Giuseppe H. Robalino

"We are the 99%!” Ring out cries of frustration, anger, and—as referred to in Europe—the cries of the indignant. From Wall Street in New York to Spain, Italy, Portugal, Greece, France, and even Germany—union-led and Occupy protests have captured the support of many around the globe. Scores of people have poured out demanding “justice,” “fairness,” and for the most radical, an entire referendum on capitalism. However, just how successful have they been in ascertaining their demands? Given the level of Eurozone influence and entrenched state and regime structures of the current joint leaders of the European Union, France and Germany, to what extent has each respective civil society[i] [1] been able to influence public policy and how has it voiced its message? We will find that the regime remains in control and unions predominate in bringing change.

The Crisis in Europe: The Economic Cost of Socialist Policies

The failure of the private European banking sector greatly served to expose problems in the manner in which governments had been spending and financing their operations to cover generous expenses in healthcare, guaranteed pensions, and unemployment benefits in a continent where the natural rate of unemployment is already double that of the U.S.—at about 8-10%.[2]

Prior to the meltdown, Europe had already been facing its own recession and decline in trade. With the meltdown, the E.U.’s strongest economies (though in no way immune as we shall see) of France and Germany came to the forefront as foreign investment slowed and sovereign bond yields increased as a result of indebtedness. Thus far, their actions in response to investor and not necessarily populist demands have resulted in an expansion of the state: The ECB[ii] has begun coordinating monetary policy with a banking supervisor, the EFSF,[iii] the ESF,[3] [iv] etc.

Coverage of this step-by-step account in the media is rare and European networks are openly opinionated in assigning blame. French and German public opinion, in particular, is represented and led by elite state institutions such as unions that indirectly interact with the French integrated elite and the corporatist[v] system in Germany.

Public Opinion in the European Union

The European Commission has recently charged the Gallup Organization with carrying out telephone surveys called Flash Eurobarometers.[vi] We will be exploring data from the EU, France, and Germany. This data is crucial in understanding how those surveyed perceived the state of the economy and the effectiveness of public policy throughout most of the Eurocrisis from 2008-2011.[vii] Therefore, we will report data on unemployment, pensions, and support for economic reform. We will conclude with data on the current business environment. Keeping in mind telephone survey limitations, this data can also be used to develop an estimated assessment of the congruency between those surveyed and the protestors.

In 2011, the EU reported a marginal increase in improvements in unemployment benefits; however, the five-year comparison in the way inequalities are perceived to be addressed dropped, indicating that Europeans still believed the situation would worsen. Germany was an outlier, seeing improvements from the previous year in both fronts.[4] Compared to previous years, 2010 saw practically no change in confidence in job retention. An overwhelming 77% of Europeans surveyed felt at least fairly confident that they would keep their jobs in the next year. Between 2009 and 2010, Germany felt unconfident on an average of 10% compared to an average of 17.8% in France. To put this in context, 2009-2010 was the period when Germany was hit by the crisis and managed to work its way out of it with various pro-market reforms.[viii] For France, it was the time period of continual economic stress leading to the pension debacle. What this potentially means is that confidence in the state remained strong among those surveyed. However, also relatively unchanged leading up to 2010 was that 85% of Germany and 75% of France felt that it would receive lower pension benefits, have to save more for retirement, and retire later than planned. This was compared to 70% in the EU.[5] The difference in the two nations is how each civil society would react to such perceptions.

In terms of economic reform, respondents were unwilling to support decreased public expenditures on social benefits and increased taxation. Both France and Germany supported the latter by about 17.5%.[6] In France, this statistic was countered with the election of Hollande. Overall, few were in favor of going beyond restructuring currently available funds.6 However, long term planning is essential to improving business confidence—something Germans understand and the French must come to terms with.

