Remaking the Hexagon: The New France in the New Europe by Gregory Flynn & Yves Mény

Author:Gregory Flynn & Yves Mény [Flynn, Gregory & Mény, Yves]
Language: eng
Format: epub
Tags: Europe, Western, Political Science, World, France, History, General
ISBN: 9780367301071
Google: iOZnzgEACAAJ
Goodreads: 57864555
Publisher: Routledge
Published: 2021-05-31T00:00:00+00:00

Consequences

Monetary and Fiscal Policy

The cumulative effect on monetarFinancial Times, 16 August 1994y and fiscal policy of the choices made by French governments in the face of the EMS constraint is apparent in time-series data on interest rates and budget deficits. Table 7.5 presents data on both for the period since 1979. The data suggest that real short-term interest rates -- that is, nominal rates minus the rate of inflation -- were positive over the period since 1980. And more important, they increased substantially over that period to unusually high levels, especially during Mitterrand's second term and, within that septennat, especially during 1989-1992. That, of course, was precisely the period when the franc fort became enshrined as policy dogma. The Balladur government's sustained drive to lower nominal rates in 1993 and 1994 did bring real rates back to the range of a decade earlier. Despite that, however, they remained above the levels that existed during the Barre administration and the first years of the Mitterrand presidency.

Table 7.5 also presents data pertaining to the magnitude of the overall public sector budget deficit, relative to G.D.P., and the year-to-year change in that magnitude. The latter provides a measure of the net stimulative (or contractionary, if the relative size of the deficit decreases) effect of fiscal policy. The data indicate, for example, that after having been contractionary in 1979 and 1980, fiscal policy was expansionary in 1981 (with an effect equivalent to 1.9 percent of G.D.P., meaning the deficit increased by that amount) and 1982 (0.9). But after 1982, fiscal policy was generally contractionary or, at most, only mildly expansionary, for the next decade. In particular, during the period between 1983 and 1990, fiscal policy was stimulative, in the aggregate, in only one year -- and then only by the slightest amount. Only in 1992 and 1993, when the deficit increased to almost 6 percent, largely in response to the cyclical downturn, did fiscal policy become as stimulative as it had been in the first years of the Mitterrand presidency.

TABLE 7.5 Interest Rates and Fiscal Policy in France, 1979-1994

Nominal Short-Term Interest Rates (average 3-month interbank rate) "Real" Short-Term Interest Rates (nominal 3-month rate-inflation) Budget Deficit as % ofG.D.P. Net Fiscal Stimulus of Budget

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