinet posts. The Front National has called for France to quit the euro and a hold a referendum on the death penalty, both far from Sarkozy’s manifesto.

“There will be no Front National ministers, but I refuse to demonise men and women who in voting for Marine Le Pen cast a crisis vote, a vote of anger, a vote of suffering and a vote of despair. I have to listen to their message and take them into account, and not think it’s time to hold my nose,” Sarkozy said.

Currently the National Front holds no seats in the French Parliament but hope to change that in the up coming national elections in June.

Geographically, Le Pen has broadened Front National support beyond her father’s heartlands in the south, and polled well in villages and rural constituencies across the country as well as on the outskirts of cities. She did well in the depressed former industrial areas of the north and east, but also saw increases in support in rural areas beyond Bordeaux and in Normandy. The prospect of Front National gains has left Sarkozy’s ruling UMP party, a broad coalition of centre right and rightwing factions, scrapping over what tack to take to hang on to their seats. The party is already divided and facing an internal battle over its future if Sarkozy loses the election

There will obviously be a battle for Le Pen’s 6.4 million voters with the far left accusing Sarkozy of drifting too far to the right, making some ugly comparisons:

The communist paper L’Humanité sparked a row with its front page comparing Sarkozy to Marshal Pétain, the leader of France’s Nazi collaborationist Vichy regime in the 1940s, who was convicted of treason after the second world war.

The paper said Sarkozy’s decision to hold his own Labour Day rally in Paris on 1 May to celebrate what he termed “real” work, as opposed to the traditional, trade-union-led rallies by the left, harked back to a Pétain-style discourse. Pétain – whose motto was “travail, famille, patrie” (work, family, country) – had aimed to reclaim 1 May for the right.

Max Staat wrote: “Sarkozy isn’t Pétain, happily, but the similarities point to the dangers for our country of the president-candidate adopting the theses of the extreme right.”

And you thought American political campaigns were ugly. Fortunately, the election is May 6, eleven days and all campaigning  ends on Friday May 4.

Click on image to enlarge

Up Date: Socialist Party candidate François Hollande garnered 28.4% of the vote beating Nicholas Sarkozy who came in second with 25.5%. The surprise was the third place showing by the far right National Front candidate Marine Le Pen with 20%. The second round will be om May 6 with the run off election between Sarkozy and Hollande. Hollande is favored in the polls but nothing is certain, especially with the far right’s strong showing. The pollsters were wrong about the strength of leftist candidate Jean-Luc Mélenchon and voter turn out which topped 80%; they could be very wrong about Sarkozy’s chances, too.

The French go to the polls today in the first round of voting for president, with a second round run-off, if necessary, being held on 6 May. The incumbent president, Nicolas Sarkozy, is running for a second successive and, under the terms of the Constitution of France, final term in the election. Unlike the United States, the president of France is elected directly by the citizens and must receive a majority of the vote (50% +1). Elections are always held on Sunday and this is the only office that is being considered by the voters today. Other offices for the Parliament and local elections each have their own designated election days.

The campaigns end at midnight the Friday before the election, then, on election Sunday, by law, no polls can be published, no electoral publication and broadcasts can be made. The voting stations open at 8 am and close at 6 pm in small towns or at 8 pm in cities, depending on prefectoral decisions. By law, publication of results or estimates is prohibited prior to that time; such results are however often available from the media of Belgium and Switzerland, or from foreign Internet sites, prior to that time. The first estimate of the results are thus known at Sunday, 8pm, Paris time; one consequence is that voters in e.g. French Guiana, Martinique and Guadeloupe knew the probable results of elections whereas they had not finished voting, which allegedly discouraged them from voting. For this reason, since the 2000s, elections in French possessions in the Americas, as well as embassies and consulates there, are held on Saturdays as a special exemption. (I voted Saturday at the French Consulate in NYC.)

France does not have a full-fledged two-party system, that is, a system where, though many political parties exist, only two parties have a chance of getting elected to major positions. One of the reasons that there are so many candidates is that it only takes 500 signatures of support from about 47,000 elected representatives throughout France to stand for president. Plus, as Sophie Meunier at Huffington Post explains “it’s cheap”:

By law, campaign expenses are subjected to a maximum ceiling, and spending in excess of that is illegal. The state also subsidizes candidates. It gives about eight million euros, half of the maximum amount of expenses allowed in the first round, to those who obtain more than 5% of the votes in the first round and about 800,000 euros to those who do not make the 5% cut. In 2007, Sarkozy spent 21 million euros to win the presidential contest, while his main opponent, the socialist Ségolène Royal, spent 20 million euros. French politicians are, therefore, not enslaved to special interests or Super-PACs as they are in the U.S.

