Phone call with President-Elect Hollande
A Number 10 spokesperson said:
“The Prime Minister called President-Elect Hollande this evening and congratulated him on his victory.
“They both look forward to working very closely together in the future and building on the very close relationship that already exists between the UK and France.”
Categories: News Tags: France, President Elect Hollande, UK
François Hollande meets Angela Merkel – full coverage
France’s newly appointed president arrives in Berlin for his first meeting with Germany’s chancellor
• Hollande meets Merkel, after lightning strike
• Last-ditch talks over Greek unity government collapse
• Fears Greece could run out of funds
• IMF: Greek euro exit would be ‘messy’
• Eurozone economy avoids recession, just
A report in the Financial Times by Quentin Peel in Berlin focuses on how Merkel and Hollande “joined forces” to urge Greece to reaffirm its commitment to membership of the eurozone.
It adds:
Both spelt out their concern that Greece should remain a full member of the common European currency, while promising to consider new measures to revive economic growth in the country.
But they also agreed that Athens must carry out the austerity programme it has agreed with the European Union and the International Monetary Fund.
There is plenty of reason to hope that François Hollande has some substance behind his stirring rhetoric about the need for growth, argues an editorial in Wednesday’s Guardian, which cites the dire state of the Italian and Spanish economies as well as the situation in Greece.
Yet his policies so far amount to slowing down the pace at which France reduces its (relatively small) budget deficit, and taxing wealth in order to create more jobs.
At an international level, he wants to adulterate the pure austerity his predecessor, Nicolas Sarkozy, agreed with Mrs Merkel. But this is merely to slow progress towards the cliff edge, when what is needed is a U-turn.
What the continent really needs to go for is an outright fiscal stimulus, of the kind even Mrs Merkel agreed to in 2009 (which gave German carmakers such a shot in the arm).
Many commentators seem have decided that this first meeting between Merkel and Hollande was a frosty one.
While both leaders presented a united front in relation to their desire for Greece to remain the Euro, Hollande made a point of emphasising his desire for the eurozone to change direction and embrace a strategy based on growth.
He added that he wanted Europe to pool its ideas on growth measures by the end of June.
From the German side, that Merkel underlined that Greece had to stick to its side of the deal regarding its debt management, reports Kate Connolly:
“We think promises made have to be kept,” Merkel said, following brief talks with Hollande who flew to Berlin just hours after his inauguration.
“We have said whatever we can do regarding structure and growth we’ll do,” she added.
Hollande said: “It’s my wish that Greece stays in the Eurozone… but we have to make it possible for Greece to find solutions to its problems.”
Merkel said she wanted to stress the message particularly ahead of the new Greek poll in June.
“We’ll make clear that we have the expectation or wish that Greece stays in the Euro,” she said, adding that she would be happy to hear of “any additional measures for growth either coming from Greece or that we can suggest to them if they want that.”
Touching on the topic of encouraging growth which very much shaped his election campaign, Hollande added: “We need to be able to say to Greece Europe is ready to support further growth measures so that growth can return to Greece.”
François Hollande’s plane was hit by lightning as he took off from France earlier but there was no spark between him and the German chancellor when they eventually met, reports Kate Connolly.
In a sketch of the “first date” between the two leaders today in Berlin, she describes how it was an awkward one despite functional smiles and handshakes.
At one point, Merkel had to correct Hollande when he tried to cross her path as they inspected German troops.
But Merkel is nothing if not a pragmatist, and so the two sat down for a working supper which she knew was going to set the tone for all their future negotiations.
The menu was diplomatic: rind de bouillon with vegetables and pancake stripes, asparagus with veal schnitzel, followed by strawberries and ice-cream and cheese and grapes, along with a range of German wines.
Berlin officials had worked feverishly behind the scenes to create the best possible impression of harmony before the visit, and tried in vain to downplay its significance.
“This won’t be a decision-making summit, rather an initial, get to know you meeting,” a German government spokesman, Steffen Seibert, said before the occasion.
But it was clearly far more than that, with two politicians who had never met before coming together to see not only if they could get on, but whether they could work together to solve one of the most seemingly intractable problems Europe has faced since the second world war.
In terms of François Hollande’s economic vision, some of the real meat was set out earlier today in Paris after he took power in a deliberately low-key ceremony.
Angelique Chrisafis, the Guardian’s Paris correspondent, has filed a report on how the new French president promised “a new path” for Europe, insisting growth measures to kick-start economies would go hand in hand with the reduction of public debt:
He vowed his five-year term would be fair and just. He said he would unite France and bring the divided country much needed calm and reconciliation.
In a series of digs at [Nicolas] Sarkozy, who had been dubbed the president of bling bling, Hollande, in his speech in Paris, promised “scrupulous sobriety of behaviour”.
He saluted the contributions of previous French presidents, including Jacques Chirac’s attachment to the “values of the republic”, but stopped at citing any Sarkozy achievements, saying simply he wished him well in his new life.
Hollande acknowledged the hurdles he faced: “A massive debt, weak growth, high unemployment, degraded competitiveness and a Europe that is struggling to come out of crisis.”
As if the crisis-hit eurozone needed another metaphor for doom, the new president’s first day in office was accompanied by thunder and lightning storms of epic proportions.
Angelique also filed this profile of Hollande’s new prime minister, Jean-Marc Ayrault, a former German teacher who has been working behind the scenes to smooth Paris’s relations with Berlin.
A couple of key quotes in full now from that first joint Merkel-Hollande press conference.
Hollande, who wants to temper Berlin-led austerity policies with pro-growth measures said he and Merkel both wanted Greece to remain in the euro currency zone and hoped voters there would show they did too in a June 17 election.
“I hope that we can say to the Greeks that Europe is ready to add measures to help growth and support economic activity so that there is a return to growth in Greece,” Hollande said.
“On growth, the method that we agreed is putting all ideas and all proposals on the table and seeing what legal means exist to put them into effect.”
It wasn’t exactly a cordial press conference and seemed a little awkward at times even though Merkel and Hollande tried their best to show they will get on, according to Mathieu von Rohr, Paris bureau chief for Der Spiegal.
Again though, as was so often the case during her political relationship with Hollande’s predecessor, Merkel’s body language is under close scutiny:
Merkel didn’t say anything when Hollande used the dirty word “renegotiation” in front of her. But showed a strange smile/grimace afterwards
— Mathieu von Rohr (@mathieuvonrohr) May 15, 2012
Faisal Islam, economics editor at Channel 4 News, has been tweeting what he took from the press conference:
I got a sense that Hollande and Merkel might give a little back to Greece. No strict reference to “full implementation of memo”.
