Charles Wyplosz is Professor of International Economics at the Graduate Institute of International and Development Studies (Graduate Institute) in Geneva, and Director of the International Center for Monetary and Banking Studies.
His main research areas are financial crises, European monetary integration, monetary and fiscal policies as well as regional monetary integration. He frequently acts as an expert in international organizations.
Contrast is something humiliating. The recovery is here in the United States and Great Britain, where unemployment has begun its downward trend, although it still has its ups and downs. In France, we know what happened to the famous curve unemployment1. If she comes back, growth is likely to be too sluggish to improve the situation, including employment.
Three countries, three different cases, but some conclusions emerge. First, the United States and Great Britain, the recovery is fueled by the development of credit, which stagnated in France. French banks will tell you that their customers are not seeking credit. But it happened some interesting things in the United States and Great Britain. First, banks have been seriously cleaned after the financial crisis. In the United States, they were forced to recapitalize and liquidating the toxic products they held, which hurts shareholders. Same thing in Britain where banks too ill to attract investors were partially nationalized. In the euro area, five years after the financial crisis, discussions continue on how to clean up the banks. Meanwhile, banks have chosen to reduce their loans rather than to increase their capital, not angry shareholders. Thus, the Anglo-Saxon capitalist paradise, shareholders pay the piper, while in France, it protects them.
The European Central Bank (ECB) has also created considerable amounts of money, but in a strictly defensive aims to alleviate panic towards public debt.
Second, the United States and Great Britain, central banks have pursued a policy of quantitative easing. This is to drink the financial markets with liquidity in unprecedented proportions. The European Central Bank (ECB) has also created considerable amounts of money, but in a strictly defensive aims to alleviate panic towards public debt. In other words, the Federal Reserve and the Bank of England have activated every conceivable knobs – and they have not lacked imagination – monetary policy to restart the credit. The ECB, she was confined to limit the damage.
In addition, central banks have taken steps to encourage bank lending. The Bank of England, for example, has offered loans to banks at low rates and long-term function of the increase in lending. In the euro area, the ECB has provided long-term loans but without linking their allocation to loans.
Finally, there was no sovereign debt crisis in the United States and Britain, even if the debts are increased at least as fast as in most countries of the Euro zone. In some cases, Greece and Portugal, the starting point before the crisis was very high, but not in Ireland and Spain. The explanation is simple. Nobody doubts that neither the Federal Reserve nor the Bank of England will leave their respective governments face a risk of default. The ECB, it has left doubt soar. Although she finally announced that she would do whatever it takes to reduce the rates at which governments borrow crisis countries, it has never undertaken to ensure, even implicitly, all public debt.
In Britain, since coming to power in 2010, the Cameron government has imposed especially harsh austerity, which is still ongoing.
The family portrait would be incomplete if we do not address the sore subject, austerity policies. In the United States, fiscal policy was initially very expansionary, which almost explosion of the federal debt. Then the Tea Party has taken fiscal policy hostage and blocked any increase in spending, demanding tax cuts. The result was a deadlock institutions and moderately restrictive fiscal policy. In Britain, since coming to power in 2010, the Cameron government has imposed especially sévère2 austerity, which still continues. But he chose to reduce spending without increasing the tax burden, while in France it does the opposite, it was heavily increased taxes and spending continued to increase. Austerity the French had effects that could include: anxiety taxpayers, both businesses and individuals, and limited progress in deficit (2.5% of GDP against 5% of GDP in Great Britain).
The sad state, past, present and future of the French economy owes nothing to bad luck. Heavy mistakes were made. By the ECB, first. Despite some recent progress, it remains below its means of action because it believes that it should respect the differing views of its members. As for the policy of austerity, it is not imposed by Brussels, it is freely accepted, sovereignty requires. It is the same choice of tax increases. Certainly, France can not and must not be isolated from its European partners. What it lacks, since the beginning of the crisis, this is a solid alternative strategy. She would do well to emulate what is done in the United States and Great Britain. It works.