18.10.2012
Economic crisis: Awarded for services rendered
The EU has been given the Nobel Prize, but quite clearly the whole project is in danger of falling apart, writes Eddie Ford
Quite Kafkaesquely, last week the European Union bureaucracy was awarded the Nobel Peace Prize for its “advancement of peace and reconciliation, democracy and human rights”. In fact, according to the prize committee’s citation, the European Union represents the realisation of the “fraternity of nations” and its disappearance would see an ominous return to “extremism and nationalism”. Obviously no stranger to hyperbole, Herman Van Rompuy, the president of the European Council, rapturously described the EU as the “biggest peacemaking institution ever created in human history”. You see, the prize proves it. Just look at my halo.
However, the EU’s uniquely peaceful and humanitarian mission came as news to the working class, hammered by wave after wave of austerity. An assault spearheaded by the EC, International Monetary Fund and European Central Bank troika - the dreaded men in black and their cruel demands. Putting the record straight, Panos Skourletis - a spokesperson for Syriza, the Greek Coalition of the Radical Left - explained that what we are experiencing in many parts of Europe “really is a war situation on a daily basis, albeit a war that has not been formally declared”. Greece to date having suffered most from the austerity blitzkrieg. There is, he added, “nothing peaceful about it”.
Of course, the Nobel Peace Prize is an imperialist award system for services rendered. A congratulatory pat on the back for those who have either consistently and loyally served the interests of the core imperialist states or, probably far more importantly, betrayed their former revolutionary politics (and often comrades) and hence have acted to shore up or stabilise the imperialist system. So it is extremely unlikely that Van Rompuy will hand over the prize to comrade Skourletis just yet.
But even by the normal hypocritical, and sometimes surreal, standards of the five-member Norwegian committee the decision was an extremely odd one in some respects. Unlike people such as Yasser Arafat, Shimon Peres, Yitzhak Rabin - or, for that matter, Mikhail Gorbachev, Kofi Anan, Aung San Suu Kyi, Jimmy Carter, etc - the Eurocrats almost seem hell-bent on destabilising the imperialist system with their plainly suicidal austerity politics and irrational voodoo economics. Far from being a collective bulwark against “extremism and nationalism”, the Brussels bureaucrats - to coin a phrase - are contributing to the potential nationalist break-up of Europe. Catalonia is threatening separation from Spain and Flemish nationalists scored sweeping gains in Belgian local elections on October 14. Scotland too, though currently not part of the euro zone, could possibly split from the UK in the 2014 referendum, as the economic strain starts to become too much for the centre to bear.
Doubtlessly as part of their noble struggle for “peace and reconciliation”, the euro zone leaders - if you excuse the term - have presided over record levels of unemployment, with nearly 18.2 million people out of work. Meaning that the jobless rate across the euro zone now stands at 11.4%, up from the previous 11.3% in July. In the EU as a whole, the figure is 10.5%, with 25.47 million out of work. Now a depressingly common trait, youth unemployment is particularly bleak, with 22.8% of young people jobless in the euro zone and 22.7% in the wider EU. As we all know - though occasionally some might want to stick their head back under the duvet - youth unemployment in Greece and Spain has reached catastrophic proportions: 55.4% in the former and 53% in the latter.
Further adding to the misery, euro zone manufacturing put in its worst performance in the three months to September - with factories hit by falling demand despite frantically cutting prices. The PMI Markit index came in at 46.1, which means the zone has been shrinking for nearly a year - hence, as the report says, it “seems inevitable that the region will have fallen back into a new recession in the third quarter”. Perhaps even more disturbingly, France’s industrial sector had an extremely bleak September, shrinking at its fastest pace in three and a half years - its PMI index falling to just 42.7 in September, down from 46.0 in August. And a sub-index of new orders slumped to a miserable 39.6.
Nor is Germany, the supposedly mighty economic powerhouse, invulnerable to recession - its services sector contracted quite sharply last month and the Munich-based Ifo Institute’s monthly index of business sentiment (among some 7,000 firms) slid to its lowest level for three and a half years: it fell to 101.4 in September from 102.3 in August, defying general expectations of a slight rise. Also, the ‘expectations index’ dipped to 93.2 from a previous 94.2, well short of a previous forecast of 95.0. In its monthly report, the Bundesbank stated that the domestic economy was “robust” - though as a caveat it noted that there were signs of “weaker dynamics” and “great uncertainty”.