— Faisal Islam (@faisalislam) May 15, 2012
Boils down to this: will Merkel/ Hollande give some ground to Greece over the austerity conditionality ahead of June bailout payment? #HoMer
— Faisal Islam (@faisalislam) May 15, 2012
And that’s it for now. A handshake between the two leaders signals the end of the first joint press conference between the two leaders.
It was a million miles away from anything in the way of political fire-works but, equally, there seemed to have been no attempt to paper over differences.
Hollande emphasised his belief in the need to introduce an impetus for growth within the eurozone while both leaders were completely open about the fact that they disagreed.
A question to the two leaders now on the Greek situation, and whether the new elections will be helpful.
Merkel responds first to another question about what language they used during the discussions this evening.
Everything was talked about in their “native tongues”, she says.
As for Greece, she says that the wishes of the people of Greece have to be respected, and the decision to hold elections.
Hollande says he will respect whatever happens with the Greek vote. He also “appreciates” the suffering of the Greek people
As for the conversation earlier with Merkel, he says that they used “the language of intelligence, the will to find solutions”.
Hollande is once again emphasising the need for growth creation.
Tomorrow, he says that the new French government will seek advice on how to execute the budget of 2012.
The euro is not just a monetary project but “a political project” too, says Merkel.
European have benefitted from this and will continue to do so, she says, adding that those on the continent have the same values: freedom of speech, liberty and democracy.
“This is also expressed via the single european currency,” she says.
Again to the thorny, but ultimately central, question of the Eurozone’s fiscal treaty.
Hollande is largely non-committal in answer to a question about what exactly he will be pressing for but repeats that he has told the French people that he wants to renegotiate it.
Hollande says that he wants efforts towards encouraging growth in the Eurozone to be tangible, rather than just words.
A range of options should be on the table, including eurobonds, adds the French President, referencing an instrument which has long been rejected by Angela Merkel as a possible way of bringing the eurozone crisis under control.
Hollande is talking now about the importance of a “balance” in the relationshup between France and Germany.
The two talked about Greece, he adds. Like his Germany counterpart, he says that he wants Greece to remain in the eurozone.
“We have to allow the Greeks to find solutions,” says Hollande, adding that he hopes the Greeks will express in the forthcoming June 17 elections their attachment to the eurozone.
We wish to have Greece within the Euro and we know that the majority of the Greek population agree with us, says Merkel.
The two leaders talked about what they could to to help greece in terms of “structure”, adds the German chanellor (according to the BBC translator).
The Merkel-Hollande news conference is underway now in Berlin.
Merkel starts by suggesting that the lightning strike on his plane is a good omen for their future relationship.
“We have quite an intensive agenda in terms of European questions,” she adds, in what may be the understatement of the week.
While most of the media spotlight is currently on Berlin, it was Greece that was once again centre-stage earlier today.
In case you missed the news, the country is heading back to the polls again after a final round of talks this morning broke up without a deal following the fractured results of its most recent general election.
Amid fears the new election will do the very thing it is supposed to stop, hasten the country’s economic collapse and exit from the eurozone, the Guardian’s Helena Smith has filed a report from Athens:
After a week of political high drama after inconclusive elections, feuding party chiefs acknowledged their inability to form a unity government on Tuesday, with several blaming Alexis Tsipras, whose Left Coalition party has taken Greece by storm.
“Unfortunately the country is being led again to elections … under very bad conditions,” said the socialist Pasok leader, Evangelos Venizelos, after the breakdown of the last-ditch negotiations at Athens’ presidential palace. “For God’s sake let’s move towards something better, not something worse.”
Across Europe there is no illusion that the poll, expected to take place on 10 or 17 June, is a referendum on whether the near insolvent country – kept afloat by EU and IMF rescue loans – stays in the eurozone.
Within hours of the election being announced, the German finance minister, Wolfgang Schäuble, summed up the predicament Greece now faced. “If Greece – and this is the will of the great majority – wants to stay in the euro, then they have to accept the conditions,” he told reporters at a meeting of European finance ministers in Brussels.
“Otherwise, it isn’t possible. No responsible candidate can hide that from the electorate.”
Back to the issue of the Merkel-Hollande body language. Here’s the take of Kate Connolly, Berlin-based foreign correspondent for the Guardian and Observer:
#Merllande cordial but awkward. #Merkel had to steer him back onto red carpet when he stepped across her path. Sign of things to come?
— Kate Connolly (@connollyberlin) May 15, 2012
While we’re waiting for the press conference to get underway, Reuters has filed an interesting profile of France’s new prime minister, a German speaker whose familiarity with the corridors of power in Berlin may prove invaluable as Paris seeks to temper Germany’s austerity drive in Europe.
The stately, silver-haired Jean-Marc Ayrault, a former German teacher and long-time ally of president-elect Francois Hollande – has made pragmatism his hallmark in holding together the Socialists’ fractious parliamentary group as its floor leader since 1997.
With his understanding of Germany’s language and culture, the conciliatory Ayrault could be a bridge-builder with Berlin after a bruising presidential election race in France that focused on Hollande’s demands to renegotiate a German-inspired budget discipline pact for Europe.
At home, his new government will also face the difficult task of selling inevitable deficit-cutting measures to a public weary of unemployment running at nearly 10 percent.
“This is the outcome of a long fight alongside Francois Hollande for the 15 years we have known each other,” Ayrault said, adding that despite his reputation for shyness he was not afraid to admit he was moved by the appointment.
“I am aware of the difficulty of the task, the mission which awaits me.”
The Merkel-Hollande talks come as an unexpectedly strong recent economic performance by Germany helped compensate for weaker output in Greece, Italy and Spain.
Figures released in European capitals today underlined the two-speed nature of the 17-nation single currency area, even though the 0.5% expansion in Europe’s biggest economy helped to compensate for weaker output in Greece, Italy and Spain.
But analysts warned that any respite could be short-lived, with the latest flare-up in Europe’s long-running sovereign debt crisis likely to damage growth prospects for the rest of the year, reports Larry Elliott, the Guardian’s economics editor:
Figures released in European capitals on Tuesday showed that Germany – which accounts for 27% of eurozone GDP – bounced back from a 0.2% drop in output in late 2011, while France followed growth of just 0.1% with a quarter of stagnation in early 2012. In the year to the end of March 2012, Germany grew by 1.2% and France by 0.3%.
Other countries to post quarterly growth included Finland (1.3%), Austria (0.2%), Belgium (0.3%) and Slovakia (0.8%).