There still seems to be widespread public support for having the government continue to be involved in matters such as financing citizens’ pensions. True reform—by scaling back government to reduce the crowding-out effect, which can free up market share to drive down cost—therefore seems unlikely, especially given France’s past with dirigisme and Germany’s powerful hold on financing the ECB.  For France and Germany, crucial reforms[ix] were perceived as having a negative effect, with the French being most pessimistic, clearly complimenting continued protests. In both nations and the EU, however, an average of over 30% of those surveyed were not able to clearly identify sectors in which the most important reforms took hold6—an interesting figure given some like question how informed protesters are.[x] In terms of perception about reforms’ effect on the overall economy, Germany was far more optimistic, scoring 14 points above France, whose score was the most negative in the EU in 2010.6

Early in the crisis in 2009, an average of 50% business leaders throughout the EU and in France and Germany felt that costs besides labor had increased.[7] Investor confidence continued to waver henceforth due to skyrocketing bond yields, with most investor confidence in Germany, as it was able to keep yields low. Contrary to popular belief on banking “greed,” despite making record profits of $336B right before the meltdown, European banks lost 90% of that by 2011, when the crisis was in full effect.[8] Deutsche Bank and UBS in particular lost 48% and 56%, respectively, of their net income in 2012.[9]

Occupy: Movement or Spontaneous Protests?

            Not all Occupy protests have been methodically planned or executed. Despite this, in talking with occupiers directly, we found significant planning via social networking and “General Assemblies” that run camps. Here, especially with the definition of “…noninstitutionalized collectivities that promote or resist social change from the bottom up,”[10] Occupy will be considered a movement. Unions, though being the most organized will not, since as we will see are not consistently bottom-up.

The Crisis in France: The Unions and the People

In 2007, Sarkozy had planned to cut the deficit as part of his platform; however, toxic assets held by the French began to hurt the economy[11] and in what the media referred as his “veer to the left,” Sarkozy injected a $33B stimulus[12] and increased subsidized public worker contracts. In 2008, the thirty-five hour workweek was amended to help save costs on overtime pay.[13] Protest turnout was only half what unions expected, hinting that the public was not as outraged as they had expected. In spite of that, it was very telling of the influence French unions, like the CGT, are used to having on the populace as an elite state institution: according to Le Figaro, the CGT was regardless “…likely to try and stage massive protests [later].”[14] Union protests have been top-down in that sense.

In 2010, pensions came into scrutiny. The National Assembly increased the retirement age by a mere two years to sixty-two and full pension age also by two, to sixty-seven. Pension strikes began and continue into 2012. At the outset of the controversy, both Sarkozy and the unions pledged to not back down. Approximately two million people went out to protest. While two-thirds of the French supported pension reform, the same amount opposed Sarkozy’s specified proposal. The left claimed that the savings only benefited corporations; but the government pointed out that the crisis caused a sharp decline in payroll tax revenue, which led to a deficit in the pension system.[15] Given that Sarkozy held a majority in the National Assembly and that even labor party officials considered the reform fair, the public rallied more. The stakes were raised. In fact, the CFDT union lost most of its members when it attempted to strike a deal with the government. This served as an incentive for unions to harden their positions. One-day marches continued, but the government did not change its position and unions struggled to get enough momentum for a massive open-ended strike. In fact, Occupy was grappling to attract momentum as well. Of the thousands of occupiers protesting in other countries, only hundreds did so in Paris. The conjecture was that the French knew they were better off compared to Greeks or Spaniards.[16] The UMP’s response to why there was limited momentum was because the street protesters were more radical and did not even represent traditional PS supporters.15 Regardless of how representative protests were, the election certainly proved general discontent.

Hollande was elected with overwhelming support. His proposal of a 75% tax rate on those earning over €1M per year, despite the real danger of capital flight[17] and the already heavy VAT,[xi] were hugely popular: “[He] was voted in to secure an economic recovery while preserving our social model,” according to the head of a political consultancy firm. [18] For French civil society, the early retirement age with short work weeks and paid holidays are considered historic “social victories,”22 that they simply cannot look past. In September, Hollande proposed an austerity budget of €20M in taxes and €10M in spending cuts.[19] And as the economy continues to stagnate with a mere 1.5% GDP growth per year and with government spending 55% of GDP,[20] his popularity has dropped19 and protests continue. Attempting to ease tax burden, Hollande has agreed to a €20B payroll tax cut;[21] however, the 75% tax remains nonnegotiable, much to the support of French unions and protestors demanding “fairness.”

