For years, George Osborne cut a rather lonely figure on the European stage. He was portrayed as the only major statesman who advocated austerity. But finally he has some company. Another European leader has burst away from the pack and is promising to freeze all welfare benefits for a year, cut health spending, cut taxes — and to be honest with the people by saying that ‘we cannot live beyond our means’. The Chancellor can derive much pleasure from the fact that his new ally is François Hollande.
Until now, the French president has been the great hope of Keynesians the world over. He revelled in this celebrity. He was out to prove that, with just one more push from the government, the economy could be launched upwards. He promised ‘a new start for Europe’ — indeed, ‘a new hope for the world’. If the world’s eyes were on him, so much the better. ‘I’m sure in a lot of European countries there is relief, hope that at last austerity is no longer inevitable,’ he declared.
Ed Miliband was full of such hope, and rushed to Paris to become the first British politician to meet Hollande at the Elysée Palace. Miliband solemnly announced that the centre-right axis between Cameron and the defeated President Sarkozy had failed. ‘The tide is turning against an austerity approach,’ he said. A Labour spokesman briefed about ‘failed Camerokozy economics’.
Miliband emerged from talks saying he and Hollande had found common cause: ‘We are in agreement in seeking that new way that needs to be found.’ The great experiment was about to begin.
Hollande’s ‘new way’, however, turned out to be the same old profligate way that had caused the debt crisis in the first place. Mr Hollande’s spending succeeded only in stimulating the French national debt. He promised to introduce 75 per cent tax rates, and at the outset his approval rating stood at 63 per cent. But the economy did not move, unemployment surged and his popularity plummeted.
All this had led to a volte-face not seen since François Mitterrand was forced to perform the same manoeuvre 30 years ago. A new orthodoxy is now enlightening M. Hollande’s government. Michel Sapin, his finance minister, is quite frank about the relationship between austerity and growth: ‘One does not go without the other… Without the control of our public spending, there can be no sustainable recovery.’ The new Prime Minister, Manuel Valls, has declared that he owes ‘the French people the truth’. Namely, ‘We must break the train of debt that, progressively and stealthily, is tying our hands.’
And how to break that train? Here is Christian Eckert, secretary of state for the budget: ‘We prefer €50 billion expenditure savings to €50 billion additional taxes.’
George Osborne could not have put it better himself. Indeed, in some regards, the Chancellor is being outdone by the French. A saving in health spending of €10 billion means that M. Hollande can claim to be a more thorough-going reformer than Mr Cameron or his Chancellor, neither of whom have dared to rein in the NHS budget. Valls explains that treating more people out of hospital would deliver savings ‘while improving the quality of healthcare’. Such political leadership on health reform would be a wonderful French import.
And as for Mr Miliband? He does not compare himself to Hollande so much nowadays, having seen that the alternative to austerity is national misery and political obloquy. His shadow chancellor, Ed Balls, is less bullish than he used to be. He now promises ‘iron discipline’ and a review of the effectiveness of public spending down to the last pound. To use Mr Miliband’s metaphor, the tide certainly is turning. But it is turning away from the fantasy economics of the deficit deniers, and towards the colder truths that Cameron’s government was advocating four years ago.
It’s not that M. Hollande has abandoned the doctrine of solidarity. He has just given it a new definition. ‘The state is our common asset,’ declared Valls last month. ‘It has a duty to be efficient and never to waste public money.’ He will tell the people the truth about austerity, he says, because ‘truth will lead to success’. After all, as France knows to its cost, dishonesty leads to disaster.