But tough austerity measures took their toll on Italy, where the 0.8% quarterly drop in output was the third in a row; Spain, which saw activity decline by 0.3% for a second quarter; and Greece, which reported that the economy was 6.2% smaller at the end of the first quarter of 2012 than a year earlier.
The Netherlands also posted a third consecutive quarter of negative growth, with activity down by 0.2% in the first quarter of 2012.
Overall, the eurozone economies have shown no growth in the past year, while the 27-nation European Union has seen output increase by just 0.1%.
The Merkel-Hollande press conference is due to get underway in 30 minutes time.
Watchers of this evening’s meeting have had their eyes peeled for the first indications of what the body language will be like between the two leaders.
Sarkozy and Merkel eventually developed a friendlier working relationship as they worked to resolve the continent’s debt crisis, but the relationship between the two often looked awkward to say
Some slightly worrying signs emerged from the meeting earlier in Berlin however as Mathieu von Rohr, Paris bureau chief for Der Spiegel, tweeted:
Merkel had to push Hollande around on the red carpet because he stood on the wrong side.
— Mathieu von Rohr (@mathieuvonrohr) May 15, 2012
Hollande has been received by Merkel with an honour guard ahead of talks.
The two leaders are scheduled to hold a joint news conference following the meeting and then have dinner together.
The two leaders are expected to hold a press conference this evening following talks which, Hollande has said, is about getting to know each other.
But there will be much more going on besides that, as the Guardian’s Europe Editor, Ian Traynor, has explained:
The pressing issue of Greece, for example, as weeks of a power vacuum fuel German exasperation and add to the sense that enough is enough – time for Greece to end its ill-advised sojourn in the single currency.
The Germans and the Greeks have been the opposing poles in the euro crisis for more than two years. Nicolas Sarkozy hitched himself to Merkel and followed the German line.
No one knows yet where Hollande stands, but the signs are he will favour flexibility over German stickling for the rules.
On the broader national and European issues of recession, debt, and fiscal rigour, Hollande has been outspoken and blunt, campaigning as the anti-Sarkozy challenger to Germany’s austerity prescriptions. Asked by French TV if he would arrive in Berlin bearing gifts, he replied: “The gift of growth, jobs, and economic activity.”
Merkel, by contrast, made clear she saw no reason to shift her position on the European debt dilemmas just because of a weekend election rout for her Christian Democrats.
Hollande goes to Berlin on the first day of his presidency buoyed by a fresh and powerful mandate from the voters of France. Merkel, in office seven years and squaring up for a third term next year, looks diminished by the calamity on Sunday in the big state of North-Rhine Westphalia where her CDU slumped by 8 points to record its worst postwar performance there.
It’s the most eagerly awaited dinner date on the international stage for some time, where the debate over growth versus austerity is expected to take centre-stage.
Hours after taking over as France’s president, François Hollande has arrived in Berlin for talks on Europe’s debt crisis with the German Chancellor, Angela Merkel.
In what many are hoping is not an ill-omen, the Falcon 7X aircraft which he boarded earlier was struck by lightning and had to return to the Villacoublay air base outside Paris as a precaution.
Hollande and his entourage were transferred to another aircraft, a Falcon 900, and took off shortly thereafter.
As the future of the Eurozone hangs in the balance, we’re going to bring you full coverage of the first top level meeting between the two current leaders of the Eurozone’s Franco-German engine.
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The euro: thunder and lightning | Editorial
Continent-wide spending cuts are not about to be overturned in favour of a raft of policies designed to encourage growth – sadly
Thanks must go to the gods of metaphor, for it was presumably they who sent the lightning that forced François Hollande’s plane to turn back mid-journey to Berlin on Tuesday afternoon. This being rain-sodden reality rather than heightened drama, the French president had better luck on a second flight to meet chancellor Angela Merkel – but even so, you couldn’t have asked for a more perfect omen. Because there are those who view any mission to save the euro as cursed. Plenty more see policymaking in the crisis-hit eurozone as a lot of Sturm with a hefty dollop of Drang. And then there are the more excitable European politicians who would describe the fate of the single currency as hanging on a war of ideas: between left and right, between austerity and growth, and between the newly elected, idealistic Mr Hollande and battle-hardened German pragmatist Mrs Merkel. Stormy indeed.
If only things were so stark. Certainly, a shift of emphasis and policy is discernible, both in terms of the people making decisions and the economic and political backdrop they are now working against. But the continent-wide spending cuts are not about to be overturned in favour of a raft of policies designed to encourage growth – sadly. Nor, unfortunately, are stricken southern members of the euro about to receive the relief they need from the wrong-headed austerity programmes they have been forced to follow with such disastrous economic and social effect.
Plainly, the economic policies followed by eurozone ministers and officials are not working. First, their governments had the option in the summer of 2010 to go for sustained and substantial fiscal stimulus; they didn’t take it. The result was underlined, with the eurozone just avoiding its own double-dip recession – and that too largely because of strong growth for German exports. The domestic economy of the single-currency area remains in dire shape, with Spain and Italy both shrinking and France flatlining. Second, when it comes to warding off financial contagion, the euro club has finally cobbled together a firewall of pledged money, to be called upon if another nation ended up in serious trouble. The trouble is, Spain and Italy are already in financial turmoil – with their banks in desperate need of extra cash and their governments struggling to raise funds from markets – and yet very few analysts or financiers have much faith in the firewall. Finally, for the nations already forced on to financial life support, Brussels (with the IMF) prescribed a combination of drastic cuts, radical changes to welfare systems and labour laws, and a fire sale of public assets. In Greece, the guinea pig for all this, the result has been to seal a national economic depression, coupled with widespread unrest and violence – and to destroy support for the political mainstream. A failure on all counts.
So there is plenty of reason to hope that Mr Hollande has some substance behind his stirring rhetoric about the need for growth. The French president can point to the fall of 10 euro-area administrations since 2008, sky-high unemployment and even to Mrs Merkel’s own poor showing in this weekend’s elections in North Rhine-Westphalia. Yet his policies so far amount to slowing down the pace at which France reduces its (relatively small) budget deficit, and taxing wealth in order to create more jobs. At an international level, he wants to adulterate the pure austerity his predecessor, Nicolas Sarkozy, agreed with Mrs Merkel. But this is merely to slow progress towards the cliff edge, when what is needed is a U-turn. What the continent really needs to go for is an outright fiscal stimulus, of the kind even Mrs Merkel agreed to in 2009 (which gave German carmakers such a shot in the arm). In the crisis zones of Greece, Portugal and Ireland, the eurozone needs to impose a sharp reduction in the value of public debt. Preceding that, the euro club should set up an emergency pool to forcibly recapitalise banks, in return for European public equity stakes. Drastic? Yes. But the euro area’s existential crisis will not be alleviated by rhetoric, however cheering.
