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Old countries, new problems, new leaders

1 December 2016

In their different ways, the trajectories of François Fillon and Theresa May highlight the challenges facing Europe


Not a man who gives up: austerity crusader and presidential candidate François Fillon. Rama/Wikimedia

Not a man who gives up: austerity crusader and presidential candidate François Fillon. Rama/Wikimedia

The United States isn’t the only country with a new leader whose plans have us puzzled. Three European countries with more than half as many people as the US between them have chosen or may be forced to choose new leaders – and their future courses are as inscrutable as Donald Trump’s.

Britain’s new prime minister, Theresa May, elected in July, set out confidently by promising Britons a form of Brexit she now appears unable to deliver. She keeps promising voters the Brexit they want – continued free trade with Europe, but no free entry for Europeans – despite its having been ruled out repeatedly by European Union leaders.

On Sunday, French conservatives effectively elected former prime minister François Fillon as the country’s new president – pending the formality of the actual election next May – despite warnings that his bold plan to shrink France’s bloated public sector and cut 500,000 jobs runs a high risk of forcing the country back into recession.

And in Italy, social democrat prime minister Matteo Renzi has gambled his leadership on the outcome of next Sunday’s referendum, which seeks to muzzle the Senate and tame Italy’s regional authorities, stopping them from blocking his government’s reform plans. The opinion polls suggest he is likely to lose the referendum, and with it his government – which could see the unpredictable populists of the Cinque Stelle (Five Stars) movement take charge of one of the world’s most important (and vulnerable) economies.

Gamblers: Italy’s prime minister Matteo Renzi and finance minister Pier Carlo Padoan defending the government’s plans earlier this week. Palazzo Chigi

Also next Sunday, Austria’s rerun presidential election is tipped to see Norbert Hofer of the right-wing populist Freedom Party become the (largely ceremonial) head of state. Poland, the European Union’s sixth-largest member, has been run by the anti-globalist right (the Law and Justice party, long led by the Kaczyński twins, Lech and Jarosław) since last year’s election ousted the liberal globalist right (Civic Platform, once led by European Council president Donald Tusk). There, the left failed to clear the 8 per cent threshold needed to win seats.

Add in the fact that Spain is in the hands of a minority government that could be overthrown whenever the opposition parties decide they want a new election, and you can understand the widespread relief when German chancellor Angela Merkel announced that she would stand for a fourth term next year. Her government might be overrated and primarily responsible for Europe’s economic blunders, but at least she’s a known quantity, and it’s hard to see her being beaten.

Europe hasn’t been a happy place for a long time. It is slowly emerging from the crisis that crippled its banks, but the International Monetary Fund estimates that even now the economic bottom line – real gross domestic product per head – is still below pre-crisis levels in almost half the countries of western and central Europe. Some, including Italy, are still more than 10 per cent below pre-crisis levels; another four, including Britain and France, are only just above pre-crisis levels.

Unemployment in the eurozone has edged down from 12 per cent at its peak to 10 per cent now, but the IMF forecasts that it will still be more than 8 per cent across the nineteen euro nations in 2021, and more than 15 per cent in Spain and Greece. (Britain is one of the exceptions, with unemployment at similar rates to Australia’s.) It’s not surprising that the pervasive political mood across Europe is one of anger, frustration and revenge on whoever is in government.

What is surprising is that Europe’s governments have not learnt the obvious policy lessons on how to deliver growth with justice. On Monday, the OECD renewed its advice on how to do it:

  • Borrow, and build. The organisation estimates that net public investment (after depreciation) is now negative in Germany, Italy and Spain, and barely positive in France. It argues that Britain, France and Germany, among others (including Australia), all have room to move the fiscal dial to more expansionary policies.
  • Invest more in education, especially at preschool and primary level.
  • Invest more in R&D, both directly and through incentives to business.
  • Reduce excessive regulation of business to free up new opportunities for increasing employment and productivity, and hence growth and incomes.

(It gave Australia the same advice, most of which repeats what the OECD itself, along with the IMF and some of us humbler commentators, has been suggesting, to little effect, for years. For all the talk about infrastructure, actual investment in transport infrastructure by or for governments in Australia has slumped by a quarter as a share of gross domestic product: from 1.20 per cent in 2010–11 to 0.89 per cent in 2015–16. For all the talk about education, the Coalition government has abandoned its commitment to fund the well-targeted Gonski reforms. And for all the talk about innovation, funding has been cut for the CSIRO and business R&D.)