What these events show us is that despite the initial fall in protest turnout that unions and independent protesters (like Occupiers) organized, they were still able to garner mass media attention and gain popular support, resulting in the election of a presidency and legislature dominated by the PS.[22] Whereas the pro-business MEDEF interest group supported and helped influence pro-market policies in Sarkozy’s iron triangle, now the unions would be able to do the same, but with their proposals instead.  

The Regime in France and Germany

Like the U.S., the French system allows for adversarial labor-management relations. Unions are few and fragmented and are not directly part of the integrated elite. According to the UMP, they represent only 5% of the labor force.[23]  Their power comes through the election of leftist politicians. In Germany, labor groups are guaranteed a voice in the decision-making process through mechanisms like codetermination[xii] in the private sector and corporatism in the public sector, which effectively serves to temper radicalism. This practice is simply part of the regime;[xiii] [24] however, the far-left has historically questioned corporatism claiming that it has led to “controlled activism” by silencing those who oppose the fundamental premise of capitalism.[25] Still, labor is able to negotiate pay, conditions, and fringe benefits directly with senior management. German discipline aside, it is one of the many factors as to why Germany does not experience the violent protests France does. The stakes are higher for the French since they depend on elections. So long as Germans believe the job is performed well, support for the government in power will continue. Merkel’s seven-year chancellorship is a testament to that. Recent Bundestag losses, however, do denote a shift in public opinion.

The Crisis in Germany: People and Corporatism   

The Modell Deutschland is what America would look like today under what would have become of the full adoption of the Hamiltonian ideal of a society managed by banks and big business. The part of the model we speak of is codetermination. A far cry from the faulted-society era of imperial Germany, when the elite alienated the working class with antisocialist laws repressing unions, codetermination has directly and more effectively integrated unions (a crucial aspect of German civil society) into the regime than has France. As a union official once said, “...our obligation is not just to our own members or to other workers but to German society as a whole…We’re part of the establishment and proud of it…we do not want to overthrow capitalism.”[26] This is the unique aspect in Germany: unions are able to identify with corporate growth. In fact, before the crisis top German banks set economic policy on par with the government. Unions were left mostly bargaining at the senior management level of individual companies for benefits and not directly for government policy, like in France where unions effect policy changes for all laborers, whether they are union members or not.[27]

Among Germany’s more radical, idealistic members of civil society are the Occupiers. They have brought new momentum to the common PDS (now Die Linke) anti-capitalist protests. Though they vary greatly on the ideological spectrum, they agree on setting limits on the power of capitalism, money, banks, markets, and government.[28] They do not see themselves as part of the system, must less the establishment. In an online question and answer session with The Guardian readers an Occupy Frankfurt representative said this about running for office: “This is not about representing somebody, not being a party, not being elected. You're not part of the 99% if you're a politician…somebody with power and money…” Even the driving force of innovation is questioned: “If you want a better result you…don’t compete…our worldwide network will become much more intelligent than any corporation could ever be.”[29]

In stark contrast to France, Occupy in Frankfurt drew 5,000 protestors.[30] And in contrast to both US and French civil societies they were far from violent—especially when compared to neo-Nazis and leftist Autonomen. They did not disrupt traffic and condemned acts of terror such as letter bombs. However, when asked about their protest against specific austerity measures towards countries like Greece, they were unaware of the recent rate cut the ECB passed.[31][xiv] Despite not being fully aware of such, “…activists doubt whether the existing political system will be able to solve [the problems].”[32]

This is the same political system that with the help of Merkel has resulted in economic growth of 3.5% per year,[33] which is above stagnant growth (1-2%).[xv] Germany also stands as an outlier according to the OECD, being able to spend over 50% of GDP and still achieve growth normally experienced by countries spending 15-40% of GDP.[34] Specifically, Germany was able to exit the crisis because it was able to capitalize on increased demand on German goods from BRIC nations,[35] developing nations whose economies have been strengthened by globalization—the very thing occupiers protest. In 2009, Germany also lowered the corporate tax rate by 20% to 30%32 and has consistently kept bond yields low, making Germany attractive to investors. Germany was also able to lower labor costs by allowing workers fewer hours when business was slow, but increased the workweek from thirty-five to forty hours for when demand was high.[36]