Foreign trade could be hit “more strongly than before” by developments in the euro area, the central bank added, pointing to the labour market - where the rise in employment is slowing, as companies become less willing to hire and invest. Hence unemployment increased for a fifth straight month in August, coming to a seasonally adjusted 2.9 million (the rate remains unchanged at 6.8%). Overall, German economic growth slowed to 0.3% in the second quarter from 0.5% in the first. On October 17 the German government lowered its forecast for economic growth in 2013 to 1% of GDP from the previous 1.6%.
There was more grim news on October 16. European car sales, inevitably, took a tumble, as the recession bites deep into the pockets of consumers. Sales of new cars across the EU were down 10.8% compared to September 2011, with around 100,000 fewer vehicles being bought. This represents the 12th consecutive monthly drop and the biggest fall in almost two years. Some big-name manufacturers suffered an especially bad month, like Renault - whose sales plunged 32% year on year. Renault, of course, is already locked in a battle with unions over a plan to cut thousands of jobs. Meanwhile, Volkswagen’s sales fell 13.8%, Ford lost 15%, and Opel were down 16%. The data, from the European Automobile Manufacturers Association, also shows how economic demand is massively slumping in Spain - sales down 37%, a quite staggering statistic. Italy is down 26%, France 18% and Germany 11%.
As the Weekly Worker predicted right from the beginning of the economic crisis (not that you had to be a genius to work it out), the austerity medicine dished out by the EU leaders could only have the effect of slowly killing the patient - contraction, recession, slump.
U-turn?
But maybe the IMF - or at least its managing director, Christine Lagarde - has had a sudden change of heart. After banking regulators sternly told her that some parts of the financial system were as unsafe as before the 2008 collapse of Lehman Brothers - not exactly the sort of news you want to hear - she declared on October 11 at the IMF’s annual conference in Tokyo that policymakers needed to take “immediate action” to resolve the crisis, which is prolonging “terrifying and unacceptable” levels of unemployment.
Lagarde went on to say that the “economic weakness” was not just a result of “tail risks” such as a euro zone break-up, but the “degree of uncertainty” in many corners of the world - whether it is Europe or America. This is deterring investors from investing and creating jobs: therefore action is needed to “lift the veil of uncertainty”. Stating the obvious, which sometimes has to be done, she said the most urgent action was needed in Europe - the “epicentre” of the global crisis. However, she added that fiscal risks are “becoming more threatening” in the United States, where the scheduled tax reductions and automatic spending cuts in January - the looming ‘fiscal cliff’ - threatens to “squeeze” the world’s largest economy and “further erode” global growth. Action should be focused on four key areas: completing “stalled” financial sector reforms, establishing “credible medium-term strategies” to deal with government debts, supporting “job-rich growth” to combat unemployment and facing up to the “fundamental issues of global imbalances”.
She also reiterated the apparent softening of the IMF’s position on austerity, saying that governments should no longer single-mindedly pursue “specific debt reduction targets”, but instead focus on general reform of the their economies. If public borrowing rises as a direct result of growth-stimulating measures, she argued that it should be “tolerated” rather than addressed with even more tax rises or further spending cuts - a vicious cycle that now grips Europe. “We don’t think it’s sensible to stick to nominal targets,” Lagarde commented - rather, “it’s much more sensible to apply measures” and “let the stabilisers operate”.
More controversially, even heretically - at least as far as some neoliberal shock-troopers are concerned - the IMF admitted in its world economic outlook report that officials had “underestimated” the effects of austerity measures on economic growth. So it found that for every £1 of spending cuts, the economy shrank by at least £1.30, compared with the previous estimate of 50p - it had got the ‘fiscal multiplier’ wrong. Or screwed up its sums, to put it bluntly. In a nutshell, the fiscal multiplier (Keynesian multiplier, if you prefer) essentially argues that for every adjustment in government spending there is a corresponding change in consumption and national output. The IMF and other fiscal agencies have previously suggested - even though it was an obvious nonsense - that the multiplier effect is relatively low, say between 0.5 to 0.7. Which, practically speaking, if you believe the theory, means that a cut in government spending will generate a much smaller fall in ‘real’ GDP - all other things being equal. That is, private investment and consumption will rise like magic to more than compensate for the original reduction - hey presto, growth. Therefore governments - consciences salved, thanks to this economic ‘theory’ - can happily get on with axing public spending and raising taxes to reduce the budget deficits and get public debt levels down. No long-term damage will be done: quite the opposite - or so it was claimed.
