French Government Reluctant to Cut Spending

French prime minister François Fillon in Paris, June 28, 2010
French prime minister François Fillon in Paris, June 28, 2010 (British Embassy)

While French president Nicolas Sarkozy is promoting fiscal consolidation across the European Union, his own government seems reluctant to cut spending. Its latest austerity package is almost entirely composed of tax increases with a mere €1 billion in spending reductions.

Prime Minister François Fillon unveiled €12 billion worth of additional deficit reduction measures last week in an effort to reduce his administration’s €95.7 billion shortfall — from equaling 7.1 percent of gross domestic product to 5.7 percent by the end of the year.

Sarkozy aims for a deficit equaling 3 percent of GDP in 2012, which would comply with the fiscal maximum enshrined in the eurozone’s Stability and Growth Pact, but the current outlooks suggests that the French government will face a 4.6 percent shortfall during election year.

The new deficit reduction package largely consists of revenue increases, including higher consumption tax rates on liquors, tobacco and soft drinks as well tax hikes on high incomes and capital gains.

Fillon has also said to favor ending a tax deduction on capital gains for the sale of second homes — an unpopular measure in a country where many urban middle-class families own vacation retreats in the countryside.

France was among several European nations to hastily announce additional austerity measures this month when markets called into question France’s creditworthiness which is currently rated AAA by all major credit rating agencies. At nearly 84 percent of GDP, France’s public debt is formidable but not much higher than Germany’s at 79 percent.

Germany, however, has boasted solid economic expansion unlike France which had to adjust its growth forecast from 2 to 1.75 percent this year and next — and even those projections are deemed optimistic by independent observers. Nearly one out of ten French workers is unemployed and industrial output contracted by 1.6 percent this summer.

The tax increases that came out of Paris last week are not likely to spur job growth. Instead, they will add to regulatory uncertainly already prevalent in France where the state accounts for more than half of the national economy and continues to dominate entire industries including electricity, postal services and railways. The private labor market is burdened with rigid regulations that exacerbate unemployment and undermine France’s competitiveness within the eurozone.

President Sarkozy made some attempts at deregulating the French economy after he came to power four years ago but in the wake of the 2008 financial crisis, he appeared to abandoned laissez-faire and complained that nothing had “gone to labor” in the preceding decade when bankers supposedly enriched themselves at the expense of the working man.

The rhetoric from the socialist opposition has been all the more vehement. Ségolène Royal, who lost the 2007 presidential election to Sarkozy, suggested last week that stock options and speculation on sovereign debt should be banned. Arnaud Montebourg, a younger presidential hopeful, has called for “deglobalization” and wants to prohibit banks from “speculating” with their clients’ deposits.

Other presidential candidates like Martine Aubry and François Hollande want to bring down the pension age back to sixty after it was raised to 62 by Sarkozy this year. Like a majority of leftists voters, they are opposed to the notion of spending cuts altogether and would rather balance the books with tax hikes alone.

On the other end of the political spectrum, the Front national, which was polling at roughly 17 percent of the vote earlier this year, is similarly critical of “global liberalism” under the leadership of Marine Le Pen. Her protectionist economic policy seems part of an attempt to appeal to blue-collar voters.

The far right could well steal crucial votes from Sarkozy’s centrist conservative party in elections next year, allowing a socialist contender to emerge as the inevitable victor from a runoff against Le Pen.

Iran Sues Russia for Canceled Arms Sale

In an apparent escalation of a dispute over the purchase of an air defense system, Iran filed suit against the Russian Federation with the International Court of Arbitration in Paris, hoping to either force Moscow to sell the military hardware to Tehran after all or pay reparations.

The Russians reneged on an agreement to sell surface to air missile systems to Iran last year after international sanctions prohibited arms sales to Iran. The country is suspected of developing nuclear weapons in violation of its obligations under the 1968 nonproliferation treaty.

Russian president Dmitri Medvedev stopped defense contractor Almaz-Antey from selling the S-300 system in 2010 and banned the sale of virtually all military hardware to the Islamic Republic along with it, implying a shift in Russian policy away from Iran with which it had previously cultivated relations and shared nuclear technology. Read more “Iran Sues Russia for Canceled Arms Sale”

On Jobs, Obama Likely to Disappoint

Barack Obama has promised to make job creation the priority during the remainder of his first term in office but supporters of the president who hope that he might announce bold new initiatives in a speech next week to curb unemployment are likely to be disappointed.

At the very least, the Democrat will probably call on Congress to extend unemployment benefits and a payroll tax cut to sustain consumer spending and invest in infrastructure construction to get people back to work.

