Tensions overshadow Macron’s White House visit

 

From left, US President Joe Biden, French President Emmanuel Macron, Jill Biden, the US first lady, and Brigitte Macron at a restaurant in Washington. Twitter

Source: Gulf Today
December 1 2022

French President Emmanuel Macron arrived in Washington late on Tuesday for a state visit hosted by President Joe Biden where hard-nosed disagreements about US-EU trade will overshadow the White House pomp and ceremony. Due to Covid delays, this is the first formal state visit of Biden’s presidency and US officials say the choice of France for the honour reflects both deep historical ties and their intense current partnership in confronting Russia over its war in Ukraine.

Macron touched down at Joint Base Andrews, the air force facility used by Biden outside Washington. While in the capital, the French leader will be given a full ceremonial military welcome to the White House, an Oval Office sit down with Biden and a state banquet on Thursday, where Grammy-award winning American musician Jon Batiste will perform.

Compared to Macron’s edgy first experience of a state visit as the guest of Donald Trump in 2018, this trip — concluding with a stop Friday to the once-French city of New Orleans — will be a carefully choreographed display of transatlantic friendship. Certainly the diplomatic furor that erupted last year when Australia canceled a deal for French submarines and instead signed up for US nuclear subs is now buried.

But even with little risk of Trump-style fireworks, Macron has major grievances to air. Top of these is tension over Biden’s signature green industry policy, the Inflation Reduction Act, or IRA, which will pump billions of dollars into climate-friendly technologies, with strong backing for American-made products. Similar effort is being put into microchip manufacturing.

Europeans fear an unfair US advantage in the sectors just as they are reeling from the economic consequences of the Ukraine war and Western attempts to end reliance on Russian energy supplies.

Talk in Europe is now increasingly on whether the bloc should respond with its own subsidies and championing of homegrown products, effectively starting a trade war. “China favours its own products, America favors its own products. It might be time for Europe to favour its own products,” French Finance Minister Bruno Le Maire told France 3 radio on Sunday.

Biden was certainly in no mood to apologize, saying in a speech at a microchip factory in Michigan on Tuesday that the push for a revitalized US-based industrial base is “a game changer.”

Companies began moving jobs overseas rather than moving product overseas,” he said. “We’re not going to be held hostage anymore.”

Another gripe in Europe is the high cost for US liquid natural gas exports — surged to try and replace canceled Russian deliveries. Responding to accusations that the United States is effectively profiteering from the Ukraine war, a senior US administration official said this was a “false claim.”

The official also played down IRA-related tensions, saying a “very constructive set of conversations” is underway on how to prevent European companies from being shut out. To underline the importance of the issue for Paris, Macron met with dozens of business executives ahead of his departure to Washington, urging them to keep investing in France. These included representatives from US giants Goldman Sachs and McDonald’s.

The breadth of Macron’s entourage — including the foreign, defense and finance ministers, as well as business leaders and astronauts — illustrates the importance Paris has put on the visit.

However, at the White House, a senior official said the main goal is to nurture the “personal relationship, the alliance relationship” with France — and between Biden and Macron.

That more modest sounding goal will include improving coordination on helping Ukraine to repel Russia and the even more vexing question of how to manage the rise of the Chinese superpower. “We are not allies on the same page,” one adviser to Macron said forecasting “challenging” talks with Biden.

Despite his strong support for Kyiv, Macron’s insistence on continuing to maintain dialogue with Russian President Vladimir Putin has irked American diplomats. The China question — with Washington pursuing a more hawkish tone and EU powers trying to find a middle ground — is unlikely to see much progress. “Europe has since 2018 its own, unique strategy for relations with China,” tweeted French embassy spokesman Pascal Confavreux in Washington. A senior US official said even if their approaches were “not identical,” they should be at least “speaking from a common script.”

Agence France-Presse

Europe’s Hamiltonian Moment

Source: Project Syndicate

May 21 2020

By Anatole Kaletsky

The proposed sum for the recovery fund proposed by French President Emmanuel Macron and German Chancellor Angela Merkel is small change in an era when politicians and central bankers conjure up trillions almost daily. But, if adopted, the proposal might be remembered as the moment when Europe became a genuine political federation.