But, of course, we do not live in the fiscal nirvana envisaged or imagined by the IMF and others. Under really-existing capitalism all things are not equal - not even close, as the IMF’s own economic data for 28 countries from 2009 to 2012 more than convincingly shows. Ugly reality is beginning to intrude. The fiscal multiplier, needless to say, turned out to be much higher - something between 0.9 and 1.7. Austerity and ‘fiscal consolidation’, even under its own twisted terms, is not working. Indeed, unsurprisingly, it is making things far worse - calamitously worse.
Time is running out, in other words - but do not panic. In the conclusion to her Tokyo speech, Lagarde urged struggling countries to put a “brake” on austerity, given the economic death spiral we are witnessing in southern Europe. “It is sometimes better to have a bit more time,” she remarked - claiming “this is what we advocated for Portugal, this is what we advocated for Spain and this is what we are advocating for Greece”. Though, naturally, Lagarde insisted that she backed the stance adopted by the IMF’s chief economist, Olivier Blanchard - maintaining the line that it was necessary to “pursue” government spending cuts or risk a “backlash” from international money markets and a subsequent rise in borrowing costs. Unfortunately, quite how you “pursue” spending cuts whilst putting a “brake” on them at the same time was left unexplained.
The IMF’s global financial stability report also contained other warnings, primarily on the dangers of capital flight. Unless EU leaders do something serious soon, European banks’ balance sheets will relentlessly contract - further damaging growth and pushing unemployment beyond its already record highs. The report starkly outlined how capital flight from the euro zone’s periphery to its core, driven by fears of a break-up of the currency union, had sparked “extreme fragmentation” of the euro area’s funding markets - which in turn was causing renewed pressure for banks to shrink their balance sheets, particularly those in countries with profound fiscal woes. Delays in resolving the crisis meant that, unless euro zone officials beefed up their policy response, European banks would simply dump $2.8 trillion worth of assets - more than 7% of their balance sheets - by the end of next year. Banks in the periphery would shed just short of 10% of their assets.
Businesses would suffer, the report noted, as bond markets proved unable to plug the gap left by banks. The expected amount of bank deleveraging is now higher than forecast in April because of “lower expected earnings”, higher losses linked to “worsening economic conditions” and “greater funding pressures” on banks. These estimates, of course, are based on assumptions about the behaviour of the region’s 58 largest banks. The IMF report acknowledged that the ECB’s pledge to buy unlimited amounts of government debt if countries agreed to ‘reform programmes’ had lowered sovereign bond yields, but said it was “too early to tell” whether the scheme would relieve deleveraging pressures.
The additional measures that the IMF recommended included the ability for policymakers to inject capital directly into banks via the European Financial Stability Facility/European Stability Mechanism bailout funds. Echoing Lagarde’s concerns, the report strongly advised euro zone officials to “speed up” their response to the crisis. Similarly, Mario Draghi, ECB president, testifying at the European parliament on October 9, said capital flight and the financial fragmentation of the euro zone underscored the need for pressing structural reforms - “You can’t have a union when you have certain countries that are permanent creditors and a set of countries that are permanent debtors.” Draghi was adamant that the ECB’s bond-buying plan, ‘outright monetary transactions’ (OMT), was designed to tackle and “overcome” the growing disparity in market interest rates paid by companies in countries such as Spain, compared with those in Germany. OMT will come to the rescue of the euro zone - just be patient. Very patient.
Olli Rehn, European commissioner for economic and monetary affairs and the euro, also tried to strike an upbeat note at the 10th Asia-Europe finance ministers’ meeting that took place in Bangkok on October 15. He reassured his audience that the ECB had “shown willingness to take unconventional measures to avert a banking crisis”, and will do so again if necessary. There is “no likelihood” of any country leaving the euro zone - perish the very idea - and the “key message” he conveyed to the anxious ministers was that there is “cause for prudent optimism”. As for the increasingly central question of Spain - too big to fail, because if it did Italy with absolute certainty would go crashing down with it - Rehn said Madrid was “open to considering a bailout request”.