Republicans, who control half the legislature, are unlikely to support further government action to stir growth even as members of the president’s party like to see just that. Without bipartisan support, another stimulus cannot be enacted. Read more “On Jobs, Obama Likely to Disappoint”

India Needs a Naval Diplomacy

Five hundred years ago this year, the Portuguese admiral Afonso de Albuquerque captured the Strait of Malacca and established supremacy for his country in the East Indies. Although Portugal couldn’t project power into the Asian hinterland with its limited military resources, it was strong enough to dominate a number of active trading outposts, including Goa in India and Macau in China. From these positions, the Portuguese managed, for a while, to control the European trade with South and East Asia. Today, a great power may aim to do the same.

In Monsoon (2010), Robert Kaplan characterizes the area between the Gulf of Aden in the west and Malacca in the east as the center stage of the twenty-first century. If India is to graduate from being a regional power in South Asia to a great power in the Asia Pacific, it is this pivotal ocean with its vital waterways that it should seek to control — whether directly, through hard power, or indirectly, with a soft power approach. Whatever its choices, India needs a clear naval diplomacy.

India is among few nations with the potential of being a continental and a maritime power simultaneously. Its policymakers have long concentrated on their hinterland where Pakistan loomed since independence as a natural rival. But as India’s economy is growing and its place in the world increasingly secure, it has to revive its maritime focus.

With a distinctive “Look East” policy, India boosted its trade relations with Southeast Asia. Indian naval officers regularly visited Southeast Asian countries as part of its naval diplomacy. Now, it has to extend that aim into the South Pacific if not beyond. Read more “India Needs a Naval Diplomacy”

Turkey Has “Lost Confidence” in Assad: Gül

Turkey’s president lambasted his Syrian counterpart in remarks that were televised on Sunday, saying that Ankara had “lost confidence” in Assad’s ability to lead his country in a period of transition. The public rebuke was the latest in a series of Turkish condemnations of the violence in Syria.

President Bashar al-Assad defies mounting regional and international pressure in his effort to repress a popular uprising that has swept his nation in recent months. After longtime dictators were toppled in Tunisia and Egypt earlier this year, Syrians, too, took to the streets to demand political change but were met by the bullets of the security forces of a regime that appeared determined to quell their dissent. Read more “Turkey Has “Lost Confidence” in Assad: Gül”

Egypt-Israel Relations Cool But Will Endure

Michael Mullen Sami Hafez Enan
American and Egyptian army chiefs Admiral Michael Mullen and Lieutenant General Sami Hafez Enan walk down the stairs of the Ministry of Defense in Cairo, June 8 (DoD/Chad J. McNeeley)

Tension between Egypt and Israel mounted in recent weeks as young revolutionaries in Cairo, apparently freed from a military regime which fostered amicable ties with the Jewish state, demanded retribution when several Egyptian security personnel were killed near the border with Gaza. Relations between the two neighbors have cooled since longtime president Hosni Mubarak was forced to resign this February. A resumption of hostilities after more than thirty years of peace seems highly unlikely though.

The unrest began exactly a week ago when seven Israeli civilians and one soldier were killed in a coordinated terrorist strike against southern Israel. Many more were wounded on a bus in the tourist resort of Eilat. The attackers had presumably tunneled from Gaza to Egypt’s Sinai Peninsula where they set up firing positions. When they fled, Israeli troops pursued them. What happened next varies with the account. In the process of killing the Palestinian militants, an Israeli helicopter or plane killed between three and six Egyptian soldiers or police. And Egyptians did not like that one bit. Read more “Egypt-Israel Relations Cool But Will Endure”

Yemen’s Saleh Wants to Come Back Home

It has been a little over two months since Yemeni president Ali Abdullah Saleh was nearly killed. On June 3, shelling from tribal forces in residential neighborhods of the capital Sana’a hit the presidential palace’s mosque just as he and a number of government allies were praying there. The mortar attack killed a few of Saleh’s elite Republican Guard troops, injured several of the highest officials in his ruling National Congress Party, including the prime minister, and came close to ending Saleh’s own life. His face was burned and shrapnel was lodged close to his heart, enough to have him whisked off to Saudi Arabia for medical treatment. Read more “Yemen’s Saleh Wants to Come Back Home”

Saudi Arabia Forging New Sunni State?

Is Saudi Arabia conniving with the United States to unseat the Assad regime in Syria? The possible smuggling of satellite phones into the country suggests so but the kingdom’s ultimate aim may not necessarily align with American policy in the region — the creation of a new Sunni state between Syria and Iraq.

Iranian intelligence experts in Damascus attempted to disrupt the Syrian opposition’s telephone and Internet connections in recent weeks, making it all the more difficult for news of the uprising to reach the outside world. To help the rebels, Saudi Arabia and the United States reportedly smuggled thousands of satellite phones into Syria. Other than that, there’s little the Americans can do short of military intervention. President Bashar al-Assad may have lost the “legitimacy to lead” but he doesn’t need Washington for anything, rendering sanctions virtually useless. Read more “Saudi Arabia Forging New Sunni State?”