European governments, too, have rejected the advice of the OECD, the IMF and the smarter commentators, opting instead for what the OECD calls “the low growth trap”: very loose monetary policy combined with tight fiscal policy. As in Australia, so in Europe: very cheap borrowing costs appear to be pumping up asset prices rather than economic activity.

But unlike our federal governments, Labor and Coalition, which have cancelled out any budget savings they made with new spending or tax cuts, most European governments have been serious about austerity. They have raised taxes and cut government spending. Only five are running bigger deficits than Australia’s – France, Britain, Spain, Greece and Portugal – and most of that is due to unavoidable debt-servicing costs. The OECD’s advice to ease up on the austerity is far more relevant to Europe than Australia.

It is a lesson likely to be lost on François Fillon, the leader of an austerity crusade, who will almost certainly become president of France next May. Fillon, who was prime minister of France under former president Nicolas Sarkozy, saw off his old boss in the first round of the Republican (conservative) primary last Sunday week, and then crushed another former PM, the more moderate Alain Juppé, in Sunday’s run-off. He will be joined by a sympathetic legislature in June.

Fillon is likely to run unopposed on the traditional right, whereas the failure of François Hollande’s administration means that it will be a free-for-all on the left. Hollande's surprise announcement on Thursday that he will not stand for re-election “in the interests of the country” clears the way for prime minister Manuel Valls to stand as the Socialist Party candidate: Valls reportedly had implored him to get out of the way, hinting publicly that he might run against his boss. But Valls is only marginally more popular than Hollande, and with two former Socialist ministers already running as independents, he is not expected to make the final round.

For what they’re worth, opinion polls at this stage suggest that the vote of the left will split between three major candidates and several minor ones. On their figures, Valls would be relegated to fifth place with less than 10 per cent of the vote. Emmanuel Macron, a would-be Keatingesque reformer who was Hollande’s former economy minister, would poll slightly better, as would the veteran leftist Jean-Luc Mélenchon, running on a Syriza-style platform. Add in the 4 per cent who plan to vote Green, and the usual rabble of splinter groups, and the most likely outcome is that every left candidate will be eliminated in the first round of polling.

The second round consequently looks set to be a run-off between Fillon and Marine Le Pen, the leader of the National Front, who is consistently polling close to the 27.8 per cent her populist right-wing group scored in the first round of last year’s regional election. But at that election, the Front’s candidates were swamped in the second-round run-offs, as traditional left and right voters coalesced behind its opponents. That will probably happen again in the final round of the presidential elections.

And yet… until the final days before the presidential primary, opinion polls suggested that Fillon had no hope of beating Sarkozy and Juppé. And if Le Pen and all the other candidates were to pick a Republican candidate they would like to run against, Fillon might well be their ideal choice.

François Fillon has been in politics for forty years. Born in 1954, he grew up as a traditional Catholic in the town of Le Mans, whose twenty-four-hour motor race seems to be his one passion outside politics and his family. He was born into an upper-middle-class family: his father was a lawyer, his mother a historian. He grew up in the right politically, and has never moved from it. He, too, trained in the law, but he joined the staff of his local MP, Joël Le Theule, as soon as he graduated in 1976. Four years later, Le Theule suffered a massive heart attack, and died in his young staffer’s arms. Months later, at twenty-seven, Fillon inherited his seat in the National Assembly.

By then he was married to a young Welsh lawyer, Penelope Clarke, who had been studying at the Sorbonne. She, too, gave up the law, and became a traditional mother to their five children; their family home these days is a twelfth-century manor house on the Sarthe river, southwest of Le Mans.

You get the picture: this guy is a very traditional, well-off conservative who has kept to the faith. He is dignified; you would cast Shaun Micallef in the role. He has clear similarities with John Howard, but part of the reason for Howard’s success was that, tribal as he was, he could empathise with those who were doing it tough, or had different values. For Fillon, it seems, that doesn’t come naturally.

In the French tradition, he combined his role as an MP with local politics. At twenty-nine, he was the mayor of his commune; at thirty-nine, president of his local department; and at forty-eight, president of his region. In the Assembly, he was on the right of the right, an admirer of Margaret Thatcher and distant from his own centrist leader, Jacques Chirac. He was also distant from the pro-European ethos that Chirac fostered; in 1992 he was one of the few who opposed the decision to adopt the euro.