Recently, however, Merkel suffered a significant defeat in the state of North Rhine-Westphalia. Support for the CDU dropped from 35% in 2010 to 26.3% this year as the SPD won 38.9% of the vote. Likelihood that dynamics in the Bundestag are about to change with strengthened SPD-Green coalition runs high. While Merkel is still more popular than the SPD in public opinion polls due to her successful handling of the crisis, her electoral mandate is decreasing. The SPD stands for increased government stimulus and spending while Merkel, and the majority of Germans, still support debt reduction.[37]

German public opinion may indeed be shifting as it did for Sarkozy near the end of his term; but it is staying within the current regime and not pushing for a new society as some occupiers may hope. If anything, as an occupier stated himself, “…political parties try to benefit from our movement, but they've all been profiteers of the established system and supporters of continuing to suppress the masses.”[38] Should the SPD win in the 2013 federal election, it is fair to say that corporatism will continue, albeit with perhaps more financial regulation and spending.

Solving the Eurocrisis

While we are not veteran finance experts, based on some actions that have already been taken, we have determined that the EU (and thus, France and Germany) needs to focus on strengthening the EU charter, making the Eurozone more attractive to investment, and reforming the banking system. First of all, in order for any country to use the Euro currency, it should limit government spending to 40% of GDP to be able to achieve growth of 3% or more.[39] The corporate tax rate should be capped at 45% for countries with no VAT and 40% for countries with it. If raising taxes is absolutely necessary to cover debt, then countries should raise it to no more than 55% for one year and so long as social expenditures are cut by half of the tax increase. Over a negotiable period of time, healthcare and pensions should be privatized by gradually opening up government-supervised exchanges. For younger generations, government commitment to pensions should be cut by 50%, allowing private plans to pick up the remainder.

Second, to make the EU more attractive, trade restrictions should be reduced after stabilizing domestic industries by limiting inflation and holding down interest rates to promote lending. Businesses should be able to fully write-off capital expenditures and depreciation. At-risk banks should be completely recapitalized and via corporatist agreements, negotiate government and private insuring of their securities. Eurobond yields should continue to be kept low and to incentivize investors to pick up the extra risk they should be allowed to participate in the privatization of healthcare and pensions with the caveat that a portion of the profits be reserved for financing state-supervised private equity firms charged with rescuing failing industries. Talks would also need to begin between companies and unions about increasing the retirement age for younger generations and increasing the workweek. Unemployment insurance should be reformed to make it repayable once recipients return to work to cover payroll tax cuts.

Finally, a transparency law or metric should be introduced that would allow banks to have a general idea of how many risky assets other banks hold so self-regulation is actually feasible. This should be coupled with a moratorium investigation of a panel of economists and financiers to analyze the effects of governments’ purchases of risky assets that could turn toxic.

Works Cited

Please note that some financial and economics-based analyses and concepts have not been cited due to the fact that the author was knowledgeable of the information previously to the writing of this paper.

"2012 Index of Economic Freedom." France Economy: Facts, Data, & Analysis on Economic Freedom. N.p., n.d. Web. 02 Dec. 2012. <http://www.heritage.org/index/country/france>.

"2012 Index of Economic Freedom." Germany Economy: Facts, Data, & Analysis on Economic Freedom. N.p., n.d. Web. 02 Dec. 2012. <http://www.heritage.org/index/country/germany>.

"Analysis - French Search in Vain for Hollande Vision." | Reuters. N.p., 07 Oct. 2012. Web. 02 Dec. 2012. <http://uk.reuters.com/article/2012/10/07/uk-france-hollande-idUKBRE8960CH20121007>.

Ardagh, John, and Katharina Ardagh. Germany and the Germans: [after Unification]. London: Penguin, 1991. Print.

Bennhold, Katrin. "France Introduces a $33 Billion Economic Stimulus Plan." NYTimes.com. N.p., 04 Dec. 2008. Web. 30 Nov. 2012.

Brown, Stephen. "Austerity Blow for Merkel in German State Election." Reuters. Thomson Reuters, 13 May 2012. Web. 02 Dec. 2012. <http://www.reuters.com/article/2012/05/14/us-germany-election-nrw-idUSBRE84C0BD20120514>.