Televised political ads are banned — only a small number of “statements” by each candidate, following strict rules on time and editing, can be broadcast on television and only during the five-week period of the “official” campaign as defined by law.

France enforces its mantra of “equality” all the way to the finish line of the presidential campaign. For five weeks before the second round of the election, the law mandates that all candidates are given (truly) equal time on television and radio. If an anchor, whether on a public or private channel, interviews Sarkozy or Hollande on prime time, for example, she has to interview the New Anti-Capitalist Party candidate Philippe Poutou and the “Debout la République” candidate Nicolas Dupont-Aignan (both currently polling at 1 percent) on prime time for the same length of time over the next few days. Airwave time and exposure is monitored and enforced by the state’s Conseil Supérieur de l’Audiovisuel (High Council for Audiovisual).

The positive consequence of these rules is that a candidate can spend almost no money and still be granted equal access and time on all the major television and radio outlets. This enables the emergence of small candidates and can rejuvenate democracy

In the first round, as today’s election, M. Sarkozy has several challengers from different political parties. His primary challenger is François Hollande, the candidate of the Socialist Party, who has topped the opinion polls throughout the campaign. Besides M. Sarkozy and M. Holland, there are 8 other candidates and if no candidate wins 50% of the votes, there will be a second run-off round. the other candidates are:

The Greens: Member of the European Parliament (MEP) and former magistrate, Eva Joly;

National Front: Party President and MEP Marine Le Pen;

Left Front: Mep Jean-Luc Mélenchon;

New Anticapitalist Party: Philippe Poutou;

Workers’ Struggle: Nathalie Arthaud;

Solidarité et progrès: Jacques Cheminade;

Democratic Movement: Member of Parliament (MP) François Bayrou;

and Mayor and MP Nicolas Dupont-Aignan.

M. Holland is expected to win even if a run off is necessary, since M. Sarkozy’s political policies and style are widely unpopular with the French. Both have promised to balance the budget, although Hollande has favored growth over the sort of austerity measures that Sarkozy has promoted for the eurozone along with German chancellor Angela Merkel. The policy alignment of the two European leaders have led some critics to coin the term, “Merkozy” and publicly wonder if “Merkozy” was running for president. Chancellor Merkel’s unprecedented vocal support of M. Sarkozy, has added to his fall in popularity.

An article by the BBC News, gives an analysis of why he is blatantly disliked that has played a major part in this election. At AMERICAblog, Deputy Editor Chris Ryan, gives his take on Sarkozy’s unpopularity:

My own two cents is that France is a fairly conservative (with a small “c”) country and he thrives on being flashy, which people strongly dislike. His behavior was perhaps acceptable in his suburban neighborhood of Neuilly-sur-Seine where flashiness is more of the norm. [..]

What was previously viewed (by some) as action was eventually regarded (by many more) as little more than hyperactivity without direction. There was always talk of change but in the end, there wasn’t a great deal of actual change. One could also argue that France, like many countries, never really wanted change in the first place.What was previously viewed (by some) as action was eventually regarded (by many more) as little more than hyperactivity without direction. There was always talk of change but in the end, there wasn’t a great deal of actual change. One could also argue that France, like many countries, never really wanted change in the first place.

There has also been a close watch on third place with the rise of far-left firebrand Jean-Luc Melenchon, who has polled between 12 to 15% of the vote, competing with the far-right’s Le Pen for that spot. Melenchon has built an alliance of Communists, Trotskyites and anti-capitalists, drawing huge crowds at his rallies. Experts feel if Melenchon wins third place in Sunday’s vote, it would encourage Hollande to veer further to the left ahead of the May 6 knock-out round.

Under current rules, French media are barred from publishing the surveys or even partial results until 8 PM Paris time, 2 PM EDT. Results will be posted here as they come available.

So now that you’ve finished dying eggs naturally using onion skins, what do you do with all those onions? Make French Onion Soup, bien sûr!

French onion soup in France is served as the traditional French farmer’s breakfast or the end of the day repast for the late night café and theater crowd. It was made famous in the great open market of Les Halles in Paris where hungry truckers converged from all over France with their fresh produce. On my first visit to Paris in 1966, I made a late night visit to Les Halles with some friends to savor the tradition and practice my very rusty college French. The truckers and waiters in the little café we “invaded” were quite friendly and chuckled as they good heartedly corrected my pronunciation. Needless to say, je parle français bien mieux maintenant. Les Halles was torn down in 1971 and replaced with a modern shopping area, the Forum des Halles. But I digress, we are here for the food.

