Must-Read: Wolfgang Munchau on the Real Francois Hollande Scandal

Wolfgang Munchau: The real scandal is France’s stagnant economic thinking:

If you want to understand the financial crisis and the subsequent recession, Say’s Law is of no help whatsoever…. When you try to solve a shortage of aggregate demand through supply-side policies, the results are not going to be any different in France than they were elsewhere…. Do not romanticise his U-turn two years into his term and compare it with François Mitterrand’s similarly-timed adoption of the “franc fort” policy in 1983. The purpose of the Mitterrand’s decision was to allow France to coexist in a semi-fixed exchange rate regime with West Germany. It was a political choice of macroeconomic adjustment, not one of supply-side voodoo and ideological convergence….

The main consequence of Mr Hollande’s shift is that it will bring France politically closer to Germany and that it will reinforce the eurozone’s current crisis resolution strategy…. The French policy shift will have an immediate impact on the eurozone periphery. If France goes to the trouble of aligning with Germany on German terms, expect no mercy for others. The message of righteousness will be broadcast in stereophonic quality….

The new consensus spans the entire mainstream political spectrum. If you live on the European continent and if you have a problem with Say’s Law, the only political parties that cater to you are the extreme left or the extreme right…. As for Say’s Law, it certainly applies to itself. It is an economic theory that created its own demand from defunct politicians. What it also tells us is that the policy debate within the eurozone is largely concluded. Those who favoured a new governance framework, which once included the French, have lost.