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Categories: News Tags: France, Italy, Mr Hollande, Mrs Merkel
François Hollande takes up presidential reins – then flies off for Berlin talks
French president promises to unite country and a “new path” EU during low-key inauguration before meeting with Angela Merkel
François Hollande, France’s first Socialist leader in nearly 20 years, promised to restore dignity and simplicity to the French presidency as he took power in a deliberately low-key ceremony on Tuesday then immediately flew off to meet the German chancellor on a quest to temper Europe’s austerity drive.
Hollande, who has styled himself as Mr Normal, used his Elysée palace inauguration to set himself apart from the politics and celebrity style of his rightwing predecessor, Nicolas Sarkozy.
In his first speech he promised “a new path” for Europe, insisting growth measures to kick-start economies would go hand in hand with the reduction of public debt. He vowed his five-year term would be fair and just. He said he would unite France and bring the divided country much needed calm and reconciliation.
In a series of digs at Sarkozy, who had been dubbed the president of bling bling, Hollande, in his speech in Paris, promised “scrupulous sobriety of behaviour”. He saluted the contributions of previous French presidents, including Jacques Chirac’s attachment to the “values of the republic”, but stopped at citing any Sarkozy achievements, saying simply he wished him well in his new life.
Hollande acknowledged the hurdles he faced: “A massive debt, weak growth, high unemployment, degraded competitiveness and a Europe that is struggling to come out of crisis.”
As if the crisis-hit eurozone needed another metaphor for doom, the new president’s first day in office was accompanied by thunder and lightning storms of epic proportions.
First he was soaked by a torrential downpour during his victory tour along the Champs-Elysées as he stood up, exposed to the elements in an open-top car, waving at the crowds and blinking through the downpour. He left the car to light the traditional flame to the unknown soldier at the Arc de Triomphe so soaked to the skin that his shirt was transparent and droplets rolled down his forehead. Then the French presidential Falcon jet was hit by lightning minutes after taking off from Paris for his working dinner in Berlin and he was forced to turn back.
Hollande boarded a second plane and went on to meet Angela Merkel while political commentators back home cracked jokes about Zeus and the rain gods.
Sarkozy, meanwhile, encountered only sunny spells, first during his final departure from the Élysée, waving from his car window, then as he emerged hours later in his running gear in front of TV cameras for a post-presidential jog around a Paris park under a rare moment of blue sky.
When a reporter in the Élysée courtyard called out to a soaked Hollande, “you are not afraid of the rain?”, he smiled and shot back, “I am not afraid of anything”.
Hollande, who calls himself an ordinary guy, had been keen to keep the pomp-filled presidential inauguration as modest as possible and set himself apart from the unpopular glitz of Sarkozy. As he was driven to the Elysée from his apartment in a hybrid Citroën, television commentators marvelled that his car did stop at red traffic lights and went no faster than 50km an hour. Stepping on to the red carpet rolled out over the Élysée courtyard gravel, his tie was noticeably wonky.
Hollande’s guest list was distinct from that of five years ago for Sarkozy, who put his wife, stepdaughters and sons centre-stage, opening up a new chapter in the blurring of boundaries between public and private life in France. Hollande had about 30 private guests joining the 350 officials at the event. His partner, the political journalist Valérie Trierweiler, was present, but their children were not, and journalists judged her outfit “very elegant” while taking care to add it had been “chosen from her wardrobe” that morning.
His guests included the writer Mazarine Pingeot, daughter of the Socialist president François Mitterrand, and the entrepreneur Pierre Bergé, the entrepreneur, partner of the late fashion designer Yves Saint Laurent and co-owner of Le Monde.
Before taking office, Hollande spent more than 30 minutes in a private meeting with Sarkozy, during which he was handed the codes to France’s nuclear strike force. After a handshake Sarkozy, staying true to his glamorous approach to taking office alongside his second wife, Cécilia, left the palace walking down the red carpet hand in hand with his third wife, Carla Bruni-Sarkozy. As his car drove away, supporters, reportedly organised by his right-wing UMP party, cheered and said “thank you Nicolas”. Earlier they had booed key Socialists arriving for the inauguration.
Hours after taking office Hollande put his own twist on proceedings by laying a wreath to Jules Ferry, pioneer of France’s free and secular state education system. In front of schoolchildren and dignitaries he stressed that education was at the heart of his mission, that he would stay true to his promise to create 60,000 more posts in schools in the next five years – a move the right had denounced as spending madness. But he distanced himself from what he called the “moral fault” of Ferry’s backing of colonial expansion.
A second symbolic gesture was the laying of a wreath in memory of Marie Curie, the Polish-born, Nobel-prize winning, scientist. It was a message not just about France’s need to invest in research but also about accepting foreigners.
The only reminder of the quasi-monarchical pomp of the French presidency was Hollande’s third speech, of the day, in the luxurious salle des fêtes of Paris’s city hall, with its throne-like chairs and gold chandeliers recalling Versailles. Hollande vowed to project the “best image” of France, saying his overriding aim and motto was justice.
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At least Hollande and Merkel agree on one thing – a financial transaction tax
Cameron believes a Tobin tax would hurt the City – but France and Germany are under pressure to finance a eurozone boost
Supporters of a financial transaction tax have a strong ally in the new French president, François Hollande, who wants to recycle the revenue raised from the so-called Tobin tax into growth-enhancing investment projects. On this, if little else, he may have the backing of Angela Merkel, but not of David Cameron, who believes the City would be damaged by the proposed levy.
Opponents of the FTT say it would raise the cost of doing business and would hinder rather than stimulate growth. It would cost more for firms to do currency deals and so make exports dearer, and it would push up interest rates, leading to lower investment. A lower level of transactions would mean that the yield from an FTT would be lower than expected. What’s more, it would be subject to considerable tax avoidance.
Brussels believes it would be nigh-on impossible to avoid paying an FTT but its attempts to quantify the tax’s impact do appear to suggest there would be a hit to growth, albeit a modest one. Initial work by the European commission showed that on the assumption of 1.5% annual growth and a 0.1% FTT on shares and 0.01% on derivatives, GDP would be 0.53% lower by 2050. More specifically, GDP would be 81.4% above today’s level without an FTT and 80.9% with one.
