A growth pact?

The recent post by M.L.Paris discusses the possibility of a ‘growth pact’ arising from the election of Francois Hollande in France.  But part of the problem in analysing this issue is the ambiguity about what ‘growth’ means (and how best to promote it).  Consider the following statement from the Swedish Minister for Finance, speaking to the German Marshall Fund in February this year: “Growth enhancing measures [are] not about stimulating demand.  It is about releasing growth through structural reforms, particularly when it comes to regulatory barriers to entry in domestic service sectors”.  This is also, for the most part, what Merkel, Draghi and others mean when they talk of growth promotion – supply-side measures to ‘incentivise’ workers, liberalise protected sectors of the economy, etc.  They most definitely do not mean boosting demand, which is what many supporters of Hollande believe a ‘growth pact’ should contain.  So what might seem like an emerging consensus on this issue is anything but.  And, insofar as Hollande is now committed to the fiscal treaty itself, the probability is that the supply-siders will win. After the results of the first round of the presidential elections, Hollande’s policy chief Michel Sapin told the Financial Times that “[Hollande] is not saying we must renegotiate the budgetary discipline” – which leaves precious little scope for any demand stimulus.  Predictions of the end of the age of austerity are likely premature.

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