Krugman: Cautiously Optimistic About Hollande

      So am I. There is actually quiet a bit going on in Europe right now to be cautiously optimistic about not just Hollande. There is a good deal of hysteria about Hollande's likely victory on Sunday among Right wing economists.

    "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"

     http://krugman.blogs.nytimes.com/2012/05/04/hollande-hysteria/

     Joffe's piece warns ominiously of "Hollande's Dangerous Dream of Exceptionalism."

     If Hollande "does a Mitterand" it's over. There will be the famous capital flight. Indeed, even God may flee France to hear Joffe tell it:

    “God lives in France,” goes an old saying. No more: these days, he travels between Shanghai and Silicon Valley, with stopovers in Frankfurt. The next president will have to lure him back. Then he should bring in Mr Schröder as consultant."

     http://www.ft.com/intl/cms/s/0/c1095e6c-938a-11e1-8ca8-00144feab49a.html#axzz1twWJOKIB

      I must say that I welcome Hollande's victory for a number of reasons. One is he should be good for France and larger Europe. The real beauty of it of course is that France is a major player. If it wants to change the rules of the game, Germany will have a hard time fully resisting it. And there is reason to believe the rules of the game may already be changing. The talk of a "growth pact" to go with the fiscal pact is getting serious in the EU now.

    "In a marked shift of emphasis, Olli Rehn, the EU’s top economic official, will on Saturday call for additional government spending for large-scale infrastructure projects, arguing there is not sufficient private-sector demand to create jobs. Unemployment has surged in several eurozone countries, hitting its highest levels since the creation of the single currency and fuelling voter anger."

     "The commissioner will also give a clear signal that he is willing to loosen the EU’s tough new budget rules for countries like Spain, which has been forced to slash public spending in the face of a sharp economic downturn to meet Brussels-mandated deficit levels."

     “The stability and growth pact is not stupid,” Mr Rehn will say, according to a draft of his address seen by the FT. “Yes, the EU fiscal framework is rules-based … but at the same time, the pact entails considerable scope for judgement when it comes to its application.”

     http://www.ft.com/intl/cms/s/0/cfb38f54-9606-11e1-a6a0-00144feab49a.html#axzz1twWJOKIB

      So you can say that the anticipated victory of Hollande is already paying a dividend. Joffe complains that three fifths of the French people-in voting against Sarkozy are living in a fantasy world:

      " almost three-fifths of the electorate are dreaming of a new Maginot Line against reality."

      No, maybe Mr. Joffe is the one not living in reality. Maybe France and the other countries in Europe now voting against austerity are living in democracies. He likes to think that the bondholders should get to decide the national priorities of each country. But that is not reality.

    Indeed, this is not at all only a French story-though it is particularly important here due to France's status as a major power in EU politics-you can't ignore them and the new Growth Pact is proof of that. But the pact is also about the many other countries now voting "non" on austerity.

    Holland recently forcing out the Center Right majority, Greece now, Italy, now a major setback for Cameron in Britain where labor has just enjoyed some major electoral gains. Of course Britain is not even in the euro system but has practiced euro austerity anyway. There are clear signs the British have had enough of Cameron too.

     http://www.ft.com/intl/cms/s/0/224e24f4-960c-11e1-a6a0-00144feab49a.html