The commission has now refined its model to take into account the fact that many firms – particularly small and medium sized companies – don’t rely on the financial markets to fund investment, but raise funds from retained earnings or banks instead. Once this is taken into account, the growth hit is reduced to 0.2% in total by 2050.
What, though, if the tax raised by an FTT – €57bn a year according to some estimates – were to be pumped back into the economy? This is a course of action, dubbed balanced-budget growth, in which policymakers leave overall tax and spending levels unchanged but seek to move resources from low growth to high growth sectors of the economy. The International Monetary Fund champions this approach, as does the Social Market Foundation.
According to the commission, using the resources raised by an FTT for investment, either at a national or European level, would boost growth rather than detract from it. Again, the numbers are quite small: overall GDP would be between 0.2%-0.4% higher by 2050. Lobbyists for the FTT, however, say this underestimates the growth potential of the tax, as the likely reduction in high-frequency trading would lead to greater financial stability and thus a more favourable climate for sustained growth.
Cameron thinks financial stability can be achieved in other ways, through the bank levy and by beefing up the watchdog powers of the Bank of England. He sees an FTT as a Trojan horse, designed to curb the City. The mood, though, is different in France and Germany, under pressure to boost the eurozone and, even more importantly, to find ways of financing it.
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Eurozone: the austerity allergy | Editorial
Greece’s problems are merely an intense manifestation of an antipathy to cutbacks that is breaking out everywhere
Slowly but surely, the unthinkable is coming to be thought. Europe’s monetary marriage was supposed to admit no divorce, but the idea of Greece being put asunder is now being canvassed openly in Brussels and Berlin. The immediate reason for talking taboo is that there is no longer any government in Athens to do business with. But the underlying issues are twin crises of democracy and the economy, crises that could soon engulf the euro as a whole.
The Greeks want to stay in the single currency, but not on the ruinous terms that their establishment agreed to. They have thus used their elections to rout both traditional parties of government, installing a splintered parliament with a large contingent from the leftist Syriza alliance whose whole purpose is calling time on austerity. Barring a breakthrough in President Papoulias’s last-ditch scramble for a coalition of disparate parts, fresh elections will be called in days. The EU cannot send divisions into its unruly corners. All finance ministries can hope to do is to push Greek opinion back to the centre by inflaming fears about what happens if the patient will not take the medicine – hence the ominous muttering about cutting Athens loose. The Greeks, however, are not yet cowed: opinion polls show Syriza gaining in strength. A sudden slide out of the euro would certainly be a trauma, spelling failed cash machines, desperate flights to the border and chaotic disruption of commercial contracts. But when the pensions of older Greeks have already been cut by a quarter, and when half their young compatriots are unemployed, it is getting tricky to argue that things would necessarily be worse.
What ought to give northern Europe pause, however, is that Greece’s problems are merely an intense manifestation of an allergy to austerity which is breaking out everywhere. This is evident, first, in the self-defeat of retrenchment. The IMF says that in Spain, Italy and Portugal, the burden of public debt on the economy will once again grow heavier next year, this because – despite all the cutbacks – output is falling away more rapidly than debt can be paid off. But it is evident, too, in diminishing political life expectancy. Greece’s ousted administration is just one of 10 in the eurozone to be booted out over the last year. In Italy, an anti-establishment comedian, Beppe Grillo, has just snapped up a sizeable wedge of the vote in local polls. Then yesterday in North Rhine-Westphalia, Germany’s most populous state, Chancellor Angela Merkel endured a battering. De Gaulle asked, in exasperation at France, how anyone could govern a nation that made 246 different cheeses; wielding effective power in a continent with just one type of money is proving even harder.
The channels by which the Greek tragedy could flow beyond Greece are now bubbling above the surface. A deepening banking crisis in Spain is one. If Europe’s savers come to believe that a euro in an account on one side of a border is worth much less than on the other, bank runs could overwhelm all the boundaries of the European periphery. Most unlike Greece, Spain used to follow all the orthodoxies about sound public finances, but it is discovering that this respectable past provides scant protection once private and public debts get blurred. When a democracy stumbles into a big enough hole, whether or not the government did the original digging, the voters will demand that the government digs them out.
In the end, if the single currency is to be saved, Germany must face up to what these realities mean for its debtors, and go for growth across the continent as a whole. Finance minister Wolfgang Schäuble’s remarks about allowing German wages to rise are one encouraging sign, but an adequate response would also involve amending a fiscal compact that prohibits proactive demand management, and leaning on the European Central Bank to do more rather than less about the slump. France’s new president will fly to Berlin immediately after being sworn in, to push these points on Mrs Merkel. All hopes of the eurozone thriving or merely surviving turn upon her paying heed.
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The €64bn question. Will Angela Merkel listen to François Hollande?
With their opposing views on how to solve the eurozone crisis, the first meeting of Germany’s chancellor with a socialist French president could have a profound impact on Europe’s future
The Paris Bar, a popular haunt for west Berlin intellectuals of a certain age, was humming with conversation and the clink of glasses and cutlery last week as actors, theatregoers, artists and journalists sipped wine or tucked into steak frites in this Gallic enclave in the German capital.
Beneath a red neon sign, Philippe and Paula pulled on cigarettes and discussed their respective governments’ different approaches to the euro crisis. “You could say we are like chalk and cheese,” said Paula, a 39-year-old German writer. “But that sounds quite boring. So let’s say more like bratwurst and Chateau Margaux.”
Philippe, 42, a scriptwriter from Paris (both of them preferred not to give their family names), nodded in agreement and chuckled. “Going back to the chalk and cheese metaphor: the difference between us is that the Germans would be happy to eat chalk if they were told it would solve the economic crisis, while the French would not be prepared to give up their cheese.”
Food metaphors abound these days before the hugely significant Franco-German summit on Tuesday when France’s newly elected president, François Hollande, will visit Germany’s Angela Merkel only hours after he takes office. They have never met before.
Although described by officials on both sides as primarily a meet-and- greet occasion rather than a political exchange, the evening – during which the two will enjoy a working supper in Berlin’s cuboid chancellory (menu yet to be revealed) – will be dominated by Europe’s increasingly controversial austerity drive.
Most have predicted a tense meeting between the German conservative and the French socialist. Merkel has unerringly championed austerity, while Hollande told a cheering crowd on the night of his election that austerity “need not be Europe’s fate”.
