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An Open Letter to My Friends, the Financiers of America

Alain Minc, translated from the French by Antony Shugaar
Musée d’Orsay, Paris/RMN/Art Resource
Edgar Degas: Portraits at the Stock Exchange, 1878–1879

But, you retort, all these historic and political considerations mean little in the face of market forces that have their own vote on how to read economic reality.

Let us not forget, however, that this is tantamount to treating as gospel truth the decisions of markets that for ten long years chose to believe that Greece was every bit as stable as Germany, and that Portugal’s state of economic health rivaled that of the Netherlands, and so financed both groups of countries at roughly the same rates. I doubt I heard, during all those years, any of you rise up indignantly inveighing against that folly and prophesying a dire reckoning when the markets hit the brick wall of reality.

Let us be done with backward-looking reproaches: What are we to say of your argument that the euro is incapable of surviving the huge internal disparities of competitive inequality between countries? Competitiveness these days is the stock phrase in any discussion of the eurozone. But it tends to overlook the fact that the challenges facing outlying countries cannot all be measured by this one yardstick. Let’s take the case of Greece. How many articles have been published stating that what Greece needs is a currency devaluation in order to make it competitive with its European partners again? As if to say that, once the currency was devalued, Greek industry would be fully capable of competing with its German rival! What’s troubling Greece is not a lack of competitiveness; rather it is the fact that it has an absentee government, and therefore taxes are simply left uncollected. If Greek taxpayers—and I would include among them the church and shipbuilders, both currently exempted from taxation by the Greek Constitution (!)—came face-to-face with a French- or English-style tax authority, the national budget would immediately run a primary surplus.

The tragic twist is that, for reasons of Greek national pride, we cannot demand that Greece be placed under a provisional European administration that would subject it to the rules of a modern economy both in the fiscal realm and with respect to competition and government functions. As for Italy, how can we talk about shortfalls in competitiveness when the country has a trade surplus? The handicap hobbling Italy is its inheritance of historical debt. Otherwise, its national budget is actually running a surplus and unemployment remains relatively low.

The country needs growth so that, holding its costs steady, it can begin to reduce the drag of its debt on the economy. In order to do so, it needs structural reforms, such as more procompetition regulations, reduction of labor costs, mutual sharing of burdens, and greater flexibility in the labor markets, all of which are reforms that Prime Minister Mario Monti is trying to bring about. Nor is it a question of competitiveness that has bogged down Spain in its current morass, but rather the painful process of extracting itself from a real estate bubble that had driven a purely fictional wave of growth.

The IMF is capable of gauging the specific challenges facing all these countries and does not settle for a one-size-fits-all explanation. The one country, however, where the focus on competitiveness is completely justified is France. The scope of the trade deficit offers clear proof of that fact. But as focused on the competitiveness of southern European countries as the markets may be, for now they have completely overlooked France—which, as a Frenchman, only fills me with joy!

I wouldn’t even think of encouraging you to bet against British debt. But do you find it reassuring that the rating agencies give the United Kingdom a triple-A rating, and that you yourselves, when you buy bonds issued by the UK Exchequer, validate this judgment, treating them practically on par with German Bunds? Yet the UK has a budget deficit bigger than Spain’s, a rate of economic growth every bit as anemic as in the eurozone, excessive household indebtedness, and middling levels of competitiveness.

So what is the reason for this British yield? It springs from the belief that a central bank, free to do as it sees best, will print as much money as is needed. It is not, therefore, the economic statistics of the United Kingdom that justify the confidence of the markets, but their faith in the ability of the Bank of England to create money. That is to say, the complete opposite of everything the very same markets believed for decades. It wasn’t all that long ago that the markets punished any country that simply printed money to finance itself. Is it verging on insolence to suggest that you apply different standards for different monetary zones?

The same thing that is true of England is true of your own country. I have no interest, as a European, in seeing you undermine the dollar and US Treasury bills: we would be the first to be hurt by it. You know perfectly well that in global indebtedness—whether of states, businesses, or individuals—the dollar zone is more than twice as indebted as the eurozone. But the factors that, just a few years ago, seemed like the natural cause of the weakness of your currency have by now vanished from the radar screens. To hear you tell it, there is no longer any relation between the strength of a currency, the overall level of indebtedness, and interest rates.

Far be it from me to suggest that we create a hierarchy of causes. Practically all causes can be said to be true and false at the same time, because economics is simply not an exact science. But the sheer brutality with which you swerve from one to the other, at the risk of forgetting that you once worshiped the idols you are now burning, should at least lead you to entertain some modicum of doubt about your methodologies. Convinced as I am of the permanence of the euro, I believe that one day you’ll swing back in favor of it with just as much certainty as you are now devoting to the idea that it is doomed to disappear.

The chief reason for your change of heart will have nothing to do with economics, or the testing of one theory against another. It will have more to do with the fact that you have suddenly understood that the Europeans cannot, will not, and would not even know how to throw their collective structure into reverse, that is, how to dismantle their single currency.

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