"Can Germany's Corporatist Labor Movement Survive? :: Monthly Review." Monthly Review. N.p., n.d. Web. 04 Dec. 2012. <http://monthlyreview.org/2005/09/01/can-germanys-corporatist-labor-movement-survive>.

"DealBook." DealBook Two Big European Banks Report a Plunge in Profit Comments. N.p., n.d. Web. 01 Dec. 2012. <http://dealbook.nytimes.com/2012/07/31/two-big-european-banks-report-a-plunge-in-profit/>.

The Economist. The Economist Newspaper, n.d. Web. 01 Dec. 2012. <http://www.economist.com/blogs/graphicdetail/2012/07/daily-chart-0>.

Ewing, Jack. "No Clashes Mar the Calm of Occupy Frankfurt." The New York Times. The New York Times, 16 Dec. 2011. Web. 02 Dec. 2012. <http://www.nytimes.com/2011/12/16/business/global/at-occupy-frankfurt-calm-anarchy-has-staying-power.html?pagewanted=all>.

"The Financial Crisis: A View of Germany's Recovery - DAAD Study Tours." The Financial Crisis: A View of Germany's Recovery - DAAD Study Tours. N.p., n.d. Web. 02 Dec. 2012. <https://sites.google.com/site/ccgesstudytour/hamburg-2011/reports-and-reflection/the-financial-crisis-a-view-of-germany-s-recovery>.

"Financial Crisis: France at the Forefront - FRANCE 24." FRANCE 24. N.p., n.d. Web. 30 Nov. 2012. <http://www.france24.com/en/20081016-politics-sarkozy-communication-financial-crisis-eurozone-summit-part-1>.

Fraser, Christian. "Hollande Party Wins Majority in French Parliament." BBC News. BBC, 17 June 2012. Web. 06 Dec. 2012.

"Get Society Rich Quick: The Ideal Level of Government Spending." Think by Numbers. N.p., n.d. Web. 02 Dec. 2012. <http://thinkbynumbers.org/economics/gdp/ideal-level-of-government-spending/>.

Jolly, David. "In France, An Effort To Compete." The New York Times. The New York Times, 07 Nov. 2012. Web. 02 Dec. 2012. <http://www.nytimes.com/2012/11/07/business/global/france-announces-cut-in-payroll-taxes-for-businesses.html?pagewanted=all>.

Mankiw, N. Gregory. Principles of Economics. Australia: Thomson/South-Western, 2007. Print.

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Munck, Geraldo L. "DISAGGREGATING POLITICAL REGIME: Conceptual Issues in the Study of Democratization." (1996): 3. PoliticaComparada.com, Aug. 1996. Web. 6 Dec. 2012.

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"'Occupy' Movement: Why Protests Haven't Taken off in France." FRANCE 24. N.p., 27 Oct. 2011. Web. 30 Nov. 2012. <http://www.france24.com/en/20111027-economic-crisis-spain-strauss-kahn-history-rugby>.

Oliver, Laura. "Occupy Frankfurt: Protesters Answer Our Readers' Questions." The Guardian. Guardian News and Media, 23 Oct. 0042. Web. 02 Dec. 2012. <http://www.guardian.co.uk/world/blog/2011/oct/25/occupy-frankfurt-protesters-readers-questions>.

Parussini, Gabriele, and Geraldine Amiel. "France's Hollande Outlines Austerity Goals." WSJ.com. N.p., 9 Sept. 2012. Web. 7 Dec. 2012. <http://online.wsj.com/article/SB10000872396390443779404577641783320692486.html>.

"Pension Reform: Who Will Back Down?" FRANCE 24. N.p., 18 Oct. 2010. Web. 30 Nov. 2012. <http://www.france24.com/en/20101014-politics-garrido-jeanbart-gauthier-villars-haddad-pension-reform-france-1>.

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Schultz, Stefan. "Occupy Camp in Frankfurt Cleared." SPIEGEL ONLINE. N.p., 07 Aug. 2012. Web. 02 Dec. 2012.

