Eurozone Watch

As Eurozone Watch has written before, the two currently leading candidates for the French Presidency, Nicolas  Sarkozy (UMP) and Ségolène Royal (PS), have repeatedly attacked the European Central Bank. They have criticised the euro as being too strong, they have promised to install political control over the to date independent Central Bank. The only moderate voice on this issue in the current Presidential election battle is Francois Bayrou. The good news is that he is gaining grounds in the polls – despite reasonable ideas on EMU governance which are seemingly judged as highly unpopular by his political opponents.  

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Hardly any concept has caused as much dispute in the German economic debate over the past years as the idea of the “Bazaar economy”, the claim of Hans-Werner Sinn that the German export performance is sign for economic weakness. According to Sinn, the raising German share in world exports is a pathological problem stemming from the fact that companies are increasingly using cheap intermediary inputs for their export goods while the domestic share of value added is shrinking. The fault lines run across the political spectrum, with critics from the left (the union-financed think-tank IMK) up to the right (the employer-financed think tank Institut der deutschen Wirtschaft) questioning this analysis while TV talkshows and politicians have readily picked up on the idea.

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German economic data continues to surprise most economists on the upside: Not only grew the German economy with a speed of annualized 3.5 percent in the fourth quarter of 2006, the statistics office has also revised up earlier estimates for the first three quarters of this year, putting growth for the whole year at 2.9 percent in calendar-adjusted terms (pretty much as Eurozone Watch had predicted in December).

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With the French presidential election campaign heating up, we get more and more of an idea what the leading candidates actually stand for. From an EMU point of view, especially a recently voiced idea by the conservatives’ candidate Nicolas Sarkozy is quite interesting: “Le TVA social” – a “social” value added tax. (In fact, Sarkozy had referred to this idea already in 2004, when he was Minister of Finance, but has come back to that proposal a couple of weeks ago.) This term refers to a plan according to which the VAT will be increased and the revenue be used to lower the employers’ contributions to the social security system, effectively lowering payroll taxes.

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