My favorite recipe is from Bernard Clayton, Jr.’s The Complete Book of Soups and Stews with some variations. It is from a restaurant near the Halles Metro station. M. Calyton’s version uses a hearty homemade beef stock which is time consuming to make. I found that either Swanson’s or College Inn Beef Broth produces a good result, just reduce the salt. The low sodium broth didn’t produce the hearty broth that’s needed to compliment the flavor of the caramelized onions and the cheese.

You will need some “special” equipment for this soup: individual oven-proof bowls, enough to hold 1 1/2 to 2 cups. I have the bowls with a handle and a lid that serve double duty for baked beans, and other soups and stews. You will also need cheesecloth for le sachet d’épices, that’s a spice bag for you Americans ;-), and butcher’s twine or some other cotton twine. Those items can be found in the gadget aisles of most large grocery stores.

Soupe à l’oignon des Halles

 

There is still no agreement on bailing out Greece as Greek Premier Lucas Papademos failed to get his government’s coalition parties to agree to the severe austerity terms set out by the European Commission, European Central Bank and International Monetary Fund:

After five hours of discussions, the three leaders of Greece’s national unity government had not accepted demands by international lenders for immediate deep spending cuts and labour market reforms as part of a new medium-term package.

Mr Papademos said the political leaders had agreed on some “basic issues”, including making spending cuts this year of 1.5 percentage points of gross domestic product, or about €3bn, according to a statement from his office. [..]

The talks with the three leaders of a national unity government came after the government failed to persuade the so-called “troika”- representatives of the European Commission, European Central Bank and International Monetary Fund – to ease conditions for the rescue deal.

Patience with Greek politicians has evaporated among its creditors. During a conference call on Saturday, eurozone finance ministers bluntly told Athens to deliver on its promises and agree to reforms or face default next month.

David Dayen at FDL News Desk points out that the Greeks are being asked to destroy themselves for a bailout and calls the terms “insane”:

The deal calls for Greece to run a primary budget surplus (not counting interest payments on debt) in 2013 of over 2% of GDP, rising to over 4% by 2014. That implies massive cuts to public spending in the middle of a 5-year recession, if not a depression. As Antonis Samaras, leader of the New Democracy Party, told the Financial Times, “They’re asking for more recession than the country can take.” Samaras also has highlighted that the troika seeks cuts in private sector wages as part of the deal, of up to 25%. There would also be a 35% cut in supplementary pensions.

Trying to pressure for a settlement that many Greek leaders feel would damage the Greek economy and prolong the five year Greek recession, French President Nicholas Sarkozy and German Chancellor Andrea Merkel issued statements and made a proposal that would reassure creditors:

Nicolas Sarkozy, French president, and Angela Merkel, German chancellor, also proposed that a special closed account be created for the interest due on Greek debt to reassure creditors that they would be paid.

“The situation of Greece has to be fixed once and for all,” Mr Sarkozy said after the two leaders met in Paris. He said the terms of a bail-out deal were “on the table” and called on all the main political leaders urgently to back them, adding “time is running out”.

“Our Greek friends must take responsibility and vote for the reforms to which they are committed. This concerns everybody – the prime minister, the leader of the socialist party and the leader of the [centre-right] New Democracy party.”

Ms Merkel added: “We want Greece to stay in the euro … but I also say there can be no new Greek programme if agreement is not reached with the troika [European Commission, European Central Bank and International Monetary Fund]. All those who bear responsibility in Greece must know we will not deviate from this position.”

She added: “Time is running short. A lot is at stake for the entire eurozone.”

The stalemate had its effect on stock markets today with US stocks taking a dip

The three major U.S. stock market indices retreated slightly on Monday as investors continued to await the outcome of a potential Greek sovereign debt deal with private creditors. At 2:30pm Eastern Time, the Dow Jones Industrial Average (DJIA) had lost 40 points, or 0.3 percent, to 12,822 while the NASDAQ Composite had backed down 0.2 percent to 2,899. Meanwhile, the S&P 500 was down 0.2% to 1,342 points.

The austerity measures have already caused a 6% drop in the GDP which increases the debt to GDP ratio. the last thing Greece needs, or for that matter Europe,is more austerity.

Doing the same thing repeatedly and expecting different results is the definition of insanity. It then must follow that Germany’s Chancellor, Andrea Merkel has got to be insane.

