international

Chameleon Merkel needs Guido's backbone

Both the Financial Times and The Economist hope that Angela Merkel will be able to break free of her 'grand coalition' with the left-leaning SPD after tomorrow's German elections. Latest opinion polls point to a race that is still too close to call.  The CDU, when joined with the economically and socially liberal FDP, are one or two points within target of gaining a majority.

There are two principal reasons why the grand coalition should be replaced by a CDU-CSU-FDP coalition:

The grand coalition is bad for democracy
The Financial Times: "All German governments are coalitions, ruling by consensus. But it would be bad for the country, and bad for the principal parties, if the CDU and SPD were forced once again into a “grand” coalition. It limits their room for manoeuvre. More importantly, it discourages democratic debate, and encourages the splintering of support towards more extreme minority parties."

The Economist made exactly the same conclusion one week earlier: "Yoking together Germany’s two Volksparteien in one government tends to stifle the coherent, mainstream opposition that is essential to the cut-and-thrust of policymaking in any democracy. Deprived of choice, disgruntled voters tend to drift towards extremism or apathy, thereby weakening the big parties even more. Indeed, there is a growing risk that, with five parties always likely to win seats in the German parliament, it may become all but impossible to have anything other than a grand coalition. What ought to be an emergency arrangement might turn into a permanent one. That would not be good for democracy."

An alliance with the FDP would build a more dynamic German economy
The Economist believes that the FDP would be much better coalition partners for Frau Merkel: "The FDP is not only the most pro-business of the parties but also the most pro-American. It has also been the boldest in suggesting tax and welfare reforms. For all these reasons, if this newspaper had a vote in Germany’s election, it would cast it for the FDP, in the hope that it joins a coalition with Ms Merkel’s CDU."

Like Germany as a whole, Mrs Merkel has drifted leftwards since the last election. During the 2005 election a promise of radical tax reform saw an election-winning lead evaporate. "Next to Merkel, even a chameleon would blush," wrote Oliver Marc Hartwich. His evidence?  This extraordinary quote from the German Chancellor: "Sometimes I'm a liberal, sometimes I'm a Christian socialist, sometimes I'm a conservative."  She can be a campaigner for neoliberal reforms one day and a defender of the welfare state the next. She can campaign against climate change and then fight for the country’s car industry against new EU fuel efficiency rules. She can criticize the Pope in public and then speak about her deep Christian roots. Angela Merkel is everything to everyone - it only depends who she is talking to.

The Economist is correct to say that the FDP is by far the most economically liberal party but it is also true that the FDP has been moderating its position somewhat in recent times. The FDP leader Guido Westervelle (pictured) is most likely to become Foreign Minister. That is good for the Atlantic alliance but his energy is really needed in economic policy. German unemployment is predicted to hit 11% next year and the budget deficit will exceed $200bn.

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Posted below is a video from Channel 4 on Chancellor Merkel's campaigning style:

 

Australian Liberal leader defends capitalism's achievements during red carpet trip to London

The Leader of Australia's Liberal Party, Malcolm Turnbull, has been in London this week. He has met all of the key figures in David Cameron's Conservative Party, including an hour long meeting with David Cameron, George Osborne and William Hague. There is probably no closer relationship between any two conservative parties in the world and it is now the UK Tories - on the edge of power - who are repaying the enormous help that the Australian Liberals gave them when them when John Howard was Prime Minister.

Mr Turnbull, trailing in opinion polls back home, gave a major speech during his visit to the Policy Exchange think tank. It was standing room only on Tuesday night to hear the Liberal leader, wearing R M Williams boots, give a stout defence of free enterprise. He began by noting that Australian Prime Minister, Kevin Rudd, had vowed to put government at the centre of the economy.

Mr Turnbull listed the achievements of capitalism before warning against the dangers of government being at the centre of economic life. He argued that capitalism had had a transformational effect on world poverty over the last thirty years and government intervention had been at the heart of the last year's banking crisis:

"Throughout the 20th century, the strongest and most successful, most vibrant, most interesting societies were those infused with the principles of political, economic and religious freedom. The best-performing economies were those where citizens were given the maximum incentive, under the rule of law, to make the choices they considered best for themselves and their families. This is not a matter of ideology of faith. It is an unassailable fact of history. The Berlin Wall did not fall by accident. It fell because millions of people living in societies crippled by the failures of excessive government control yearned for the freedoms they saw in the West. The socialisation of the means of production and distribution had manifestly failed them, and they aspired to something better...

