France, Greece Elections Referendum on Austerity Economics

Over the weekend, several countries in Europe held elections and the changes were wide-spreading. But it was in France and Greece where the largest impacts of Europe’s economic crisis could be felt.


In Greece, voters made apparent their displeasure with the country’s handling of their debt crisis, specifically the eurozone deal signed by the former Parliamentary leaders which has led to strict austerity measures increasing the countries economic issues with rising unemployment (now at 21%) and thousands of small businesses shuttering their doors. New Democracy and PASOK, the country’s political powerhouses over the last 40 years, suffered immense losses, receiving only 33% of the total vote – less than half of the vote total they received during the last elections in 2009. The two parties will hold 150 seats in Parliament, not enough to form a coalition government. Rejecting the policies of Greece’s ruling elite, voters instead turned to other political factions, notably the Syriza party, which came in second behind New Democracy’s 19% with 16.6% of the vote. The broad consensus of voters want Greece to remain in the Eurozone, but reject the notion of austerity as the most pressing option for handling the debt crisis. Antonis Samaras, the New Democracy party leader said the newly formed government should have two exclusive aims: first, to stay in the euro; second, to “amend the terms of the loan agreements so there is economic growth and relief for Greek society.”

Renegotiating the terms of the euro bailout likely just became much easier for Parliament in Greece with France’s Nicolas Sarkozy losing to socialist challenger Francois Hollande. Sarkozy and Angela Merkel, Germany’s Chancellor, were the most vocal proponents of the austerity measures taking hold throughout much of Europe, arguing for strict budget cuts to reduce deficits, which would in turn restore “confidence” to the markets and that would spur growth. However, that has yet to happen and most countries that adopted austerity have now dipped back into a recession, as we pointed out in this column last week. Austerity has failed in Europe, and voters saw Sarkozy as having failed to restore the country to its pre-recession levels. Now, with Hollande as President, France can be assured to take a more proactive role in the budget cuts imposed by the Merkel-Sarkozy European treaty, opting instead for increased spending and more government stimulus to return the french, and Europeans in general back to work.

And how does this affect the United States? The implications are varied. Are most Americans aware of the failure of austerity economics in Europe, and thus reject the calls of many conservative politicians to cut spending? Will Americans view the rise of a “socialist” leader in France as threatening and thus reject any idea of ‘wealth redistribution’? (There has been plenty of ‘wealth redistribution’ in the country over the last 3 1/2 decades from the poor and middle classes to the top, but not many see this as such a bad thing; it’s only when it works the other way do some cry foul.) Is the impatience of the Greeks and the French indicative of the impatience of Americans, that no matter who is in office, if they failed to fix things quick enough, the voters are looking for someone different? Will the changing governments in Greece and France be able to enact any palpable, substantive change in the next 6 months prior to our own election to act as a marker? It’s hard to say. All we know right now is Europeans were unhappy and they sent a clear message to their own governments and the other governments around them: it’s high time someone was held accountable.

Lots of Tax Talk

Sarkozy Tackles Wall Street Tax - On Monday, French President Nicolas Sarkozy took a large step towards implementing a financial transactions tax, a tax largely supported by many world leaders, and publicly backed by German Chancellor Angela Merkel.  Sarkozy, a conservative up for re-election, has been pushing for the tax for some time, but the tax has not received the backing of all the European Union, most notably UK Prime Minister David Cameron, who does disagree with the measure, but would veto the bill in the UK unless the tax is implemented worldwide. Now, feeling the pressure of his campaign and what looks like an attempt to take a more populist stance prior to the election, Sarkozy is saying that even without the full consent of the EU, France is willing to go it alone.

Citing deregulation of the financial markets and rampant, unhindered speculation as some primary causes of the global economic downturn, Sarkozy is arguing that traders “repay” their country for the damage that was done. Sarkozy says there is an inherent “moral issue” with the tax, a levy on financial trading transactions that he claims will generate billions of dollars for France, as well as many other countries still reeling from the global recession, and effectively cut down on the sheer number of trades, which many analysts cite as endemic to the market insecurities and directly caused the May 2010 “flash crash” on Wall Street. The EU finance ministers are set to discuss how effect the tax could be at a summit in March, however, Sarkozy’s administration is planning to introduce a bill as early as February. The US opposes taxes on financial transactions between banks, despite wide public support for them.

Obama Strengthens Jobs Agenda - Speaking of taxes and morality, stateside, President Obama met with business leaders yesterday in the White House to discuss the “moral” case for American companies to keep, or bring jobs back to American workers. “So my message to business leaders today is simple: ask yourselves what you can do to bring jobs back to the country that made our success possible,” in a statement that seemed to paraphrase just slightly JFK’s “Ask Not…” speech. The President is proposing $12 million in his 2013 budget as incentives to companies who invest in America from overseas. For companies that don’t, the President wants to end tax breaks and cut off the corporate welfare so many businesses receive from the federal government. With the economy as the number one issue on voters’ minds as the 2012 election gears up, President Obama is looking to show the public that he is still very much focused on jobs and the economy right now.

Warren Buffett Challenges Congress - And Warren Buffett is talking taxes again as tax season looms. Last August, Mr. Buffett wrote in an op-ed to the New York Times lampooning the disproportionate tax structure in the US. Buffett, with a net worth of $45 billion, says he effectively pays a lower tax rate than his secretary. In response, Senate minority leader Mitch McConnell (R-KY) quipped that if Buffett were feeling “guilty,” he should “send in a check” to the IRS. There was even a “Buffett Rule Act” introduced in the Senate to add a line on tax forms for the rich to donate extra in order to pay down the national debt. Buffett’s response: he’s offering a 1-to-1 match on all voluntary contributions from Congress (3-to-1 for Sen. McConnell’s case). In TIME magazine’s cover story this week, Mr. Buffett waxes benevolent, “It restores my faith in human nature to think that there are people who have been around Washington all this time and are not yet so cynical as to think that [the deficit] can’t be solved by voluntary contributions.” You can read the full article and more about Buffett’s wager in this week’s issue of TIME on newsstands Friday.