martes, 17 de noviembre de 2015

martes, noviembre 17, 2015

France swats aside EU budget rules in rearmament blitz

“The security pact takes precedence over the stability pact. France is at war,” said President Hollande

By Ambrose Evans-Pritchard
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France has invoked emergency powers to sweep aside EU deficit rules and retake control over its economy after the terrorist atrocities in Paris, pledging a massive in increase and security and defence spending whatever the cost.

President Francois Hollande said vital interests of the French nation are at stake and there can be no further justification for narrowly-legalistic deficit rules imposed by Brussels. “The security pact takes precedence over the stability pact. France is at war,” he told the French parliament.
 
Defence cuts have been cancelled as far out as 2019 as the country prepares to step up its campaign to “eradicate” ISIS, from the Sahel in West Africa, across the Maghreb, to Syria and Iraq.
 
At least 17,000 people will be recruited to beef up the security apparatus and the interior ministry, fast becoming the nerve centre of the country’s all-encompassing war against the ISIS network.
 
Members of the French army patrol at the Gare du Nord train station in Paris after the deadly attack  Photo: Bloomberg
 
The new forces include 5,000 new police and gendarmes, 1,000 customs officials, and 2,500 prison guards. “I assume it will lead to an increase in expenses,” he said.

The combined effect amounts to a fiscal stimulus and may ultimately cushion the economic damage of terrorist attacks for the tourist industry, but the “rearmament” drive spells the end of any attempt to meet deficit limit of 3pc of GDP enshrined in the Stability and Growth Pact. With France in open defiance, the reconstituted pact is now effectively dead.

The European Commission expects the French deficit to be 3.4pc of GDP next year and 3.3pc in 2017, but the real figure is likely to be much higher and will last through to the end of the decade. The concern is that this could push the country’s debt yet higher from 96.5pc of GDP to nearer 100pc, made worse by the effects of deflation on debt dynamics.

Mr Hollande said France will invoke article 42.7 of the Lisbon Treaty, the solidarity clause obliging other member states to come to his country’s help by “all means in their power”. It would be beyond parody for Brussels to continue insisting on budget rules in such a political context.

The French economy is slowly recovering as the triple effects of a weak euro, cheap oil, and quantitative easing by the European Central Bank combine to create a short-term blast of stimulus, but it still remains remarkably depressed a full six years into the post-Lehman cycle of global expansion.

Growth crept up to 0.3pc in the third quarter after stalling earlier in the year. Unemployment is still stuck at 10.7pc and has actually risen over recent months. “Momentum may fade in 2017 as tailwinds peter out,” said the Commission.

The Eiffel Tower is illuminated in the colours of the French flag in tribute for the victims of the November 13 terror attacks  Photo: EPA

Professor Brigitte Granville from Queen Mary University of London said the country has been losing competitiveness within Europe’s monetary union for so long – not helped by a labour code still 3,648 pages - that it is now caught in a stagnation trap with the wrong intra-EMU exchange rate. She warned that the country is on a slow slide towards economic “catastrophe”.

A study by Nobel economist Gary Becker found that “the fear created by terrorism has huge and enduring effects on human behaviour,” often out all proportion to the actual risk. This makes it extremely hard to predict the economic effects.

Tourism to Israel fell by two-thirds during the eighteen months after the Al-Aqsa Intifada, and air travel in the US fell by 15pc in the year following the Twin Towers attack on 2001. The paper concluded that people are ultimately rational and learn to control their fear. Life goes on as normal.

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