In 1993 he became higher education minister, then communications minister, and worked to end the monopoly of France Telecom, a reform completed by the Socialists when they won the legislative elections in 1997. In opposition, he allied himself with Nicolas Sarkozy, the rising star of the right, and stood for the party presidency but lost in the first round. But when the conservatives returned to power in 2002, he became number three in the new government, as social affairs minister.

Fillon stood out in that government. Under Jean-Pierre Raffarin as prime minister and Chirac as president, he pushed through a difficult and highly unpopular reform of pensions, which progressively raised the effective retirement age and created incentives for retirees to keep working. The change provoked months of huge demonstrations in Paris, especially by teachers and other public employees. But Fillon stuck to his guns, and the law passed. Ironically, he was later criticised for not having gone further.

That episode had a cost. At the 2004 regional elections, he was humiliated when his formerly safe region rejected his team and voted in the left. A cabinet reshuffle shifted him to education, but with similar results: after an early success in forbidding Muslim students to wear the veil, he proposed major reforms to the baccalauréat, the Year 12 qualification, which would have, among other things, entrenched continuous assessment and ended group assignments. Masses of students took to the streets, followed by repeated blockades and vandalism at schools. For the second time, Fillon had encountered the full force of French society’s resistance to reform, and this time it brought him down. A new reshuffle saw him dropped from cabinet.

It might have been the end of his career, but Fillon is not a man who gives up. Instead, he spelt out his by-now-radical free-market views in a book he titled La France peut supporter la vérité (France can accept the truth). “The more taxes there are, the fewer jobs there are,” he declared. He devoted himself to ensuring that his ally Sarkozy became France’s next president. After that mission succeeded in 2007, the new president named Fillon as his prime minister.

He remained in the post throughout Sarkozy’s mercurial five years in power. But with Sarkozy casting himself as CEO as well as chairman, Fillon had less power than any of his predecessors. The two men were allies, but not close friends. In 2010, Fillon saw off moves to dump him, and instead the boss allowed him to dump his critics and move the ministry to the right. But Fillon lacked the freedom to put his own stamp on reforms, and Sarkozy’s priorities kept swinging around. Sarko would focus on the battle of the day, Fillon on the long-term direction. For all the ideas they put out, their five years in office left France surprisingly unchanged.

When Sarkozy lost the presidency to François Hollande in 2012, he told the world that his political career was over. Fillon wasted no time in moving into the gap; he declared his candidacy in 2013, four years before the election was due, and published more books to set out his policies. France yawned; most thought Sarkozy would return, and so he did. Whenever the polls asked how Fillon would go, the public’s answer was blunt: much worse than Sarkozy, let alone the moderate Alain Juppé, Chirac’s political heir, who had the widest appeal of any contender.

As 2016 wore on, though, the endless focus on the Juppé–Sarkozy battle whittled away the popularity of both men. In the second debate between the contenders on 3 November, Sarkozy was attacking Juppé over his relations with the centrist François Bayrou, a former rival who is incidentally the mayor of Pau, when Fillon broke in incredulously: “Six million unemployed, debt at 100 per cent, Islamic totalitarianism at our doors… and the major issue of this primary is the mayor of Pau?”

Millions of viewers agreed with him, and the contest turned. In just over two weeks, Fillon suddenly shot up in the polls from 13 per cent to 20, then 30, then to 44 per cent in the first round of voting, knocking Sarkozy out of the contest and leaving Juppé to wonder what had gone wrong.

For the record, France has three million unemployed on the standard definition, not six million, and its net government debt is 89 per cent of GDP, not 100 per cent. But the exact numbers didn’t matter. Fillon conveyed that he was serious about issues that concerned conservative voters, and that was what they wanted to hear.

He is certainly a serious thinker. Most of his positions are predictable, but not all of them. He has proposed that the leading countries in the eurozone form a political council to coordinate budget policies, rather than leave the European Central Bank to try to run Europe’s economy alone. If that arrangement worked, it would address one of the main weaknesses in the euro system.

Like Donald Trump, he believes that the West should completely change tack on Russia – befriend it, engage with it, and welcome it into the Western world, as it did with the rest of eastern Europe. Unlike Trump, Fillon knows Vladimir Putin well, and his view merits serious consideration. He blames the poor relations between the West and Russia on the West’s long campaign to isolate Russia, and sees the unlovable nature of Putin’s regime as a response to that.