There have been few periods in human history where we have witnessed, in the space of a single generation, such enormous economic advances across so much of the world. Many hundreds of millions of people have been lifted out of poverty, as great and ancient societies such as India and even the world’s largest Communist state, the People’s Republic of China, opened their economies to global trade, accepting that free market has a great deal to offer, the principles of the free market has a great deal to offer. The freest societies have proved themselves prosperous, creative and dynamic, while societies which restrict freedom have been paralysed by social and economic failure – the most extreme contemporary example being North Korea – but history abounds with others. The fruits of greater economic freedom have been spectacular – in the 20 years to 2004 the percentage of the world’s poor living on $1 a day or less halved. That is a quantum leap by any measure, on any conceivable index of human happiness. And it is a record of achievement, a measure of progress, not to be demeaned or dismissed in the scramble to find scapegoats for last year’s collapse of confidence in global financial markets...

What has happened in this past year does not as Kevin Rudd has claimed demonstrate that the ”neo-liberal experiment of the last thirty years has failed”. Now I should note at the outset the absurdity of declaring a failure of capitalism because of a crisis in one industry sector alone and of course there will be libraries built to fill the books written on the global financial crisis and its causes. But we should note that it was a crisis in the banking sector which had it origins in the United States property market, where an asset bubble was fuelled by imprudent, sub-prime lending to people whom banks would not normally have rated as creditworthy.  In other words, loans were being made to people whose best, if not only, prospect of repaying the loan was out of the sale or refinancing of the house, which in turn depended on the value of the house rising materially. Far from being a product of unbridled ”free market extremism,” as Mr Rudd is fond to say, this irresponsible lending could not have occurred had it not been for the fact that the United States Government, in the shape of Fannie Mae and Freddie Mac, was actually underwriting two thirds of the entire mortgage market.."

Download a PDF of Malcolm Turnbull's full address.

During Q&A Mr Turnbull expressed his "admiration" for David Cameron and said that he admired the way he had broadened conservatism's appeal.

He confirmed that he was still a republican but did not see Australia choosing to alter its constitutional status until the present Queen's death.  That will be a "watershed moment", he said.

Popular Merkel rules out tax rises to close Germany's budget deficit

Current opinion polls point to Angela Merkel not only remaining Chancellor when Germany votes on 27th September but she should also be free to govern without the left-wing Social Democrats.  Since 2005 she has had to govern in an awkward grand coalition with the SPD.  In that election her party won 35.2% and the SPD won 34.2%.  Merkel's natural coalition partners, the FDP, won 9.8% and the Greens won 8.1%.  The latest opinion polling has the CDU-CSU-FDP bloc with a combined 51% while the SDP-Green bloc has just 34%.  The SPD are reluctant to govern with the far-Left Linke party, led by Oskar Lafontaine and Lothar Bisky.  The Linke party has 8% to 9% of votes in most opinion polls.

Merkel's standing was boosted last week when data suggested Germany was beginning to come out of recession.  She will be taking nothing for granted, however.  She lost a large opinion poll lead in 2005 when an adviser's plan for a flat tax frightened German voters.  In 2001 the CDU/CSU expected to win but the SPD stayed in power after Gerhard Schroeder campaigned vigorously against the Iraq war and for help for many parts of Germany that had been afflicted by severe flooding.

This week's Economist reports that Chancellor Merkel has ruled out tax rises to close Germany's budget deficit.  Although much smaller than Britain's deficit, the German deficit will be 6% next year (up from 4.7% this year and balance last year).

Even more interesting is the proposal of her likely new coalition partners - the economically liberal FDP.  The FDP wants to eliminate all but three of Germany's personal tax rates.  The cost of tax simplification is estimated at €35bn but the FDP is willing to make the supply-side argument that tax simplification will, in part, boost revenues by discouraging the nation's €350bn black economy.

Over the last four years the SDP has blocked the CDU/CSU's modest instincts to liberalise employment law but Merkel is likely to be encouraged to be bolder by the FDP which favours much greater labour market flexibility.  

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More polling recording by Angus Reid Global Monitor:

 

Does immigration explain the European Right's electoral success?

