Tags: Feldstein | France | Britain

Martin Feldstein: France Wrong for Cutting Down Britain

Thursday, 29 Dec 2011 07:53 AM

The French government is wrong to cut down Britain and should take a look at its own finances before throwing stones, says Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan.

France is facing potential downgrades, and French Central Bank Chief Christian Noyer has said ratings agencies should downgrade Britain first because the U.K. government carries higher debts and wider deficits.

Such statements are rife with faulty logic.
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"French officials apparently don’t recognize the importance of the fact that Britain is outside the eurozone, and therefore has its own currency, which means that there is no risk that Britain will default on its debt," Feldstein writes in a Project Syndicate column.

"When interest and principal on British government debt come due, the British government can always create additional pounds to meet those obligations. By contrast, the French government and the French central bank cannot create euros."

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Martin Feldtsein
(Getty Images photo)
Furthermore, Feldstein points out, Britain can weaken the pound against the dollar to reduce its current-account deficits, which the French cannot do.

"Indeed, that is precisely what Britain has been doing with its monetary policy: bringing the sterling-euro and sterling-dollar exchange rates down to more competitive levels."

The time for casting blame is over and the time to move ahead with fiscal reform is now, even if such changes are politically unpopular.

"Looking ahead, stopping the eurozone financial crisis does not require political union or a commitment of German financial support," Feldstein writes.

"It depends on individual eurozone countries – especially Italy, Spain, and France – making the changes in their domestic spending and taxation that will convince global financial investors that they are moving toward budget surpluses and putting their debt-to-GDP ratios on a downward path."

France, meanwhile, is the world's "most pessimistic" country in terms of economic outlook, with the lowest score in more than 30 years, according to a Gallup survey, Reuters reports.

The survey of 51 countries shows that France beats second-placed Ireland and third-placed Austria to take the top spot as the most pessimistic country in the world, economically-speaking.

"Even in 1978, after the second oil crisis that called into question an entire economic system, the French have never shown themselves as pessimistic as today," Gallup reports, Reuters adds.

"Europe leads in despair, followed by North America," Gallup adds.
"The rest of the world, lead by Africa, remains mostly optimistic."

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The French government is wrong to cut down Britain and should take a look at its own finances before throwing stones, says Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan. France is facing potential downgrades, and French...
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Thursday, 29 Dec 2011 07:53 AM
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