Eurozone in new crisis as ratings agency downgrades nine countries

Standard & Poor’s strips France of its AAA credit rating, rekindling fears in the markets over future of single currency

S&P said austerity was driving Europe even deeper into financial crisis as it also cut Austria’s triple-A rating, and relegated Portugal and Cyprus to junk status.

The humiliating loss of France’s top-rated status leaves Germany as the only other major economy inside the eurozone with a AAA rating, and rekindled financial market anxiety about a possible break-up of the single currency.

S&P brought an abrupt end to the uneasy calm that has existed in the eurozone since the turn of the year by downgrading the ratings of Cyprus, Italy, Portugal and Spain by two notches. Austria, France, Malta, Slovakia and Slovenia were all cut by one notch.

The agency said that its actions on eurozone ratings were “primarily driven by insufficient policy measures by EU leaders to fully address systemic stresses”. It added that fiscal austerity alone “risks becoming self-defeating“.

Germany,too may be facing a downgrade as it slips into recession as its economy is contracting in the face of the deflationary economic policy of the euro zone. So what does Frau Merkel do? You got it, more austerity.

Merkel: Europe Faces ‘Long Road’ to Win Back Trust

German Chancellor Angela Merkel said Standard and Poor’s downgrades of nine countries underline the fact that the eurozone faces a “long road” to win back investors’ confidence, pushing Saturday for it to move quickly on a new budget discipline pact and a permanent rescue fund.

I agree with Chris in Paris at AMERICAblog that the ratings agencies should be rendered useless considering their part in the current economic crisis but they are right about austerity. The Europeans led by Merkel are ignoring reality.

French President Nicholas Sarkozy took the initiative to address France’s rising deficit proposing a small tax on financial trans actions that was proposed by the European Commission last September and he has won the backing or German Chancellor Andrea Merkel:

The French government, long a proponent of the tax, stepped up its campaign last week, going so far as to suggest that France would impose the levy even if others didn’t. At a joint press conference in Berlin with Sarkozy today, Merkel threw her weight behind the tax.

“Personally, I’m in favor of thinking about such a tax in the euro zone,” Merkel said. “Germany and France both equally view the financial transaction tax as a correct response.”

The European Commission in September suggested a tax of 0.1 percent on equity and bond transactions, and 0.01 percent on derivatives, which it said could raise 55 billion euros ($71 billion) a year. European Union finance ministers are due to discuss the levy in March.

French Prime Minister Francois Fillon said today in Paris that France may present a bill on such a tax in February, hoping that other countries follow.

“Someone has to be the first to jump in the water,” he said.

The new Italian Prime Minister Mario Monti has also signed on to the proposal which had been opposed by his predecessor, Silvio Berlusconi, but did so with a slight reservation:

Italian Prime Minister Mario Monti on Wednesday threw his support behind a new tax on financial transactions, backing a push by Germany and France, but said he would prefer to have it apply across the whole European Union. [..]

“We are open to supporting this initiative at the EU level,” Mr. Monti said at a news conference with Mrs. Merkel during his first visit to Berlin since taking over from Silvio Berlusconi in November.

While the Berlusconi government had rejected a new financial levy outright, Mr. Monti has said he thought it was a good idea, particularly as a means of reducing the tax burden on families.

Opposition to the tax is coming from British Prime Minister David Cameron:

(S)uch measures can scare away big-scale investment companies headquartered in the City of London.

In an interview to the BBC Mr. Cameron said that “the idea of a new European tax when you’re not going to have that tax put in place in other places, I don’t think is sensible and so I will block it unless the rest of the world all agreed at the same time that we were all going to have some sort of tax.”

To put it bluntly, getting “the rest of the world all agreed at the same time” is not bloody likely.

And of course the French banking community is dead set against it claiming that it will “would weigh on growth, lead to a loss of competitiveness, and create a heavy handicap for the financing of the French economy.”

Mr. Sarkozy has political motivations for his backing of this tax since he is facing a particularly tough reelection this Spring. However Ms. Merkel’s may be moving to stave off a slow down in Germany’s economic growth

Germany expanded by 3 percent last year from 2010, the Federal Statistical Office said in Wiesbaden. It noted, however, that the growth came mostly in the first half of 2011, and estimated that the economy actually contracted by about 0.25 percent in the fourth quarter from the prior three months.

Some economists now predict another contraction for Germany in the first three months of 2012, which would meet the usual definition of a recession as two consecutive quarterly declines in output.

Whether this small tax on has any affect on either the French election or the German economy remains to be seen but it is encouraging that some leaders who were opposed to sensible taxation of the 1% are coming around. Now if we could just get them off the austerity boat.