The Economist's Charlemagne doesn't quite believe the argument but posts a possible explanation for why Europe's Right is benefiting from this decade's recession when Europe's Left benefited from the downturn of the 1990s:

"Normally, recessions benefit the left. The Golden Age for the centre left in the European Parliament was the 1990s when Europe had double digit unemployment and a nasty recession. Yet in the current recession, voters are turning to right-wing and xenophobic parties across the Old Continent, away from the parties that historically contributed much more to the construction of the European welfare state. Yet ideologically, parties of the left are unwilling to limit immigration or access to welfare for immigrants. So with unemployment and deficits rising, native born citizens have the "legitimate worry" that those defending redistribution will still end up forced to cut welfare payments, because they will not limit immigration."

A YouGov survey for MigrationWatch showed that immigration was the fourth most important issue for UK voters in last week's elections:

• 51% said Britain's relationship with the EU
• 51% said economy, jobs and standard of living
• 40% said conduct of MPs
• 35% said immigration
• 14% said the environment
• 12% said the NHS
• 12% said crime
• 7% said education.

"Europe's left is failing to gain from capitalism's crisis"

In an interesting article for the FT, John Lloyd argues that the Left is not benefiting from the so-called 'crisis of capitalism' that is reportedly engulfing the world:

"In no big European country is the main party of the left, in or out of government, surging ahead. The Burson-Marsteller forecast for the European elections in June shows that the centre-right European People’s party will remain the largest group in the European parliament – even if the British Conservatives and the Czech ODS fulfil their aim to leave the EPP."

He summarises explanations offered by others:

"What has gone wrong for the left?

In a recent column on the Open Democracy website, Tibor Dessewffy, a Hungarian commentator, argues that “fears of terrorism, and subsequent anxieties caused by immigration and the sustainability issues of welfare and social systems, [have] brought the progressive left under increasing pressure”.

Wouter Bos, leader of the Dutch Labour party and deputy prime minister in the Netherlands’ right-left coalition government, said in a speech in London last year that these issues, and the pressures of globalisation, “reduce the effectiveness of the kind of policies we [the left] favour. It affects the cohesion which is our lifeblood. It hurts our international orientation that has always been the core to our mission”.

Olaf Cramme, director of the UK-based Policy Network, a centre-left global policy forum, believes that “despite the scale of the crisis of neo-liberalism, leftwing proposals about how to remake capitalism aren’t being received well. The centre left finds it difficult to offer a credible alternative to how to ensure wealth and security. In fact, in many countries, the conservative parties have been less enthusiastic about the growth of finance capitalism and tougher on regulating the financial sector than the left”.

There is a cloud of rhetoric on the end of capitalism – or, more often, “free-market capitalism”, as if that were a wholly separate entity. Beneath it, however, lies a public mood that is deeply sceptical of a left whose governing parties in the past decade have used the surpluses generated by successful finance capital to fund their social programmes, and, in general, is even more sceptical of a far left which apportions blame but has little experience of, or programmes for, government."

Conservative commentators would also note, however, that most of Europe's centre right leaders have moved towards the left during this period on issues of regulation, fiscal stimulus, industrial interventionism and protectionism.

A trilemma for the world's Right

Blog by Peter Cuthbertson.

"Suppose that a government can have any two of the following things, but not all three: globalisation, in the sense of openness to international flows of goods, services, capital and labour; social stability; and a small state. Or, to put it differently, conservatives can pick any two from an open economy, a stable society and political power – but not all three."

So Niall Ferguson theorised this week both in the Daily Telegraph - and in his Centre for Policy Studies Ruttenberg Memorial Lecture. This trilemma, as he called the choice between three options, is now being faced by the right in Britain, the United States, Canada and Australia.

Global capitalism may well be the greatest process for creating wealth and annihilating of poverty, but in two ways it also tends towards instability. First, in the sense that an average person can expect to face an economic crisis about once in their lifetime. Second, the less dramatic reality that outsourcing, competition and rapid economic change can mean an insecurity and volatility of employment and incomes. So even forgetting the risk of a major crisis, the secure job for life is scarcely available in this modern economy, even if other jobs and sources of income may be. Social stability can nonetheless be ensured if the government makes major efforts to ameliorate this volatility - but there goes the small state. So in an economic crisis most of all, conservatives may find themselves in the politically unwelcome position of both defending globalisation and fighting back against new government initiatives introduced to combat the crisis. Or they can bow to an agenda of growing government, but concede the political victory to a left presented with an opportunity 'too good to miss'. Either way, the trilemma ensures that "[o]nly the Left can offer what seems to be a credible response: globalisation plus social stability plus a strong interventionist state".