Rehen did confess though that certain “key issues”, principally the tortuous and cruel negotiations over the next tranche of Greek bailout money - essential if the Antonis Samaras-led coalition government is to avoid imminent bankruptcy - would have to wait until “mid-November” (presumably a reference to the November 12 meeting of euro zone finance ministers) to be sorted out properly. Some incurable optimists even hold out hope that the Spanish government will formally request a bailout before the October 18 EU summit, thus triggering the ECB’s bond-buying programme and considerably cheering up the still jittery markets.
Virtual bailout
For the time being anyway, Spain has replaced Greece, Ireland and Portugal as the main centre of attention in the unfolding drama of the euro crisis. The country’s borrowing costs have reached levels deemed unsustainable in the long run, raising the prospect of a second aid programme for Madrid following the €100 billion lifeline it obtained for its banks in June - which helped to push downwards the yields (interest rates) on its government bonds.
Spain, in theory, has enough money to survive a ‘redemption peak’ due at the end of October, when it has to pay back €29.5 billion worth of debt. But eventually it needs as a matter of survival to borrow at lower and more sustainable rates than the level it has been paying over the recent period - ie, about 5.8%-6% for 10-year government paper trades. A Spanish government official bullishly said last week that the treasury was “fully funded” until the end of the year - “we could even stop issuing debt,” he rather fantastically claimed. But January looks challenging, with Spain’s deficit targets more than likely to be missed, additional funding needs created by dramatically falling tax revenues and increased support to the indebted regions - not to mention a refinancing hump of €19 billion in that month. The situation will not get better through the year, as things stand now, with Spain’s gross debt needs reaching some €207 billion in 2013, compared to €186 billion the year before.
As alluded to above by Olli Rehn, Spain has up to now defied renewed pressure to accept an international bailout from the euro zone, despite the humiliation of having its credit rating cut to near junk status on October 10 by the rating agency, Standard and Poor’s. The latter warned, not without reason, that rising unemployment and harsh austerity measures are likely to “intensify” social unrest and cause further friction between Spain’s central and regional governments - an assessment that we communists find very hard to disagree with. In the words of S&P, the “capacity” of Spain’s political institutions - both domestic and multilateral - to deal with the “severe challenges” posed by the current economic and financial crisis is “declining” and therefore S&P felt compelled to lower Spain’s rating by two notches (to BBB-). Showing that it never rains but it pours, the agency also attached a “negative outlook” to its rating, indicating another possible downgrade in the medium term - especially if Spain’s borrowing costs start to climb again or if debt tops 100% of economic output (or debt payments surpass 10% of general government revenues). So be very careful, Madrid - we’re watching you like a hawk.
However, Spain did get some relief on October 17 when Moody’s surprised many by slightly bucking the trend and deciding not to downgrade Spain to junk status - not that it went for an upgrade either, of course. Pigs never fly in the end, however much you may want them to. On the news, the yield on Spanish 10-year bonds dropped straightaway to 5.54%, the lowest level since April. The agency concluded that Spain and the euro zone as a whole was doing just enough to ensure that Madrid can keep borrowing and financing its debts. Moody’s therefore believes that the government can “maintain capital market access at reasonable rates”, though naturally - just to inject a note of sober reality - the threat of a debt restructuring or default will hang over Spain for years to come: which is to say, the “risk that some form of burden-sharing will be imposed on bondholders is material for those countries that rely entirely or to a very large extent on official-sector funding for an extended period of time”.
Perhaps the real sting in the tail came later on in the day when a senior Moody’s analyst warned that Spain will be cut to junk status if it loses access to the financial markets and accordingly is forced into a full-scale sovereign bailout - a programme “where basically the official sector provides exclusively the funding for all your requirements … in our view is not compatible with an investment grade, and that would apply in all the cases”. In other words, to translate, a so-called ‘precautionary credit line’ from the ESM would be acceptable if that had the beneficial effect of driving down borrowing costs and maintained Spain’s access to the financial markets. If not, then …
Prime minister Mariano Rajoy, for eminently understandable reasons, is desperate to avoid having the loathed men in black from the troika pawing over every government ledger and account book - he is unpopular enough as it is. Or at the very least he wants to give the impression that he is defying the Brussels bureaucrats and defending Spanish national pride. But almost everyone agrees, whether approvingly or in sorrow, that it is surely only a matter of time - definitely ‘when’ and not ‘if’ - before Madrid throws in the towel, gives up bluffing, and finally asks for a bailout of some description. Latest reports in the financial press are that Spain will make its request next month, as part of a “revised” loan programme for Greece and a Cyprus rescue that will form part of one big package to shore up the euro zone’s weaker states.