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Footnotes

[1] Newton, Kenneth

[2] Mankiw 2007

[3] Public Opinion Analysis (Homepage)

[4] Public Opinion Analysis (Eurobarometer 370)

[5] Public Opinion Analysis (Eurobarometer Wave 5)

[6] Public Opinion Analysis (The Euro Area 2010)

[7] Public Opinion Analysis (Eurobarometer 271) 

[8] The Economist

[9] DealBook

[10] Simmons, Herbert

[11] Financial Crisis: France at the Forefront

[12] Bennhold, Katrin

[13] Samuel, Henry

[14] Pension Reform: Who Will Back Down?

[15] Pension Reform: Who Will Back Down?

[16] 'Occupy' Movement: Why Protests Haven't Taken off in France

[17] Parussini, Gabriele, and Geraldine Amiel

[18] Analysis - French Search in Vain for Hollande Vision.

[19] Parussini, Gabriele, and Geraldine Amiel

[20] 2012 Index of Economic Freedom. Germany Economy: Facts, Data, & Analysis on Economic Freedom.

[21] Jolly, David

[22] Fraser, Christian

[23] Pension Reform: Who Will Back Down?

[24] Munck, Geraldo L.

[25] Can Germany's Corporatist Labor Movement Survive?

[26] Ardagh, John, and Katharina Ardagh 1991

[27] Pension Reform: Who Will Back Down?

[28] Oliver, Laura

[29] Pension Reform: Who Will Back Down?

[30] 'Occupy' Movement: Why Protests Haven't Taken off in France

[31] Ewing, Jack

[32] Schultz, Stefan

[33] 2012 Index of Economic Freedom. Germany Economy: Facts, Data, & Analysis on Economic Freedom.

[34] Get Society Rich Quick: The Ideal Level of Government Spending

[35] The Financial Crisis: A View of Germany's Recovery - DAAD Study Tours

[36] Schultz, Stefan

[37] Brown, Stephen; covers entire paragraph

[38] Oliver, Laura

[39] Get Society Rich Quick: The Ideal Level of Government Spending

Endnotes

[i] Based on traditional social capital theory, a civil society is “…a dense network of voluntary associations and citizens organizations [that] help to sustain…community relations in a way that generates trust and cooperation between citizens and a high level of civic engagement and participation.” Due to findings that “…social and political trust do not have common origins in the same set of social conditions,” our working definition here is “a dense network of voluntary associations and citizens organizations that work to call attention to a particular societal issue.” See citation for scholarly article.

[ii] European Central Bank

[iii] European Financial Stability Facility: According to a Wall Street Journal article, it was created to incentivize private investment in the Eurozone by guaranteeing private investors 20% of their investment in return for financing European debt.

[iv] European Social Fund: main EU entity for supporting unemployment in member states

[v] The German corporatist system is the cooperative relationship between government, big business, and labor unions in reaching formal agreements.

[vi] It should be kept in mind that telephone surveys have their limitations. They are dependent upon to who is at home and at what time, what regions have access to land lines, those willing to respond, etc.

[vii] Our focus will mainly be 2010 as that was the halfway point of the crisis. We use the recent news articles in the following sections of this paper to provide insight into more current conditions and events.

[viii] See section on Germany

[ix] Healthcare and labor for Germany and pensions and education in France

[x] See discussion on Occupy Frankfurt in the section on Germany

[xi] Value Added Tax; added throughout multiple stages of production. It arguably is a deceptive price manipulator since the end price after VAT does not reflect true changes in supply and demand.

[xii] Practice in which union representatives are guaranteed about half of the seats on boards of directors

[xiii] A regime is here defined as “the institutions and practices that endure from government to government, including those of the state (which, in turn, are those in de facto control of the system the government operates within).” This definition is based on “…a two-dimensional concept of political regime and that these two dimensions, a procedural and a behavioral one…” as cited from the scholarly article. Note that the EU has developed a regime for Europe: the procedures of the EU Parliament and the ECB and the behavior of relying upon banking systems to drive economic policies.

[xiv] Also see page 5 discussing how an average of 30% of those surveyed were unable to clearly identify sectors in which the most important reforms took hold.

[xv] According to economic standards cited by the Wall Street Journal