17 November, 2019

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What Is Happening In France? A Lesson To Learn!

By Hema Senanayake

Hema Senanayake

In brief, France will begin to deflate debt in general through wage-increased bound “subsequent” moderate inflation beginning next year. Economically, this can be defined as a different kind of reflation, because previously known reflations have not been done through wage increases. During periods of economic difficulties like decreasing growth or recessions, wage increases were considered as negative, thinking such actions would discourage entrepreneurs and would slash jobs. That ideology is not true. However, since this reflation is happening by accident as a response to widespread riots, this can be more accurately defined as “accidental reflation.” Whatever the case, such processes deflate systemic debt in general and would ensure economic growth if the reflation is big enough.

What is reflation? The easiest way to understand this concept is to look at the opposite of it which is deflation. In a situation of deflation, prices would be decreasing, and the value of existing debt would be increased. The opposite will take place during a reflation. If the reflation is designed properly in accordance with systemic behavior of the economy, the outcome is positive and if it is happened due to any other reason, unintended consequences like severe inflation might occur.

Initially, it was unimaginable. But it happened in France. For several weeks from mid-November to early December of 2018, people began to protest and riot, openly clashing with police. Several people were dead, some injured and properties worth millions were damaged. People protested against the way of handling the economy by French president Emmanuel Macron. After seeing another round of violent protests on Sunday of December 09th, the next day President Macron has announced economic concessions addressing the nation to quell protests.

President Macron’s concessions included an income raise for minimum-wage workers and tax cuts for some pensioners and overtime workers from the beginning of next year. He also promised that initially the businesses would not be required to incur the cost of minimum wage increase as the cost would be born by the government. These were the main concessions. What do these concessions mean to French economy?

In order to answer the above question, we need to look at the credit (debt) growth data in the economy. French economy is an economy which can be defined as an economy with a problem of significant “over-indebtedness.” The resultant effect of such a situation is that the issuance of credit is not sufficiently enough to have a robust economic growth and people would feel that they do not have enough money for their day to day expenses.

According to data the household debt to GDP was 58.6% in the first half of 2018 and so is the second half of this year so far. This means no credit growth in household sector. This is not usual in a growing economy. However, this could be possible in a growing economy, if the non-financial private corporate sector’s credit level is increasing. It means that non-financial businesses are increasing investments through which consumer income is increased ensuring higher demand for goods and services even though the consumer credit level is not increased.

But unfortunately, non-financial corporate sector’s credit growth too, is stagnant. According to the data compiled by the Bank of International Settlement, in France, Total Credit to Non-financial Corporations has not grown significantly or in other words credit growth to this sector is almost stagnant. This is not a good situation either. Only other option is to increase the government’s deficit financing. As at now French Government’s Debt to GDP is 97% which is far more than the stipulated public debt to GDP by the European Union’s Economic Growth and Stability Pact.

Given the above circumstances the French government could either increase taxes or “reflate the economic system.” So far, no government has not proactively “reflate the economic system through wage increases” by design. Therefore, French government first relied on the option of what is left, that is to increase taxes may be thinking that reduced deficit financing by increasing taxes would support growth. So, they introduced a new fuel tax which was the trigger for erupting demonstrations. Already cash-starved French people were quick to riot.

After several weeks of disturbances, in order to quell the riot, French President Macron by accidentally decided to reflate the economic system by raising wages. This is more positive as it would deflate systemic debt. Therefore, this method of reflation would positively change the credit growth levels in household and non-financial corporate sector, possibly avoiding a recession. Yet, there is an obstacle for France. The reflation should be big enough to bring the necessary impact on the economy. This goal can be achieved only if the country has its own central bank. But for France there is no such independent central bank of its own but has to work with the European Central Bank. As such the best cause of action for the EU is to reflate the entire system by design.

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Latest comments

  • 1
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    Macron projected himself as a (wee bit) right of centrist. He was young, populist and untested. His youth and flash comport inspired ‘this-is-what-we-should-be-nationalism’.
    In due course he turned out to be very much a right-winger.
    .
    He said (something to the effect), “Africans …with eight or nine children……have a civilisation problem”.
    On an African tour, Macron visited Burkina Faso. Referring to electricity, a smiling Macron said, pointing to President Roch Marc Christian Kabore, who was listening to Macron’s speech from the same stage “It is the work of the president [of Burkina Faso”. At this point, Kabore suddenly stood up and left the room. Macron added, “He’s leaving……….Stay there! So, he went to repair the air conditioning…….”.
    Macron implored Africa ‘to restore France to her glorious past’.
    There are many Macron gaffs too numerous to list.
    .
    The once haughty Macron is caving in to the demands of the French.
    He did not foresee this. Not very bright. Or is he?