Similarly, he proposes switching France’s support in Syria from the rebels to the regime of Bashar al-Assad, arguing that the failure of the Arab Spring everywhere except Tunisia shows that change in the Middle East is usually for the worse – and Assad is preferable to the sort of militarised chaos that has engulfed Libya.

But for France, change is exactly what he is offering: the kind of change other countries have gone through over the past thirty years but French voters have rebelled against. A quick comparison of France now and then highlights some of the problems.

Source: International Monetary Fund.

Since 1980, on the IMF’s figures, the population of France has grown by 11.2 million, but its economy has generated only a net 2.4 million new jobs. Between 1980 and 2000, it was able to keep up a solid pace of growth – 1.9 per cent a year per head, the same as in Australia – but that pace halved between 2000 and 2007, and there has been little growth since.

Instead, as in so many Western countries, France’s governments and households have tried to compensate for the exodus of manufacturing jobs by borrowing and spending. The IMF’s records go back to 1980, and in that time, France has not run a single budget surplus. Government spending now makes up 56.5 per cent of GDP, compared to 37.6 per cent in Australia, and the IMF projects that by next year France will have overtaken all the Scandinavians to become the country with the biggest-spending government in the developed world.

As a result, France’s net government debt, which in 1983 was 13 per cent of GDP, is 89 per cent. Fortunately, household debt is only half as high as in Australia, relative to income, but nonetheless it has climbed from 66 per cent of net disposable income in 1995 to 108 per cent in 2015. All these indicators highlight a loss of global competitiveness, which successive governments have failed to turn around.

François Fillon plans to lead a crusade to turn France’s economy around, in a very familiar way: by shrinking the size of government, cutting regulation of business, cutting taxes on business and lifting taxes on consumers, increasing working hours, lowering unemployment benefits, and lifting the retirement age. Only this, he argues, will make business competitive, re-energise the economy, and replace France’s present unsustainable path with sustainable economic growth and employment.

Fillon proposes to cut 500,000 public sector jobs over five years – roughly one in every fifty jobs in France today. He aims to reduce total government spending by €110 billion across all levels of government. He proposes to reduce the company tax rate to 25 per cent and reduce other business taxes, and pay for the cuts by raising the VAT/GST. Sound familiar?

France’s controversial thirty-five-hour working week would be scrapped, and employers allowed to set their normal working week as anything up to forty-eight hours. A thirty-nine-hour week would be imposed in the public service. One of the five referendums Fillon plans would ask French voters to approve ending the special treatment of pensions; another seeks to write into the Constitution a requirement for a balanced budget.

In effect, François Fillon will be promising French voters that he will lower their standard of living, at least until this transformation is complete. That will not be an easy line to sell. Juppé tried vainly last week to convince conservative voters of that. Fillon’s agenda, he said, is one of “great social brutality… It looks like a Thatcher program. Many of his proposals are absolutely unrealistic. Some cannot be put into effect. Others, if they were, would produce negative effects.”

Fillon’s social program is what one might expect from a conservative Catholic. He says it is too late to undo same-sex marriage, which France legalised in 2013, but he will move to block gay couples from adopting children, and restrict IVF to heterosexual couples. Having already banned the veil from French schools, he wants to ban the burkini from French beaches.

On climate change, however, he is part of the bipartisanship that the French think this issue deserves. It was his government that proposed France’s carbon tax (though it later reversed the decision during the global financial crisis). Fillon recently proposed lifting the EU carbon price to €30 a tonne.

Apart from the cuts to business taxes, the one handout he proposes is increased support for families – at the least, a watering down of the means tests that exclude wealthier families from family benefits. “I plan to respond to the anguish of the middle classes, and make the family one of the bases of our solidarity,” he declared, leaving no doubt where his emotional sympathies lie.

But it is the narrow range of his empathy, and his willingness to fight for the policy causes he believes in, that allows his opponents room to hope. Marine Le Pen will not be offering to make French voters worse off. Her rallying cry is to protect French jobs, not remove half a million of them.

The first opinion polls after Fillon’s surprise victory reported that voters would favour him over Le Pen in the second-round run-off by a crushing 67–33 margin. But that election is still five months away, giving France plenty of time to take a second look at his plans. Anything could happen.