It is a critical moment in European politics. The main driving forces of the eurozone are at loggerheads. Hollande does not want to sign up to Merkel’s fiscal pact, which places strict limits on sovereign debt and gives the European court of justice a role in enforcing economic discipline. Merkel has insisted she will not back down. Meanwhile, voters in Greece have rejected pro-austerity parties at the polls, leaving the country on the brink of exiting the eurozone unless the electorate can be persuaded to change its mind. And the spectre of economic collapse in Spain is looming.
The French mood is bullish. Benoît Hamon, spokesperson for the Socialist party, said: “Angela Merkel is sticking to her position, but she cannot override the will of the French people. If nothing budges, the treaty won’t be submitted for ratification in France.”
Pierre Moscovici, campaign director for Hollande and the man charged with making sure the presidential handover runs smoothly, said he was confident there would be a compromise on growth. “They will speak. There has to be a proper discussion between the two heads of state. François Hollande’s aim is clear and hasn’t changed; it is to reorientate the European construction in a way that is more favourable for growth.”
Moscovici, a former minister of European affairs, added: ‘The small experience I have of these things … is that you will find a compromise. I’m optimistic that things will go well.
Hollande is not alone in arguing the revisionist case. From the United States government to the International Monetary Fund and increasing numbers of European governments, pressure is growing on Germany to relax its approach to austerity, which is increasingly being seen as hindering economic recovery.
Merkel’s old political ally, Nicolas Sarkozy, is out of office. The recent fall of the Dutch government, amid disagreement over strict austerity measures, has left Merkel still more isolated in her insistence that belt-tightening is the only plausible route to economic recovery.
Across the continent, a growing number of voices now suggest that the problem is not just southern European profligacy, but also German parsimony.
This is the nation which has some of the highest labour costs in the world, but where wages have been kept low compared to the rest of western Europe; where wage discipline among workers and employers has come to be seen as a patriotic act. Add in a huge trade surplus and Germany’s competitive advantage over its European neighbours is enormous. The resulting imbalance in the eurozone is helping no one.
Merkel remains unmoved, insisting last week, despite the criticisms, that the purse strings cannot be loosened. Her matter-of-fact reaction to the crisis led the Süddeutsche Zeitung newspaper to observe that “rather than behaving as if she had a European crisis to deal with … it was as if she was bending over the assembly instructions for an Ikea cupboard”.
“We’re talking here about the future of Europe,” Merkel said later, with rather more of a flourish. “And because of this the fiscal pact is simply not up for discussion.” While she is in favour of boosting growth, spending to stimulate growth is no option, she says, as it “would send us back to square one”.
Josef Joffe, publisher of the weekly Die Zeit, complained last week that she was being unfairly treated and that anti-Merkel sentiment had reached a peak after the French and Greek elections.
“She’s completely on her own now, seen to be stopping Europe from getting back to good health with her stinginess and teutonic arrogance,” he said. “Which is a fiction on two fronts. Firstly, decades of waste are to blame for Europe’s [bankrupt state]. Secondly, it diverts attention from the real illness … Europe’s [lack of] competitiveness.”
Merkel has enjoyed very high personal popularity ratings during the almost seven years she has been in power, and her steadfast handling of the euro crisis has served only to solidify her support at home. According to a recent poll, 61% of Germans said Merkel should stick to her stringent pro-austerity stance.
But recent events in France and Greece have undoubtedly left the chancellor vulnerable. Until now, Germany’s opposition has been reluctant to challenge Merkel’s insistence on budgetary discipline. Not any more.
“We are seeing the result of this policy in Greece where the radical right and enemies of Europe are entering parliament,” Sigmar Gabriel, head of the Social Democrats (SPD), said in an interview. “Almost all economists have long shared the criticism of Merkel’s unimaginative imposition of austerity.”
Another flank opens up this weekend with a key election in Germany’s most populous state – and political bellwether – North Rhine-Westphalia. With next year’s general election looming on the horizon, this political test will provide a crucial guide to Merkel’s political future.
North Rhine-Westphalia is indebted to the tune of €230bn (£185bn) and Merkel’s Christian Democratic Union (CDU) has been vigorously campaigning on the pro-austerity ticket.
“Angela Merkel cannot seem to be credible and strong if policies that cause debt to rise are being pursued indecently in Germany’s most populous state,” said Norbert Röttgen, the conservatives’ leading candidate.
At election rallies in the state, Merkel has often repeated the phrase that has earned her the nickname “the Swabian housewife” – the model German citizen famed for her thriftiness – giving outsiders an interesting window into the German soul. “At the end of the day it’s quite simple,” she said at one rally. “Do not spend more than you earn.”
The statement reflects the pragmatism that has shaped 57-year-old Merkel’s political and personal life. This is the woman who when she left her first husband (admittedly during the days of the economically straitened East German regime) took the washing machine with her.
But if opinion polls are anything to go by, Germans in North Rhine-Westphalia at least are not buying into the austerity argument. The Christian Democrats are trailing their closest rivals, the Social Democrats by several percentage points.
Commentators and analysts are now talking of a rethink or even a backlash taking place, which is likely to become even more focused when Hollande arrives in town. “The German discussion is moving a notch closer to the international debate on whether austerity has become self-defeating because it is implemented in an overly-brutal way,” according to Sebastian Dullien of the European Council on Foreign Relations.
There are other signs that Germany is prepared to water down its hardline stance, such as the announcement las week by the Bundesbank that it will in future tolerate higher inflation in an attempt to help rebalance economies in the eurozone.
Although that instantly triggered fears in the popular press of a return to the hyperinflation that haunted Germany in the 1920s, Carsten Brzeski, an economist with the Dutch bank ING, welcomed the decision, saying it amounted to an admission by Germany that it “must take responsibility for finding a new equilibrium in the eurozone”.
Finance minister Wolfgang Schäuble also signalled a willingness to accept higher wage increases in the hope that it might boost Germans’ readiness to spend and bring it on to a more equal footing with other European nations.
“So far,” said Dullien, “Germany has been the veto player preventing any policy change. If Germany’s economic elite is now changing course, this might hint that there is a room for compromise between Angela Merkel and François Hollande towards policies which might really help to overcome the crisis.”
So while Tuesday’s meeting might not be a love-in, neither does it have to be a bust up; rather perhaps, as the financial analyst suggested, it’ll be a hard-to-digest black-bread marmalade sandwich.
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Coalition to unveil family-friendly agenda in Queen’s speech
Laws on flexible leave and help for parents of pupils with special educational needs to be included in legislative programme
A package of measures to help families and children will be unveiled in the Queen’s speech as the coalition attempts to offer a full legislative programme while maintaining its focus on rebuilding the economy.