LONDON – The new Franco-German proposal for a €500 billion ($547 billion) European recovery fund could turn out to be the most important historic consequence of the coronavirus. It is even conceivable that the deal struck between German Chancellor Angela Merkel and French President Emmanuel Macron might one day be remembered as the European Union’s “Hamiltonian moment,” comparable to the 1790 agreement between Alexander Hamilton and Thomas Jefferson on public borrowing, which helped to turn the United States, a confederation with little central government, into a genuine political federation.

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Admittedly, this sounds hyperbolic. The proposed sum for the recovery fund is small change in an era when politicians and central bankers conjure up trillions almost daily. And what about the gulf between words and action throughout the EU’s history? Skepticism about the Franco-German proposal is certainly understandable and may prove justified.

The plan amounts to only 3% of the EU’s GDP, compared with the 15% of GDP already committed by Germany to industrial support. Creating any EU recovery plan will require unanimous support from the EU’s 27 member countries – and this will involve unseemly late-night squabbles between the self-styled “Frugal Four” northern governments (the Netherlands, Austria, Finland, and Sweden), which have vehemently opposed funding for Mediterranean EU members which, according to Wopke Hoekstra, the Dutch Finance Minister, have mainly themselves to blame for “failing to reform.”

But to focus on these drawbacks is to miss the potential significance of the plan. What makes the Merkel-Macron deal a potential game changer is not the sum of money or their apparent backing for grants over loans; it is the financial mechanism to which both Merkel and Macron are now publicly committed and must now deliver or suffer enormous loss of face.

The Merkel-Macron proposal involves three crucial innovations, which may sound tediously technical but will vastly increase the flexibility of EU fiscal policy and could ultimately transform European politics in a way that really proves comparable to the Hamilton-Jefferson deal.

The key innovation is financing the recovery fund with bonds issued directly by the EU in its own name and guaranteed by its own revenues, instead of using funds raised by national governments, whether acting together or separately. Merkel presumably insisted on this mechanism to avoid the vexations of jointly guaranteed “Eurobonds,” which German public opinion deems politically toxic and possibly unconstitutional, because German taxes could end up paying for Italian or Spanish debts.

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But by relying on the EU, instead of national governments, to issue bonds, the Merkel-Macron plan implies a second, more controversial, innovation, which is clearly necessary to create a fiscal federation, but which European politicians have always tried to avoid.

To guarantee and service hundreds of billions of euros of new borrowing on its own account, the EU will require more tax revenue than it now receives. Merkel and Macron have therefore proposed increasing the European Commission’s budget from 1.2% to 2% of EU gross national income, yielding about €180 billion per year in extra revenue.

To raise this amount, the EU will need to levy new taxes on its own account, in addition to the customs duties and small share of national VAT revenues which already flow automatically to Brussels. The exact nature of the EU’s new taxes will presumably be the subject of fierce debate and fiercer lobbying.

But a broad consensus seems to be emerging that pan-European taxes should be based on economic activities that transcend national boundaries, such as carbon dioxide emissions, financial transactions, and digital transactions. Some of this extra tax revenue will flow into recovery projects, but most will be needed for other EU spending, such as the “cohesion funds,” which subsidize the poorer eastern countries (and help to buy off governments that might otherwise block the recovery fund and other EU initiatives and reforms) – and also to replace the United Kingdom’s net contributions of roughly €10 billion per year.

That leads to the third game-changing innovation in the Merkel-Macron plan: permitting the EU to leverage its activities with borrowing, instead of just using the EU budget as a pass-through mechanism from pan-European taxes to current spending. Because of today’s near-zero interest rates for triple-A sovereign borrowers, the leverage potentially available to the EU from a modest amount of extra revenue is enormous.

If the EU issued ten-year bonds, it would probably pay interest of zero or below, potentially allowing almost unlimited borrowing, albeit with sinking funds to redeem the debts at maturity. But even a 50-year bond could probably be issued with a coupon no higher than the 0.5% yield on Austria’s 50-year bond.

Better still, the EU could issue perpetual bonds with no redemption date, similar to the now-retired British and US “consols,” as proposed by the Spanish government and George Soros. This would allow the EU to borrow €500 billion at an interest cost of just €2.5 billion per year.