No one could accuse Theresa May of being narrow in her empathies. Her speech to the Conservative Party conference in October was so full of empathy for those left behind – and so critical of the selfishness of business leaders – that it would have gone down better at the Labour Party conference. She has reached out across Britain to everyone, and raised their expectations, and is enjoying a honeymoon just as blissful as Malcolm Turnbull’s was in the last months of 2015.

The latest Guardian/ICM poll this week shows the Conservatives holding a sixteen-point lead over Labour, their biggest lead in the polls for more than twenty years. While the next election is not due until 2020, the papers report that Tory MPs are pressuring May to seek her own mandate while the honeymoon lasts, with Jeremy Corbyn still Labour’s unpopular leader… and before she has to negotiate the terms of Britain’s exit from the European Union.

Change and stability: UK prime minister Theresa May and German chancellor Angela Merkel in May this year. Tom Evans/Number 10

But while the warm inner glow of the caring, sharing PM is spreading over the electorate, business leaders and economists are voicing their impatience that, nearly six months after Britons unexpectedly voted 52–48 to leave the EU, the government has still not formally spelt out what kind of Brexit it plans to negotiate.

Ministers are publicly sticking to the official line that Britain wants to retain free trade with Europe in goods and services but shut the door on free movement of its people. This would overturn the EU’s treasured “four freedoms” – the free movement of goods, services, people and capital. Home secretary Amber Rudd has floated stark new restrictions – including limiting the entry of foreign students, and even Australians – aimed at reducing net immigration by two-thirds.

In what appear to be unofficial preliminary negotiations through the media, European leaders have flatly rejected the idea of such a deal, which in effect would start unravelling the whole project of European unity. If Britain wants to remain in the free trade zone without being in the EU, they say, then it can – but like Norway, Switzerland and Iceland, who are in that state now, it would have to retain free movement of people, including the right of Europeans to work and settle where they choose.

The reality is that, despite her stratospheric poll ratings, May has begun her prime ministership with a tremendous blunder. Yes, the consensus is that Britons’ main reason for voting to leave the EU was a desire to end free immigration of European workers, whom they see as keeping them out of jobs. And leaders of the “leave” case, such as Boris Johnson, now foreign secretary, told voters that they could keep free trade while ending free immigration – a policy summed up in one Tory staffer’s notes as “having your cake and eating it.”

But it is unlikely that May will be able to deliver that. The EU will be in a position to dictate terms; after all, it is Britain that wants to tear up the deal, not Brussels. And it is in the EU’s interest to make Brexit as unpalatable as it can, so that no other country is tempted to follow Britain’s example. It has refused to enter negotiations until Britain gives formal notice of its intention to leave, which May says will not happen until March.

A further spanner has been thrown into the works by the unanimous decision of three High Court judges that the government cannot negotiate for Britain’s withdrawal from the EU without parliamentary approval. The government has appealed to the Supreme Court, which will hear the case next week, but it is widely expected that Britain’s top court will give the same answer. It was ultimately parliament that decided to enter the EU, and it must be parliament that decides whether to exit.

That is no minor snag. A significant minority of Tory MPs want to remain in the EU, as do most opposition MPs – and Britain has a tradition of allowing free votes on big issues. One suggestion is that there could be a compromise deal to allow negotiations for Brexit, but only on condition that the subsequent agreement would become final only if endorsed by parliament.

Every day the papers report business leaders or economists warning that leaving the free trade zone would be a disaster for Britain’s economy. London could lose its dominant role as a global financial centre. Big manufacturers will not invest in a country that could soon be excluded from free trade with Europe. Tens of thousands of deals would become unstuck, and millions of people could be forced to leave Britain for the continent, or the continent for Britain. Virtually no one is arguing in favour of such a Brexit.

The smart strategy for Theresa May would have been to celebrate Brexit as giving Britain the power to make its own rules on social policy, and to decide issues in its own courts. She should have played down the immigration issue, so that the government could ultimately back down on it with the least possible political cost. Instead, she and her home secretary have fanned the flames of anti-migrant feelings despite being unable to deliver what they promised.

One recalls Jim Hacker telling Sir Humphrey, “It’s the people’s will. I am their leader. I must follow them.”

In Britain, life is imitating art. It will end in tears. •

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