Having identified the trilemma, Ferguson has also proposed some answers - answers that are orthodox without being unoriginal. Politically, conservatives must point out the degree to which the current crisis is anything but an unambiguous consequence of unregulated global capitalism. In policy, they must ensure the education system inculcates the broader set of skills appropriate for an economy in which most people will need to change jobs or careers at certain moments in their lives.

Czech Prime MInister Topolanek brands Obama's fiscal stimulus as "the way to hell"

The policy of fiscal stimulus hasn't had a good week in the European Parliament.

The attack on Gordon Brown's position by MEP Daniel Hannan is now well documented, yet the following day in the very same chamber no less a figure than the Czech Prime Minister, Mirek Toplanek - who currently holds the Presidency of the European Union - launched a stinging attack on President Obama's economic policy.

Yesterday, in reference to the $787 billion spending plan being embarked upon by President Obama, and the $1 trillion he plans to pump into the financial system to revive lending, Mr Topolanek said:

"All of these steps, these combinations and permanency is the way to hell. We need to read the history books and the lessons of history and the biggest success of the EU is the refusal to go this way."

He added that the package would "undermine the stability of the global financial market".

There is more on what he had to say and it implications for Czech-US relations in the below report screened on Russia Today.

"There is actually a limit to what governments can do."

John Key, New Zealand's new Prime Minister, is riding high in the polls.  His National Party is scoring 56% in a latest opinion poll and 69% of New Zealanders are saying that their country is 'heading in the right direction'.  Just 18% say it is going in the wrong direction.

Mr Key is achieving this without copying the activist spending policies of Washington, Tokyo or Canberra.  In an interview with the Wall Street Journal he sets out some of the beliefs that are guiding him:

• Limited, focused government: "There is actually a limit to what governments can do... Your citizens are entitled to expect you to be realistic... to be specific about what it is you're going to do, what you can or can't do."
• Control of government spending: He has decided not to copy "risky" high-borrowing policies to help New Zealand weather the economic storm.  The only thing sure about such policies, he says, is that "you've saddled future generations with an enormous amount of debt that then they have to repay."
• Lower corporate taxation: "If you really are out of whack with the prevailing corporate tax rates, and there's been a global shift toward countries lowering their corporate tax rate, then you're not likely to attract capital, or you're likely to lose capital."
• Lower regulation: "Good regulatory reform can be an important catalyst toward driving economic growth and coming out of the recession faster."  The WSJ's Mary Kissel notes how Mr Key is "chipping away entrenched regulations that drive away foreign capital".  He is also reviewing the previous Labour adminstration's heavy-handed climate change regulations; "New Zealand needs to balance its environmental responsibilities with its economic opportunities, because the risk is that if you don't do that -- and you want to lead the world -- then you might end up getting unintended consequences."
• Free trade: "The world, whether we like it or not, will become more and more borderless."

Not one Republican votes for Obama's "porkulus" bill

Despite White House efforts not one Republican Congressman voted for what Rush Limbaugh has called Barack Obama's "porkulus" plan.  Eleven Democrats voted 'no' too during yesterday's successful passage of the bill in the House of Representatives.

America's Republicans - like Britain's Conservatives - have chosen to gamble that the stimulus will either not work or the long-term indebtedness will be hugely expensive (economically and electorally).   

A range of concerns motivated Republicans.  Fiscal conservatives worried about the scale of borrowing.  Supply-siders were unhappy at the amount of tax cuts relative to spending increases.  Social conservatives were unhappy about an "extra $50 million allotted to the National Endowment for the Arts and an untold amount of Medicaid dollars for states to spend on contraception and other forms of family planning."  Partisan Republicans just wanted to give Obama a bloody nose.

The remarkable thing is that Obama was unable to win the backing of a single Republican Congressman.  Democrats had hoped for at least ten supporters and the President's Chief of Staff had dined with a 'moderate eleven' at the White House just 24 hours ago.  Some Republican Senators may be more consensual when the bill reaches them.

Two analyses of the Obama stimulus plan doubt its effectiveness on (a) timeliness and (b) inducing others to reduce their spending.

(A) Jim Manzi notes that "substantially more of outlays occur in 2012 or later than occur in 2009."  He continues:

"If this is a “normal” length recession, the spending bill will have the classic problem that fiscal stimulus does—namely, it comes too late to do much good, but right on time to help stoke inflation and mis-allocation of resources that are suddenly in high demand as the economy enters a recovery.  And if this is a very long-lasting recession, more like a U.S. 1930s Depression or Japan 1990s “lost decade”, then the problem is so long-lasting that we’re not really debating a stimulus bill, we’re debating a near-permanent shift of control of resources to the government, which doesn’t exactly have a sterling track record of success."