New laws to give parents more flexible leave and strong commitments to family-friendly working hours will be among the headline measures. Other announcements expected include reform of the system for diagnosing and helping children with special educational needs to give parents more choice in how they are schooled; reforms to the family justice system to speed up care proceedings so no cases take more than six months; and promised changes to the adoption system to make sure parents and children are matched more quickly.
The government will also say it is getting legal advice on how to strengthen the law so that if couples split up, their children can have a strong relationship with both parents.
A No 10 source said: “Dealing with the deficit and getting the economy growing remains the coalition’s number one priority. But we’re also grappling with some long-term issues around adoption, the care system, and children with disabilities, to make life better for some of the most vulnerable children in society.”
The speech will contain plans to give shareholders a binding right on future executive pay and liberalising of unfair dismissal laws. But the two coalition parties almost see the Queen’s speech as a sideshow to the chief political task of rebuilding an economy over the next year that they say was more damaged than they realised when they took office.
Many of the changes will affect only a minority of families. However, ministers will hope that they will deflect concerns that the legislative programme does not go far enough to boost economic growth or job creation, and controversy over some specific measures such as reform of the House of Lords. It could also be used to dilute criticism that by dropping the promised social care bill the government is not doing enough to help the most needy in society.
Liberal Democrats denied they had succumbed to Tory protests over Lords reform and insist the Queen’s speech will contain a reference to a bill on the second chamber’s composition, but Tory sources were suggesting the legislation could only go ahead with cross-party support, and almost certainly a referendum, something party leader Nick Clegg opposes.
On Tuesday, David Cameron and Clegg admitted the effort to eradicate the deficit might take as long as seven years, and conceded parts of the country did not yet feel the coalition was governing for them.
On the second anniversary of their optimistic opening coalition press conference in the rose garden at Downing Street, Cameron and Clegg chose the stark symbolism of a tractor factory floor in Basildon to rededicate the coalition to its central painstaking work of rebalancing the economy and tackling the deficit.
Cameron listed welfare reform, looser employment laws, banks lending to small businesses, investment in apprentices and completion of the single market in Europe as the keys to growth.
Setting out a timetable to clear the deficit and boost recovery beyond the next election, Clegg said: “We have a moral duty to the next generation to wipe the slate clean for them of debt. We have set out a plan – it lasts about six or seven years – to wipe the slate clean to rid people of the deadweight of debt that has been built up over time.”
He also admitted the local election defeats last week had revealed a divided country: “It is not lost on me that where our two parties got a particular beating last week was in Wales, Scotland and in the large cities of northern England. I take one message from that. We must redouble our efforts to govern for the whole country. There is a particular dilemma in these parts of the country where for the last 10 to 15 years they have been reliant on subsidy from Whitehall, and those subsidies were funded by explosive growth in the City of London. That economic model has hit the buffers.”
Cameron and Clegg appeared nervous of being portrayed as advocates of austerity budgets of the kind that have been rejected by many voters on mainland Europe. Cameron said he preferred the word efficiency to austerity, and denied he was obsessing about dry numbers for the sake of it. Clegg said reducing debt was a necessary – but not in itself sufficient – step to achieving growth.
However Jonathan Portes of the National Institute of Economic and Social Research thinktank said Clegg was wrong to suggest that the slate would be wiped clean in six or seven years. He said: “According to the official forecasts from the Office of Budget Responsibility, the government’s plan means that the debt in 2016-17 the national debt will be about £1,300bn, that is about £300bn more than now.”
Cameron and Clegg also argued that the new French president, François Hollande, was not in reality taking a different path to Britain. Clegg said he could not disagree with someone who said they wanted to grow their economy.
“He knows you cannot create growth on the shifting sands of debt. You have got to have a stable foundation.”
Cameron agreed, saying: “If you actually look at what President Hollande is suggesting in France, his programme for getting rid of his budget deficit is pretty much on a pathway with ours. I think it is a bit of a myth to believe that somehow there are some people in Europe who are going to spend a lot more money and those of us who realise we have to deal with our debt and our deficit.”
Both men’s aides insisted the show of unity around economic policy was designed to tell the country and their own querulous backbenchers that they would not change course.
Cameron defended the plan to include an elected second chamber in the Queen’s speech despite the cacophony of calls from his own backbenchers to drop the bill: “I wouldn’t for a moment say that this is the most important thing the government is doing. Of course it isn’t. But parliament is capable of doing more than one thing at a time. Do I think that it would be a good idea if parliament delivered a House of Lords that had people who were elected by you – the members of the public – to pass the laws that we all have to live by? Sure I do … it is a perfectly sensible reform for parliament to consider.”
Ultimately Cameron is not willing to face down a major backbench rebellion over the issue, even if this leads to a further row with Clegg and more horse trading over other constitutional issues such as constituency boundary reform. Clegg defended the plan, saying: “Although it is wildly controversial in Westminster and people get terribly hot under the collar, actually most people think that the principle that the people who make the laws of the land should be elected by the people who have to obey the laws of the land is not as controversial outside Westminster as it appears to be in Westminster.
“A smidgen of democracy I don’t think will go amiss, since we’ve been talking about it for about 100 years.”
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Coalition politics: tangled up in blue | Editorial
Both the weather and the political mood in May 2012 are now a world away from the sunnier climes and promises of May 2010
Both the weather and the political mood in May 2012 are now a world away from the sunnier climes and blithe promises of May 2010. And a tractor factory in Basildon is a world away from the Downing Street rose garden too. Two years into government, the innocence of the new coalition has long gone, stuff has happened, economic conditions are even tougher, times are more troubled and public opinion is more impatient, as the results in last week’s local elections showed. All this explains why David Cameron and Nick Clegg chose an Essex factory as the backdrop for their latest joint press conference. They wanted to make the point that they understand the voters’ pain and know what needs to be done to get the British economy back on its feet. But their speeches and their answers did not prove that they do. If this was a renewal of vows, it was based more on faith than on fact.
Times have changed all the same. Two years ago, there was no practical alternative to the Conservative-Liberal Democrat coalition. The Cameron-Clegg experiment enjoyed initial public goodwill. In its early months the coalition also won a crucial argument, persuading public opinion that Labour had overspent as tax incomes began to dwindle, necessitating coalition cuts in public programmes which could no longer be sustained. But that was then, not now. Now, public opinion is impatient with the coalition. Voters believe the government is doing a bad job, that its policies are harming ordinary people and that the economy is getting worse not better. Not surprisingly, voters have kicked the coalition parties hard in the ballot box, just as they have done in France and Greece. The voters may not be very clear about what they want to put in its place, and about how they hope any alternative might be achieved – see France and Greece again – but the shift in mood in this country against coalition economic policy is nevertheless impossible to miss.