Success in Libya Doesn’t Vindicate Obama

With Libya’s rebels on the verge of ousting longtime dictator Muammar Gaddafi, those who favored President Barack Obama’s apparently lukewarm support for the NATO intervention may seek to vindicate his strategy of “leading from behind” but they would be missing a crucial point — that without a powerful American commitment, Libya’s civil war dragged on for months and exhausted the military capabilities of NATO partners in the process.

When the Libyan regime attempted to crush its version of the Arab Spring with deadly force in February of this year, the Obama Administration was reluctant to endorse calls for a military intervention which emerged from Paris and London. It seemed as though France and the United Kingdom had to drag America kicking and screaming into participating in an intervention. Having disabled Gaddafi’s air defenses and enforced a no-fly zone, the United States subsequently expected their allies to take the lead.

Without the full force of American airpower, Britain, France and other NATO countries managed to prevent further brutalities against civilians but failed to decide the struggle in the rebels’ favor until months after the intervention began. Read more “Success in Libya Doesn’t Vindicate Obama”

Huntsman: “Only Center-Right Candidate”

Former China ambassador Jon Huntsman positioned himself as the only reasonable and center-right candidate in the Republican presidential race this weekend. “Right now, this country is crying out for a sensible middle ground,” Huntsman said. “This is a center-right country. I am a center-right candidate.”

Whereas most Republicans in the nomination contest try to appeal to conservative primary voters, Huntsman, who is more centrist on social issues and a foreign policy realist, is attempting to lure independents with his claim that he is among few electable candidates in the present field.

“President Obama is too far to the left. We’ve got people on the Republican side who are too far to the right. And we have zero substance,” he told ABC’s This Week on Sunday. The president is “out of ideas” on the economy,” according to Huntsman, and most Republicans don’t have any serious ideas. “Every single one of them would have allowed this country to default,” he pointed out, referring to their opposition to a bipartisan agreement that raised the nation’s debt ceiling this month. Huntsman was the only candidate who said he would have signed a bill that extended the federal government’s borrowing authority by more than $2 trillion.

The former Utah governor specifically took aim at fellow presidential contenders Rick Perry and Michele Bachmann for statements they made about gas prices and global warming. He warned that their “extreme” positions might make them “unelectable” in a race against Barack Obama in 2012.

“The minute that the Republican Party becomes the anti-science party, we have a huge problem,” Huntsman told ABC’s This Week before pointing out that he agreed with the vast majority of scientists who believe that human activity contributes to climate change. Should the Republican presidential candidate contest that view, “I think we find ourselves on the wrong side of science,” he added, “and therefore, in a losing position.”

Governor Rick Perry of Texas described global warming as “a scientific theory that has not been proven” in New Hampshire last week. He suggested that scientists had “manipulated data” in order to extract funding for their research.

Huntsman also questioned Michele Bachmann’s claim that she could reduce gas prices to below $2 a gallon, a level not seen since early 2009. “I just don’t know what world that comment would come from,” Huntsman said, calling the claim “completely unrealistic.” Gasoline prices “just aren’t going to rebound like that.” He left the door open to running as Bachmann’s vice presidential candidate though. “If you love this country, you serve this country,” he told CNN’s Piers Morgan Tonight on Monday.

Jon Huntsman probably appeals to the same primary voters that Mitt Romney hopes to win. Both are business conservatives, not culture warriors, but Huntsman touted his record as a pro-growth governor of Utah whereas Massachusetts lacked behind many other states during Romney’s tenure there. “When it comes to coming up against Barack Obama in an election cycle that is going to be 100 percent about expanding the economy and creating jobs, being 47th as job creator ain’t gonna cut it.”

Asked what he would do to boost growth, Huntsman cited tax reform and ending the Obama Administration’s regulation spree. While phasing out loopholes and deductions, Huntsman said he could lower America’s corporate tax rate which is the highest among industrialized nations. “Number two, we’ve got to get the regulatory money off our back,” he told ABC.

People aren’t putting money into the marketplace. They’re not hiring because there’s so much uncertainty and confusion about where this economy is going.

As governor, Huntsman cut the state income tax to help fuel business investment which, by 2007, had brought Utah’s jobless rate down to an unprecedented 2.3 percent. The resulting surge in revenue allowed the state to avoid painful spending cuts but make investments instead which boosted Huntsman’s approval rating above 90 percent.

President Obama likes to talk about investing in education and infrastructure as well to “win the future” but according to Huntsman, he has “failed” in his most important job which was to “fix the economy.”

Apparently out of sync with the Tea Party populism of his party, Huntsman’s sensible rhetoric and calm demeanor might appeal to independent and moderate voters who are not enthused by Mitt Romney. That is why his campaign has chosen not to compete in Iowa but focus on the early primary state of New Hampshire instead. “In New Hampshire, they pick presidents,” he said on This Week. “I know they pick something else in Iowa.”

Huntsman also hopes to perform well in Nevada and Florida which will be next in line with their primaries. If he performs credibly but doesn’t manage to win in any of the early nominating contests, he will at least have enhanced his reputation and positioned himself for a run in 2016.