(B) Alan Reynolds on National Review:

"When the government spends money, or gives it away in rebate checks, that undoubtedly “stimulates” those who receive the cash. But it has the opposite effect on those who pay the bills. Karl Marx, in his 1852 critique of Louis Bonaparte, explained that “the people are to be given employment: initiation of public works. But the public works increase the people’s tax obligations. . . . Taxes are the life source of the bureaucracy. . . . Strong government and heavy taxes are identical.”  When the government borrows from Peter to pay Paul, taxpayers then have an obligation either to pay interest to Peter (forever) or to repay the debt. Government money does not become free money simply because it was borrowed. True, the U.S. government has been able to borrow at extremely low interest rates lately, but that never lasts for long. The extra debt the new administration plans to dump on the backs of future taxpayers will have to be rolled over at higher interest rates, sooner or later (more likely sooner) and the rising cost of debt service will be borne by taxpayers unless the government defaults (which is already the subject of some speculation)."

Stephen Harper survives as Canadian Prime Minister after introducing large stimulus plan

Six weeks ago Canada's Prime Minister was fighting for his political life as his minority government faced being no-confidenced by an unexpected coming together of the nation's left-wing parties.  He won some time after the Governor-General prorogued Parliament and, as expected, the pressure of public opinion unpicked the coalition.

The coalition finally broke apart yesterday as the new Canadian Liberal leader, Michael Ignatieff, agreed (with conditions) to support Stephen Harper's Can$40bn fiscal stimulus plan.  Explaining his decision to abandon the coalition he said: “Canadians don't want another election, and they're tired of political games. They have waited too long for action on the economy for us to fail them now because of partisan interest.”  Ignatieff then received strong attacks from "livid" partners of the now finished coalition, ushering in the possibility of deeper Balkanisation of Canada's Left.

Not all on the Right are happy though.  Andrew Coyne proclaimed the death of conservatism in Canada:

"Say what you like about the Tories: they don’t do things by halves. When they spend, they spend. When they go into debt, they do it $100-billion at a time. And when they decide to put an end to conservatism in Canada — as a philosophy, as a movement—they go out with a bang."

Canada's Conservatives join the rush to fiscal stimulus

Following Angela Merkel's part conversion to a deficit-funded fiscal stimulus, Canada's Conservatives are now increasing borrowing in order to pay for economy-boosting tax cuts and higher spending.  This leaves Britain's Tories pretty isolated on the world stage with their insistence on fiscal conservatism; an insistence that ConservativeHome.com supports.  Merkel and Canada's Harper lead minority administrations that require compromise but it is notable that US Republicans are also supportive of large parts of Obama's mega stimulus.

Merkel agrees to €50 billion stimulus package

Under pressure from the CSU section of her centre right party - Angela Merkel has agreed to include tax cuts in a €50bn stimulus package for Germany.  The Times has more:

"The idea seems to be to announce a package just before Barack Obama’s presidential inauguration on January 20. The combination of US and German initiatives could help to restore international business confidence. The Christian Social Union, the Bavarian sister party of Ms Merkel’s Christian Democrats, has been insisting that tax cuts form part of the recovery plan. The Chancellor had been set against this – part of her contempt for the British measures is the conviction that VAT cuts do not encourage consumer spending – but buckled during talks on Sunday night."

Republicans see veto of auto bailout as first step toward restoring economic reputation

America's Big Three carmakers - Chrysler, Ford and GM - are facing very difficult economic times.  Sixteen million cars were sold in 2007 but that already below-average number has sunk to ten million this year.  Without a bailout Chrysler and GM may go under and the consequences for the many businesses in the supply chain could also be disastrous.  That is the argument for the bailout and why President Bush is now considering using a portion of the already-agreed financial bailout to help the car companies.

The special bailout was scuppered on Thursday, however, by Republican lawmakers who worry that the bailout culture is becoming a monster (whole nations are next in the queue) and that union power needs to be checked.  Key conservative commentators compare the unionised car industry with the much more successful car manufacturers of the 'right-to-work' states (although Jonathan Rauch makes the case that GM is far from a hopeless case, noting that it is finally producing better cars and has cut employment by 40% since 2004.)