Mr Cameron and Mr Clegg tried to respond to that shift in Basildon. The economy, now as in 2010, was the core of their message. But they had remarkably little new to say about it, given the subject’s overwhelming importance and the degree to which incumbent politicians’ fates, including their own, are tied to it. Compared with two years ago, the blame for Britain’s woes was now laid more at Europe’s door than at Labour’s, perhaps. There was more talk about the need to rebalance the economy than there would have been in 2010 – though precious little to prove that anything significant is actually taking place. But the heart of the message was that nothing must or will change. The government’s fundamental belief that we can cut our way to economic health was reasserted again and again by both men. They appeared to have heard the voters’ pain but to be incapable of responding to it. That famous line from Bob Dylan’s Ballad of a Thin Man came increasingly to mind the longer that the prime minister and his deputy spoke. Something is happening here, and you don’t know what it is, do you, Mr Jones?
To be fair to Messrs Cameron and Clegg, no one else entirely knows what is happening either. The coalition is in a dilemma that many other governments currently share. Do nothing different, and the likelihood is that the voters will take their revenge in due course. Do everything different, and it would be an admission of failure from which neither party could recover. So the coalition plods on, neither effective nor popular, but hoping for better times.
Some in each party may dream of going their own radically different ways, but the reality, not least of the parliamentary numbers, is that they are bound together. Labour under Ed Miliband is making few mistakes, but most members of both coalition parties know that, for now at least, they are the only game in town. Active and effective internal opposition is very slight, even in the Tory party. The reality is that times are grim, coalition is difficult, the economy is all and there are three years to go.
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George Osborne’s growth policy is turning British cities into Detroit UK | Simon Jenkins
Britain’s economy needs smart growth, not dumb policies that have delivered a double-dip recession
Europe’s collective response to the 2008 credit crunch ranks with the treaty of Versailles and German reparations among the great follies of history. While the peoples of Greece, Spain, Italy and France wrestle with counter-productive austerity policies, Britain’s rulers have no more idea of what to do next. On Tuesday David Cameron and Nick Clegg renewed the coalition marriage vow of two years ago, but there were no smiles of rapture in a Downing Street garden, just gritted teeth in an Essex factory. Cocks of the walk had become headless chickens.
Those who warned at the time that the coalition risked double-dip recession by over-suppressing demand have been proved right. The chancellor, George Osborne, raised VAT to 20%, tightened benefits and allowed banks to restrict credit (while saying the opposite). He declared that private sector growth would more than compensate for public sector contraction. He meant well, but he was wrong.
He was also wrong to dismiss the desire of Gus O’Donnell, then cabinet secretary, for a plan B. It was clear 18 months ago that demand was collapsing. A government obsession with rescuing banks took the cabinet’s eye off the ball and had nothing to do with the case. The longer course correction was delayed, the more demand drained from the economy, until the gangrene of double-dip set in. Britain is now having one of the worst recessions in the OECD.
From Cumbria to Corinth it has been left to ordinary voters, to the great Babel of democracy, to bring reality to bear on those who manage economies. Enough austerity, they have cried, try something that works. As Andrés Velasco, the former Chilean finance minister, has written, it is “insane” to envisage countries locked in a common currency slashing their deficits while trying to promote growth: it is a contradiction in terms. This appears at last to have been grasped by an improbable coalition of the White House, IMF, Greek electorate and new French government – and even the ageing British one. They all want “growth”, though few seem to know how to get it.
In Britain the only growth the Treasury has recognised so far has been to turn to the banks. It is like asking the mafia to promote honesty in local government. Ministers pleaded with bankers to lend more to real people, and even printed the money for them to lend. The banks simply carted the loot from the mint and used it to pay off their gambling debts. There is no evidence that one penny of the hundreds of billions of pounds made available “leaked” into the productive economy.
I witnessed government growth policy at work last week on the road north out of Manchester towards Rochdale. The scene is one of utter devastation. Not just individual shops but entire parades have gone out of business and are boarded up. Mile upon mile of factories, garages, supermarkets and warehouses lie empty and for sale. Recession has delivered the coup de grace to a quarter century of manufacturing decline. Manchester is by no means the worst hit of English cities, but its northern suburbs are Detroit UK.
The British economy needs three things: demand, demand, demand. It needs cash in pockets and cash in tills. It does not need richer banks or easier credit lines or looser regulation. It needs that old Keynesian salve, money in circulation. If money can be showered short term on banks, it can be showered short term on consumers, whether through benefit handouts, vouchers, tax holidays or scrappage schemes. Osborne declares quantitative easing to be off his debit sheet. He can do the same for temporary boosts to the money supply.
The chancellor can take credit for winning a reputation for responsibility. Now is the time to draw on that credit. To the claim that boosting demand is inflationary, the answer is that this is the least serious threat to Britain at present. Look at youth unemployment, shop prices or interest rates. Visit the outskirts of any British city. Britain is bursting with unused capacity. Inflation is for another day, not now.
The cabinet’s current response to the cry for growth is to dip into the old goody bag. Osborne is already spending or planning billions of pounds for new railways, tunnels under London, wind turbines and aircraft carriers. There are murmurs of power stations, toll roads and ecotowns. The portfolio of ideas flowing through Whitehall reflects the interests of those whom Whitehall meets – government contractors, land-owners, estate developers and the bankers who finance them. It comes from government departments lobbying for airports, colleges, roads and hospitals.
The reason why the Treasury likes such projects is that they make headlines for ministers and can be controlled from the centre. Also, few involve big spending now. They are slow growth, lobbyists’ growth, dumb growth. They can be farmed out to private finance and are more likely to fuel the next boom than ease the present slump.
It would be better by far to import the US concept of “smart growth”. This does not channel counter-recessionary spending through grand projects. It directs it to the renewal of existing communities and infrastructure, to where there are already roads, transport, schools and hospitals. It restores, infills and stimulates activity where the social and physical framework is in place. It is productive and “sustainable”.
Smart growth revives the private sector through blood transfusion to the high street, rather than through the colossal public contracts favoured by Osborne and the industry secretary, Vince Cable. It makes cities denser, rather than depopulating them. It lets the market rather than the state allocate the extra cash. All this may lack ministerial glamour and earn little for consultants, but if politicians are serious about growth, smart sure beats dumb.
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