    • 1
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      what goes around comes around. this is what Buddhst called Karma. France, England, netherlands are getting payback for killing millions of people.

      • 3
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        Dude Hema, Moral of your story is that the Sri Lanka tea plantation and estate workers must be given 1,200 LKR per day Minimum Wage, for the very hard labour they perform to keep the tea industry in clover. These labourers, particularly, women tea pluckers have carried the Lankan economy on their backs, for years earning foreign exchange but it is the greedy tea plantation owners and traders to take the profits. This economic crime that is legalized by IMF-WB and neoliberal capitalist system must end NOW.
        Also, The global economy is a mess because those who work do now get rewarded. IMF-WB global financial system rewards the global 1 percent and financiers growing economic inequality everywhere is the main reason for rise of Racism and anti-immigrant and minority agenda.

  • 2
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    Very good idea – this reflation ideology!

    Instead , it is all about consolidating the money for the EU enterprise, so innovation upon innovation can be procured upon. All is at the expense of the struggling French masses.

    Sri Lanka has her own Central Bank. But with the advent of Ranil, billions and billions dollars of the struggling Lankan masses have been put into the TN-S’pore-Lankan Union. Till all that money matures in about 50 years time, via the Singapore innovative technique, Lankan masses will have a 100% increase in work-suffering index. Mangala and Ravi have been placed in the center, yet again, to try and get at least a 2% return of the lost Lankan billions upon billions of dollars.

    Time to let all losses and debt go to oblivion and
    hell. America will surely pay for them once the threat of the port city is demolished. Or give the Port City over to China (although we might provoke the wrath of the West……we can work out a deal).

    Bring in the Reflation! Give the working man his just and due wage. Let’s build up Sri Lanka from scratch, within the workability and reality of her own people.

    • 1
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      Ramona, Please clarify this “Sri Lanka has her own Central Bank. But with the advent of Ranil, billions and billions dollars of the struggling Lankan masses have been put into the TN-S’pore-Lankan Union.

      • 0
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        Upali,

        Middle Eastern menial workers bring in about $4-billion annually. Central Bank usually works this money for the country, rolling it into the economy thus increasing the GDP. Returns go into Lankan retirement benefits. The latest capitalistic investment, the TN-S’pore-Lankan deal, snapped up billions of dollars of hard-working Lankan retirement benefits. And we cannot even find it to see if any returns will come in even 50 years.

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        Upali Wickramasinghe

        Scatter brain ramona grandma therese fernando hasn’t got a clue as as to what she has typed above. She types as she goes along. Don’t read too much into what she types.

        • 1
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          Native Vedda: “Scatter brain” or “Scattered ….”?

          • 1
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            K.Pillai

            It should be “scatterbrain” meaning a person who tends to be disorganized and lacking in concentration.

  • 0
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    I don’t think giving RS 1000 is the answer. See china beat USA by not increasing Salaries. American Capitalism was increase the salaries. SO, they every one can buy a FORD car. Russians invneted th major componenents of the Cell Phone. americans assembled it to a commercialized IPHONE. but chinese Manufacture it so that americans can sell it cheaper. So, by increasing Salaries you never suceed except after some time you sell all the Tea Estates to some foreign buyer. So, Mechanize them. USE what is called SUSTAINABLE TECHNOLGY QAND GET THE UNIVERSITIES TO DEVELOP SUITABLE MACHINERY FOR THE upcountry area. I know there are Economists who Negotiate for the foreign companies. Similarly, Sri lanka should STOP giving WELFARE or SOCIAL assistance. Then there will be lot of people to work in PAddy fields. Now, no people , so they want Round up to kill weeds.

  • 0
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    Your reading of France is good, but that understanding is poor.
    France is developed Capitalist country ,is key player of Global hegemony to suppressed not only people of France it has extended to other part of Globe. I view that you reading these paras which that combine to other factors of world !
    What Marx said his French Edition in April 28 that 1875 “…..But his very scrupulosity has compelled me to modify his text, with a view to renderings ,it more intelligible to the readers..” that what Marx side to French Edition.

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