The Unions, increasingly confident of more power with the Democrats controlling the White House and both halves of Congress, discovered the limits to that power when Republican Senators made it clear that they would not support a "bailout without strings".  Republican Senator Bob Corker from Tennessee insisted upon a "date certain" in 2009, by which time the hourly labour costs of those working for America's Big Three car makers would be reduced to the average of foreign-owned car companies operating in the USA.  The United Auto Workers (UAW) offered to look at wage costs but not until 2011.  Republican Senator Mitch McConnell replied that that sounded like "taxpayer money today for reforms that may or may not come tomorrow."

The Wall Street Journal sees Thursday as an important milestone for the Republicans:

"Thursday's showdown marked an important political moment for the Republican Party. By refusing to write a blank check to Detroit, Senate Republicans have started to reclaim some credibility on fiscal policy and the role of government in the economy. They did so standing up to a Republican President who doesn't want any more bad headlines, as well as to Democrats who will blame the GOP if the auto makers collapse. They also stood up for the right reasons. No bailout will ever restore the car companies to profitability without a restructuring. Yet an explicit UAW goal is to use the bailout to avoid any such thing. The union and their Democratic protectors want to avoid the discipline that a bankruptcy could impose under Chapter 11. A government-directed salvation would also give environmentalists huge leverage over the cars Detroit builds, a power they and Democrats have wanted for decades."

German CDU joins attack on Gordon Brown's unfunded fiscal stimulus (as Angela Merkel becomes 'Frau Nein')

The British Conservative Party was delighted yesterday when Germany's left-leaning finance minister, Peer Steinbruck, used an interview with Newsweek to describe Gordon Brown's large fiscal stimulus as "crass Keynesianism" and "breathtaking".  In today's Independent, Shadow Chancellor George Osborne writes:

"How ironic. In the very same week that Gordon Brown stood up in Parliament and claimed that he was saving the world, the world answered back. In a matter of just a few days, the German Finance Minister described Mr Brown's reckless borrowing as "crass" and "depressing", international currency markets sent the pound to a new low against the euro, and it has become clear that the British bank recapitalisation plan is the most expensive in Europe."

Senior Labour figures attempted to suggest that Herr Steinbruck's intervention was all about internal German politics but his view has been backed overnight by the CDU half of Berlin's Grand Coalition.  Steffen Kampeter, who speaks on economic policy for Chancellor Angela Merkel's CDU party, described moves to raise debt as "a failure of Labour policy".  The BBC reports Herr Kampeter as saying:

"Peer Steinbruck's comments have nothing whatsoever to do with internal German politics, as Prime Minister Brown has suggested. The tremendous amount of debt being offered by Britain shows a complete failure of Labour policy. In questioning the British government's approach, Peer Steinbruck is exactly expressing the views of the German Grand Coalition. After years of lecturing us on how we need to share in the gains of uncontrolled financial markets, the Labour politicians can't now expect us to share in its losses. The tremendous amount of debt being offered by Britain shows a complete failure of Labour policy."

Angela Merkel is supportive of a fiscal stimulus across the EU but insists, like Britain's Conservatives, that it be fully-funded.  Rosemary Righter in The Times points to German history to explain the caution:

"Germans are profoundly averse to debt and, since the collapse of the currency in the Weimar Republic in the 1920s, they have remained terrified of inflation. Nor do they trust pump-priming; they tried that after the 1973 oil shock, they point out, and all it did was drive up public debt. Their reaction to emergency spending by government is to save against the day when the bills come due. More debt today, they reckon, means higher taxes tomorrow. A Chancellor who keeps her powder dry is just their cup of chocolate."

The Guardian has labelled Angela Merkel 'Frau Nein' after she adopted 'go-it-alone' positions on a range of issues.  In addition to her attitude to borrowing she "opposes any common EU policy that could be seen as confrontational towards Russia"; "has led resistance to the European commission's carbon trading proposals"; and "has frustrated Washington, London and Paris by resisting the imposition of meaningful economic sanctions on Iran over its nuclear programme".

Sarkozy embraces state intervention and protectionism

Nicolas Sarkozy has this month been calling for European governments to follow the bailouts of banks by taking ownership stakes in other industries, such as the motor industry. The French President has been anything but evasive in the language he uses to describe the protectionism and state control he is advocating: "We can't be naive, we must protect our industry".