To put it another way, if the EU borrows €500 billion this year for a European recovery fund, then it could easily borrow another €1 trillion next year for a digital inclusion fund, and then maybe €2 trillion for a vehicle electrification fund or €3 trillion for a comprehensive climate-change fund. Such simple calculations show why European economic and political conditions could be completely transformed by the Merkel-Macron plan’s financial innovations.

There are big obstacles in achieving the unanimity the plan requires. The Frugal Four will vehemently object to offering grants, rather than loans, to the bloc’s Mediterranean members. But it is hard to imagine that any of these governments will try to sabotage completely an initiative that equally “frugal” Germans support. Instead, the debate in Europe will probably accept the three technical principles just outlined, but focus instead on two separate controversies: the amount of new EU borrowing and whether EU support should take the form of loans or outright grants.

On these two issues, a compromise acceptable to both sides should not be difficult to forge. The size of the recovery fund could be increased to something near the €1 trillion recommended by the European Commission without imposing any strain on the EU budget. But in exchange, the Frugals could insist on offering 50% of the support through loans instead of grants.

A compromise like this would make the Merkel-Macron plan even stronger. Loans with near-zero interest rates and long maturities are economically almost equivalent to grants. And using loans instead of grants would make EU debt financially more sustainable, thereby maximizing the scope for further borrowing without risking the bloc’s triple-A rating.

The scope for such compromises suggests the EU could readily agree on a powerful recovery plan that preserves all three essential elements of the Merkel-Macron proposal: bonds issued by the EU in its own name; pan-European taxes on cross-border activities; and leverage to benefit from low interest rates. If EU leaders can rise to this challenge, Europe’s “Hamiltonian moment” will finally have arrived.

Franco-German Recovery Fund will not Fix Eurozone

Source: Chatham House

May 21 2020

By Pepijn Bergsen

The proposed fund to aid recovery from the coronavirus is a welcome sign of EU solidarity. But it does not do nearly enough to address the bloc’s underlying weaknesses, and is not a game changer for fiscal integration.

We don’t know yet exactly what Angela Merkel and Emmanuel Macron's proposed temporary fund of €500 billion will be spent on, but it will likely include investment in green infrastructure, research and support for the hardest-hit sectors.

Although the money will flow through the EU budget, it is likely to be spent early in the next budget period from 2021 to 2027. There are different options for dealing with the debt load created by the fund - it could be paid back over a long period, or continuously rolled over. The latter option is preferable given the likely high demand for these safe assets in financial markets.

As described by Merkel, the Franco-German proposal would mean that the debt servicing (the repayment of interest and principal) would be done through funds allocated to the EU through contributions from the member states, based on their share in the regular EU budget.

This would mean Italy would need to contribute around 15 per cent of these new liabilities. As a result, this technically increases the Italian state’s liabilities by around €75 billion, although accounting rules mean this will probably remain off the state’s balance sheet and thus not increase its headline debt to GDP ratio.

For those more in need?

To be net beneficiaries, countries must receive more from the fund than their share of liabilities. Therefore, if the EU spends more than €75 billion of the recovery fund in Italy, the country will be coming out ahead and it would constitute a transfer from those less in need to those more in need.

Given the relative severity of the coronavirus-related disruption, this is likely to be the case. However, given that other large countries, most notably Spain, have also been hit hard, there will be a limit to the upside for Italy. All member states, not just eurozone countries, will need to receive some of this money, with the political bargaining meaning it likely can’t be too far off from their share of the liability.

Assuming that spending from the fund in Italy is just over 50 per cent more than its share of the liabilities, at €115 billion or 6 per cent of Italy’s 2019 GDP it would constitute an increase in spending in Italy of around 2-3 per cent of GDP for the next couple of years. Some of this spending could have happened without the fund. But this would have come with higher debt servicing costs and it is thus safe to call this plan a significant fiscal boost for Italy, and other fiscally weaker economies.

A fiscal boost should not be confused with a revolution. Some have referred to this as a 'Hamiltonian' moment for the eurozone, referring to the American treasury secretary who bartered the compromise that led to the US federal government assuming the debts incurred by the states during the war of independence.

However, the recovery fund would, for now, remain a one-off and European countries will remain liable for their current debt loads, and for the increase in their debt stocks that will result from the coronacrisis anyway. The European Commission forecasts that the Italian debt stock will increase from 135 per cent of GDP last year to 153 per cent at the end of next year.

