Policy Research in Macroeconomics

PRIME’s Summer Quiz: whose speech, and were they right?

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By Jeremy Smith

Summer time and the livin’ is easy, consumers are jumpin’, and the FTSE is high…

OK, folks, it’s time for our summertime quiz while you’ve nothin’ better to do these long hot nights. Here we go.

From which major public figure’s speech is the following extract taken, and when and in what circumstances was the speech made?(Clue: within the last 2 years). Answers please to [email protected] .

The first prize goes to the person who gets the answer right and gives us the best short critique of the speech. The prize is (drumroll) that we publish your critique.

“The truth is that the crisis is not at an end and that there can be no political project that does not start out from a diagnosis of the crisis and its sheer scale. To deny the crisis is to close off every prospect for the future.

The so-called sovereign debt crisis, of which Europe is bearing the full brunt, is a continuation of the same crisis. It is the crisis of private-sector debt that has spilled over into a crisis of public debt. It is the same crisis, one that, having hit the banks, is now hitting states.

That crisis is hitting every major developed country, whether they have been governed by left-wing or right-wing majorities, and whatever their policies have been in recent decades.

We need to look for the common causes that have led the world into the situation in which it finds itself today.

It is in the institution, beginning in the late 1970s, of a form of globalization that knows no rules, other than those guaranteeing freedom of trade, that we can find the source of our current difficulties.

In the late 1970s, rather like a returning pendulum swing, the ideology of laissez-faire triumphed to the point that the world forgot every lesson it had learned from the Great Depression of the 1930s. Financial globalization became embedded as a way of artificially compensating for the ravages caused in the developed countries by a globalization without rules.

It was necessary to enable the surpluses of some to finance the deficits of others.

It was necessary to enable increased debt to offset the unacceptable decline in the living standards of households in the developed countries.

It was necessary to fund a social model that was straining under the burden of its deficits.

It was inevitable to ensure that financial capital could seek elsewhere the profits it could no longer hope to obtain in the developed countries.

And thus there came into being a gigantic debt production machine.

The developed countries thus sought salvation down the only road left to them: flight into ever greater debt….

The extravagant growth in the financial sector that spread quite incredible amounts of debt had as a consequence the financialization of the economy. It placed the economy under the exclusive domination of an approach geared to speculation and obsession with the short term. We have now seen the dramatic consequences for industry, for the environment, for inequality and for the decline in the value of work.

Once the flight into greater debt becomes impossible because the lenders no longer want to lend, because the enormous pyramid of debt, hitherto hidden by the complexity and the sophistication of global finance, becomes apparent to all as an enormous risk, a new economic cycle can begin.

The new cycle will be very different from the one that preceded it. The cycle that is now at hand will be a cycle of debt reduction that will make the economic pendulum swing back towards work and production, which the developed countries had tended to sacrifice excessively.”

 The Grand Jury = PRIME’s Jeremy Smith, Ann Pettifor, Anne Henow. There could be more than one winner (or none, in which case there will be a rollover..)

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3 Responses

  1. Response to Prime Economics Summer Quiz from Peter Porcupine of Farnham, Surrey :

    The extract is from Nicolas Sarkozy’s hour-long keynote Toulon speech of 1st December 2011, delivering his scriptwriters’ muddled vision for steering France and Europe through the impending crisis.

    With elections five months away, the French President used the speech to try to ward off an internal challenge from the right-wing populist leader Marine Le Pen, while attempting to signal a eurozone deal. Hence his ‘vision’ proposed a eurozone solution which involved unprincipled and self-serving nationalist elements that ranged from a dogged resistance to changes to the CAP to an almost psychotic assumption of a personal ability to protect French citizens from economic correction, by wielding the sort of supreme power over market forces that even King Canute (Knut) had recognised to be delusional.

    Sarkozy preceded his speech by taking false credit for supposedly saving French taxpayers from exposure to the banking collapse and the cost of the resulting unprincipled and foolhardy public bailout. After recapping his previous speech, the brief outpouring of wisdom that followed was unusually close to the truth and so welcome, but clearly didn’t reflect his own beliefs, as he proposed a “revolution” consisting primarily of doing very little.

    He went on to heap overly generous flattery on the French nation (i.e the electorate) in a blatant and quite vomit-inducing attempt to sweeten the bitter pills of imposing higher retirement ages and further loss of sovereignty. His ‘revolutionary’ solutions revolved around half-hearted efficiency savings in the bloated French public sector while fighting any substantial change to the French way of life, and an enhancement of ECB powers.

    The ensuing Press reports picked up on his talk of a new deal that would allow the 17 eurozone leaders to strike political bargains among themselves while forfeiting national rights of veto, under a new system of eurogroup qualified majority voting.

    Predictably, Sarkozy’s lack of principles prevented him from being able to understand the script or substantiate his ideas. Apparently confused by the concept of telling the truth, his vision was vague and self-contradictory, professing a oneness with the Germans while opposing Berlin’s position, even taking a swipe at the Germans’ preference for handing more powers to Brussels, while shying away from the idea of the French taking responsibility for anything. He espoused the successful Franco-German axis as the basis of ongoing success – but not the crisis – yet his ‘initiative’ clearly contradicted Berlin’s plans for a much more rigorous monetary union, in which the EU nations would surrender control of tax and spending policies to a centralised EU body armed with intrusive powers of scrutiny and penalising fiscal sins with automatic fines.

    Though much of what he said in describing the problem is undoubtedly true, Sarkozy’s solution was just as disingenuous as George Osborne’s ‘New Economic Model’ speech of 24th February 2010 has since proven to be. A man’s beliefs are known by his actions, not by his words.

  2. “…as supplies diminish…”
    Qatar is sitting on at least 300 years worth of gas as is Saudi, Australia, Indonesia, a variety of “stan” countries and, of course, the USA. If anything, we are facing a glut at reduced prices so it may appear a short term stratey to lend to the developers.

    Just sayin’.

  3. Don’t know who said it but I guess they were right! But the lenders (in the USA) are still keen as mustard to lend to the shale gas companies, although the gas is being sold at a loss and the bubble will surely burst in the foreseeable future. The assets which underpin the loans will thus fall in value as supplies diminish, prices rise and the price of the gas becomes too high to be viable. So…deja vu all over again – just my opinion of course and I am neither economist nor politician!

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