One possibility is that Madrid is considering asking for a credit line from the ESM but then not using it, relying instead on its borrowing costs dropping, once the ECB has begun aggressively buying its debt. One Spanish official called it a “virtual credit line”. What a cunning ruse. In this ideal scenario, Spain would not even take any money from the ‘precautionary’ credit line offered to it, but merely use it to activate ECB intervention so as to push borrowing costs down. That would allow Spain to continue funding its deficit and debt on the markets, as opposed to resorting to ESM funds - pleasing both S&P and Moody’s into the bargain.
Deluded or not, Spanish officials seem to believe that a bailout request of this nature would spark euphoria in the markets - with Madrid’s stock market shooting up by some 15% the following day, and 1.5% immediately knocked off the country’s borrowing costs. That would bring the yield on 10-years bonds down to a manageable 4% or so and, by some estimates, save Spain €9 billion a year (or almost 1% of GDP). Just as importantly, if not more so, a formal/official Spanish request - and its acceptance by euro zone finance ministers - would signal to the markets that the euro was “irreversible”. Here for ever. So stop betting and speculating on a euro break-up, please.
All this raises the obvious question. If the ‘virtual or ‘precautionary’ credit line is such a win-win scenario, guaranteed to usher in the golden dawn of Spanish solvency, how come Madrid has not already gone for it like a bull at the gate? We should be reading about it right now on the front pages of every newspaper. Alas, nothing is ever perfect in this life. Spanish officials, like many of us, are haunted by the fear of rejection - that is, a ‘no’ to the request, led by Berlin. This would provoke immediate disaster, they think, with the euro dead in the water by the next morning. RIP. By that same token, however, Germany’s hand could easily be forced if the stakes really are that high. But in this tense game of poker Madrid - as one unnamed government official put it - did not want to take risks with its “atomic bomb” - you can only use it once, after all.
Assault
Meanwhile, the troika continues its relentless assault on the working class - not much sign of the new, compassionate IMF with a human face. Greece still hovers on the brink of bankruptcy and by October 17 negotiations with its international creditors aimed at unlocking the critical €31.5 billion seemed to have broken down yet again.
The breakdown, just one day before the EU summit - never mind, there will be another one along soon - stems from the fragile coalition’s continued failure to endorse further ‘labour reforms’ and wage cuts. Moves that could be the tipping point for near full-on social collapse or mass rebellion by the shell-shocked Greek masses, brought to a state of utter immiseration and despair after more than two years of absolutely savage cuts designed to decimate public provision. A form of economic genocide, in reality. Tensions have been heightened by the overriding sense, doubtless based on reality, that the EC and IMF were putting “unreasonable demands” on the table at the “11th hour”. Total submission required. Full-spectrum troika dominance. What was that about the EU’s “advancement of peace and reconciliation, democracy and human rights”?
Greek officials - and there is no particular reason not to believe them - claimed the ‘new’ conditions were not part of the deal that Athens signed up to as part of its second €130 billion bailout agreement in March. The latest demands, it appears, include drastically reducing severance pay - to such an extent that one insider to the talks said the labour conditions wanted by the EC/IMF were not unlike “those of the middle ages”. Somewhat lamely, Greek finance minister Yiannis Stournaras acknowledged that various “open issues” remained, but the government would make “counter-proposals” over the next few days. More forthrightly, Fotis Kouvelis, leader of the Democratic Left party within the coalition, denounced the troika’s demands for “galloping recession” - they “exceed the endurance of Greek society”. Evangelos Venizelos, the Pasok leader, angrily accused the troika of “playing with fire and endangering Greece and the EU”. Instead of wishing to conclude the marathon negotiations, he bitterly commented, the troika appear set on “deliberately stalling the talks”. What a wonderful thing the fraternity of nations is.
Not for the first time, nor the last, the spectre of ‘Grexit’ is back - howling in your face. To name one, Anders Borg, the Swedish finance minister, wearily declared that it is “most probable” that Greece will be kicked out of the euro over the coming months - but there is no reason to be too alarmed. The financial markets will not be unduly concerned, having already factored in such a contingency a long time ago. As with the Spanish bailout, Grexit at some point seems all but inevitable.