Although some free marketeers were encouraged by President Sarkozy's charisma both since and prior to his election last year, he has been a consistent and vocal opponent of what he appears to view as an exclusively Anglo-Saxon liberal economic model. His acceptance of and advocacy of a high degree of state control of the economy is expressed most often in his protectionism.  Tory MEP Martin Callanan warned about this tendency some time ago.

President Sarkozy must hope that the ongoing economic crisis provides an unusual opportunity for new thinkers (and indeed some very old and hitherto mostly discredited thinkers) to be heard and heeded. But centre right leaders around the world should be exceptionally cautious about doing so. Bad policy can do far more harm than the occasional storm in financial markets.

While 1929 is so often cited as if it were a counterexample, the Great Depression provides perhaps the strongest demonstration of this point. The stock market crash of October 1929 was not *that* bad - one reason to be unimpressed by comparisons between share prices (or whatever) in 1929 and share prices today. Misguided policy in 1930, in 1931 and beyond - not what happened on Wall Street in 1929 - were key to the Great Depression. Government activity, including tariffs restricting trade and a massive decline in the money supply (and arguably the New Deal and public works schemes too) were what made 1929 the prelude to a Great Depression. Governments around the world, like Reagan's and Thatcher's, responded very differently when the stock market crashed to a similar extent in October 1987 - and within two years even share prices had recovered completely.

The sort of command economy and protectionist measures now being advocated by President Sarkozy may well get their strongest hearing right after a market crash. But they are are arguably the surest way to achieve the very thing - sustained recession - that they are introduced to head off.

Centre right parties squeezed by economic crisis

The economic crisis is hurting centre right parties as Dan Hannan predicted it would:

"In the current climate, what people see are fat-cat bankers being bailed out by hard-pressed taxpayers. And, instead of objecting to the bail-out, they object to the bankers and, by extension, to the free market culture they are thought to embody. The world over, Left-of-Centre parties are benefiting: Obama in the US, Brown here."

Since the onset of the crisis John McCain has fallen significantly behind Barack Obama.

The possibility of Prime Minister Stephen Harper winning a majority in Canada have also declined.  The opposition Liberals have moved up in recent polls.

It's not just an anti-incumbent effect either.

In the UK Labour's opinion poll disadvantage has been halved.  20% behind six weeks ago the Tory lead is now just 10%.  Labour now lead the Tories on some measures economic trust.

New Zealand's Labour Prime Minister Helen Clark has also stormed back in the polls.  With just four weeks to go until polling day one poll has the Nationals down 7% to 40.5% and the governing Labour Party up a point to 37.5%.  If repeated in November 8th's General Election that would produce a hung parliament.

Nicolas Sarkozy begins his economic reform programme

In London's Times, Rosemary Righter overviews Nicolas Sarkozy's economic reform programme:

"In a few weeks this summer, in volley after legislative volley, he has taken aim at some of the most sacred cows in French social and economic life. If he keeps up this pace, he will indeed change the face of France.

The keystone is a law making it easier to set up in business, cutting red tape, freeing up the commercial sector by allowing retailers to negotiate directly with suppliers - which, incredibly, French law proscribed - and creating an independent competition authority. More flexible job contracts have been introduced to free up the labour market, and benefits curbed for jobseekers who reject more than two “reasonable” offers of work.

To tackle the huge pensions deficit, retirement age is to be raised by a year - explosive in a country where successive governments failed even to abolish unfair pension privileges for public sector workers. Sarkozy succeeded only after toughing out a nine-day transport strike. He has risked student mayhem by allowing universities more freedom not just to raise private research capital, but to choose which students to admit. He has even announced the privatisation of the ports, risking a French rerun of the British dock strikes. Sarkozy has also taken aim at the structure of the State. He is (cautiously) trimming the bureaucracy and (boldly) overhauling the military by axeing bases, cutting its strength by a fifth and shifting spending from support services to the front line - an open challenge to hardcore Gaullists suspicious of their President's rapprochement with America.

Then, last week, in a High Noon confrontation at the National Assembly he won by a single (defecting Socialist) vote constitutional reforms that limit the presidency to two consecutive terms and give parliament additional powers. Rubbing salt in the Socialists' wounds, parliament reformed the 35-hour week, effectively burying it by allowing firms to negotiate their own working-week ceilings. That may seem modest, even timid; but the implications are anything but. It strikes a sideways blow at the core of union power in France: the unions' lock grip on industry-wide collective bargaining."