The size of the fiscal stimulus provided by the fund means it is likely to boost the growth potential for the Italian economy, particularly if accompanied by other reforms, as the plan suggests it should. However, it would require an unrealistically large boost to significantly improve Italian debt dynamics, especially given the disruption from the coronavirus crisis is going to be felt for a long time anyway.

The Italian state will continue to have to aim for large primary surpluses to finance interest expenditures significantly higher than that of its eurozone peers. If you believed that the Italian situation was economically and politically unsustainable over the long term before the crisis, even a larger version of this fund should not change your mind.

The recovery fund could turn out to be a template for future crisis responses and thereby represent a move towards a proper Hamiltonian moment. But as the fund is an EU instrument, instead of a eurozone instrument, this is harder. Furthermore, the next crisis is unlikely to be as symmetrical as the current one, meaning it will be even more difficult to get those member states already opposed to this plan to agree to a repetition or an expansion into something more like a fiscal union.

This does not mean the recovery fund is a bad idea. On the contrary, it should be welcomed as part of the EU’s response to the COVID-19 crisis. Ensuring the southern economies can recover is also in the interest of the fiscally stronger EU member states, who rely on their neighbours to buy many of their exports.

Furthermore, it would be something of a bargain for them, as it should only cost them their share of the interest costs and some of the fund will be spent in their economies. If that is too much to ask in solidarity, the EU has much bigger problems.

A fifth of French think Le Pen would do better job than Macron: poll

Source: Reuters
May 3 2020

PARIS (Reuters) - Only 20% of French people think far-right leader Marine Le Pen would handle the coronavirus crisis better than President Emmanuel Macron, according to an opinion poll for Le Journal du Dimanche newspaper published on Sunday.

Macron’s government has faced criticism for flip-flopping messages on whether, when and where citizens should wear masks, for failing to replenish the stock of masks before the crisis and for carrying out far fewer tests than neighbouring Germany.

Le Pen in particular has relentlessly criticised the government, saying ministers had lied about “absolutely everything”.

But she has so far failed to convince a majority of the public she would do a better job than Macron. Some 41% thought she would do worse, while 39% thought she would do neither better nor worse, according to the Ifop poll.

None of the public figures tested in the poll were thought to be able to do a better job than Macron by a majority of the French.

Twenty percent thought former president Nicolas Sarkozy would handle the crisis better, 15% thought left-wing firebrand Jean-Luc Melenchon would, and only 8% thought former Socialist leader Francois Hollande would do a better job.

Trust in Macron’s government remained low, however, with 39% of the French saying they trusted his government to face the coronavirus crisis efficiently, stable from a week ago but down from 55% in March.

In a sign economic measures were better received, some 47% of French people said they trusted the government to do the right thing for struggling companies, up 1 point from a week ago but down from 57% in March.

The poll was taken after Prime Minister Edouard Philippe unveiled his plan to gradually unwind from May 11 a lockdown imposed since March 17.

Macron says EU needs corona rescue package worth 5-10% of GDP

Source: New Europe

April 26 2020

By Zoi Didili

French President Emmanuel Macron said on Thursday after a videoconference held with EU leaders, that the EU’s rescue package for the Covid-19 crisis should be worth at least 5-10% of EU’s GDP, Reuters reported.

During the virtual meeting, EU’s heads of state and government tasked the European Commission with preparing a recovery plan for the pandemic’s aftermath and endorsed a €540 bn rescue package agreed by Eurogroup on April 9.

Yet, no details were discussed on the size and type of the mechanisms that will channel the funds.

In an interview given to FT earlier this month, Macron had warned over the collapse of the EU as a “political project” unless richer states support the countries worst-hit by the Coronavirus pandemic. To this end, a fund should be set up, that “could issue common debt with a common guarantee” to finance member states according to their needs.

Thierry Breton, the EU Commissioner for Internal Market echoed on Friday Macron’s fears over Eurozone’s collapse, saying that the Coronavirus outbreak could lead the Union to a 5-10% recession.

“As of today, in the European Union, we’re on course for a 5 percent to 10 percent [recession], meaning it’s about 7.5 percent. But that is today, and if things don’t improve and if we have a second peak, things could get worse”, Breton said on France 2 television.

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