Of course, next-door Cyprus has been swamped by Greece’s toxic debt - exacerbated tenfold by a massive explosion in June last year at a naval base depot on the southern coast. At a stroke the island lost more than 50% of the national grid’s total electricity supply, which fed into - and deepened - the developing economic crisis.
The truth is that Cyprus is only a stone’s throw away from going bust. Its three largest banks may need more than €8 billion in government aid, equivalent to almost half of the country’s total annual economic output, in order to restore their capital buffers to anything like acceptable levels. By next year, the country’s public debt will exceed 140% of GDP. Making the IMF very unhappy. But Cyprus has been locked out of international capital markets for more than a year and is due to run out of cash by December. Going begging to Moscow and Beijing does not appear to have borne much fruit.
According to most of the financial press, the Cypriot government will seek an €11 billion bailout (62% of GDP) to recapitalise the banks and pay its bills. The country’s president, Demetris Christofias, the Moscow-trained ‘official communist’ and former general secretary of Akel (Progressive Party of Working People), has issued a string of defiant statements towards the troika. Naturally, they want to rein in wages, sell off state assets and suchlike - to do to Cyprus what they have done to Greece, as Christofias correctly fears. At the weekend he promised to defend wage indexation and the so-called ‘13th month’ salary bonus, which the troika says must be scrapped - “I’m certainly ready to take to the streets with the workers,” he vowed. We shall see. In all probability he will concede defeat as soon as the pressure is stepped up - how can tiny Cyprus stand up to the troika?
As for Portugal, it is following Greece and perhaps Spain down the path of economic suicide - lemmings of the world, unite. On October 16 the centre-right government coalition government headed by Pedro Passos Coelho unveiled a vicious austerity budget, introducing further cuts as demanded by the troika in return for its €78 billion bailout package. Hence the budget deficit, if things go according to diabolical plan, will be reduced by 4.5% by next year as part of the effort to get it below the EU target of 3% of GDP - at the expense of the workers. There will be a one-off 4% surcharge tax on all workers’ earnings, while capital gains tax will increase from 25% to 28%. Overall, spending cuts worth €2.7 billion will be enacted next year - which will involve laying off 2% of the country’s 600,000 public employees.
This at a time when the country is currently experiencing its worst recession since the 1970s, with the unemployment rate above 15% and predicted to rise to 16.4% next year. The government’s own figures suggest that the economy will shrink by at least 3% this year and by 1% or more next year. More austerity? Pure madness.
The Portuguese Socialist Party branded the budget a “fiscal atomic bomb” - that phrase again - and some 2,000 angry protestors gathered outside parliament, as the budget was announced. In September, the government was forced to abandon its scheme to raise social security contributions in 2013 from 11% to 18% when the protests seriously escalated. Now, a general strike is planned for November 14. Vitor Gaspar, the finance minister, was unrepentant - the government had “no room for manoeuvre”, he said. The troika would not budge, whatever Christine Lagarde might now be saying. The alternative, in the view of Gaspar - like asking for more time to pay - would have led Portugal to a “dictatorship of debt and to failure”.
Then there is France, now suffering under an austerity regime. On September 28, François Hollande unleashed what he himself described as the “harshest budget in 30 years” in an “unprecedented effort” to find €36.9 billion in savings - blink for a minute and you could almost be listening to Nicolas Sarkozy. Hollande and the prime minister, Jean-Marc Ayrault, jointly declared that their “combat” budget seeks to reduce the deficit by around 4.5% of GDP for this year. They hope to raise two-thirds of the savings through extra taxes, split evenly between households and large companies, plus more than €10 billion in public spending cuts. The burden between taxes and spending cuts would be shared 50-50 from 2014, the government said. The stand-out measure was a new 75% tax rate on people earning more than €1 million a year. However, this is expected to hit only 2,000 taxpayers - so does not amount to much more than populist ‘rich-bashing’. A new 45% income tax band is to be introduced for those earning more than €150,000 a year. Some French voters might feel cheated - left and right.
The fear, of course, is that a fiscal shock in 2013 - hardly an impossibility - will tip the economy into a sharp downward slide. Like the other European countries, France needs extra fiscal austerity like it needs a hole in the head. The country has next to no chance of meeting its growth target of 0.8% for next year, but the real danger comes from contagion if things turn really ugly in Spain or elsewhere. At the beginning of October tens of thousands of leftwing demonstrators took to the streets of Paris to denounce the new austerity measures - chanting “Resistance!” Things are really beginning to hot up.