Archive for January, 2012

Sarkozy le filou: “Aimez-moi s’il vous plait!”

January 29, 2012 Leave a comment

Tomorrow, president Sarkozy will address the French public for about an hour. He will have all the attention of all the media and probably will have a huge audience.  This address to the nation has one purpose: to reconcile himself with the French public and to show his compassionate side. It will be a mixture of de Gaulle’s “Je vous ai compris” speech with a touch of “il faut me comprendre aussi.”

Nicolas Sarkozy knows very well that he is disliked by the majority of the French people. His favorables have been extremely low for extremely long time. One survey after the other shows that he is probably the least liked—or probably the most hated— president of the fifth republic.  He also knows that attempting to turn this much negative with only three months to go to election day is almost an impossible mission.  So, what is he going to do? What is the strategy before him? Well, I already outline his strategy in a previous post on this blog. But recently, during his trip to French Guyana, in a supposedly off-the-record declaration to the traveling press pool, Sarkozy started to add another layer to his strategy, a second prong if you will. This strategy is aimed at one thing: to foster compassion.  Yes ladies and gentlemen, if you can’t get them to love you, well the next best thing is to get them to feel bad for you.

In his supposedly off-the-record declaration, Sarkozy vowed or promised to quit politics if he is defeated.  This very well calculated and strategically leaked mea culpa was so touching and fuzzy and warm that Britain’s most conservative major newspaper, The Telegraph, titled its article “Nicolas Sarkozy shows off his human side.”  Yes ladies and gentlemen, the beast has a heart and it is bleeding, and le mechant Sarkozy is crying fake tears.

So, what is the purpose of all of this last minute Commedia dell’arte? Obviously, Sarkozy is not going to back down, play dead, and let Hollande waltz into the Élysée Palace. He is actually going to double-down on his policies of austerity—i.e., an increase of 1.6% of the VAT or as the French call it, la TVA, and a slight increase of 2 points in a CSG on financial investments and placements.  He is, as we said it before on this blog, going to show that he is courageous;  that his policies saved and are saving France from a catastrophic collapse; and that without him, France’s future is doomed. Sarkozy would probably say—and verbatim if I may add—that engaging in this kind of unpopular policies, which he knows very well with a heavy heart and a lot of compassion that they are unpopular, shows his courageous leadership during this time of crisis. But on top of the courage and leadership, he is going to say that he has changed as a man; that he is humble; that he made some mistakes and he regrets some of his decisions; that during this crisis and during these dire times, he is not seeking power for the sake of power, but because he is compelled by a higher purpose and a more noble objective; that the noble objective is saving France; that he cannot let Hollande gamble with the future of the French people and let him bring the EU to the brink of catastrophe with his proposals. Furthermore, Sarkozy knows also that he cannot beat Hollande by defending his policies in the traditional left-right cleavage. He will (and this is a gamble i am taking by predicting that) try to redefine the political cleavage and get away from the left-right divide by casting his battle against Hollande as a battle of old vs. new politics or traditional vs. modern solutions. Of course, Hollande would be cast as the old and the traditional while he would cast himself as the new and the modern politician.

The second prong of his strategy is only possible if he is already on the record saying that he is quitting politics and showing that he is not attached to politics for the sake of power. He already did that and it was successful. So basically, he laid down the groundwork for tomorrow’s interview by showing himself that he is above the normal and mundane notions of power and elections, and only the courage of taking tough decision count at the end.  This is a well thought-out strategy to reconquer part of the electorate. He is going to be rhetorically dancing around on two high-wires:  the first wire is the necessity of his leadership and that leadership comes with the price of unpopularity and he knows that very well; the second wire is that because he took so many unpopular decisions to save France that you have to cut him some slack and give him some credit and reelect him.

This is a very complicated act to accomplish. This is what we call “hail mary” electoral strategy. It might be successful and he might get away with it. However, I would like to think that the French people are a bit smarter than this. This strategy of poor-me-i-am-so-not-understood-by-my-people was tried by Nixon in the 1950s, and it failed. It was also tried by George H.W. Bush in the early 1990s and it failed again.  Moreover, this last week Hollande did something good for himself. By all accounts, he showed that he is a competent politician and leader who can be trusted at the helm of the state.  So, it is going to be hard for Sarkozy–and i would say useless–to argue the opposite. Furthermore, what has been underestimated by the French polling institutes is how much the French people dislike and even hate president Sarkozy. It is hard to vote for someone you hate and dislike. We know, from thousands of empirical studies on public opinions that policies and electoral programs are not a huge factor in what makes people vote. What matters the most is: 1) the state of the economy (as Bill Clinton 1992 campaign slogan shows: It’s the economy stupid!); 2) party identification (a proxy for ideology), and 3) the factor of likeability of the candidate. You can have the most competent politician out there with the best electoral program ever, but if that candidate is disliked, then he is dead in the water (just remember Jospin v. Chirac 1995 and 2002). In describing how the democrats usually vote, Bill Clinton, one of the most gifted politician of our time, said “democrats like to fall in love” with a candidate. That’s all you need to know. If the voters don’t fall in love with you or if they don’t even like you or if they cannot imagine you in their living-rooms for the next 5 years, they won’t vote for you.

Well, in the 2012 French presidential elections, Sarkozy has two huge hurdles: first, a bad economy (huge unemployment rates, huge debt, the loss of the triple A credit rating, a severe recession and a zero economic growth forecast for 2013); second, he is very much disliked. That’s a tall order and huge hurdle to overcome.

To sum up, I would say “bon courage Mr. Sarkozy.” It is almost mission impossible, unless he goes very negative (well he has nothing lose really by going negative) or Hollande melts like a snow cone in a sweltering sun.

Pourquoi le prix du baril de pétrole défie la loi de l’offre et de la demande?

January 15, 2012 5 comments
I was going to write a post on the topic of oil prices, but Fareed beat me to it. The simple puzzle presented in the column below is that commodities prices are subject to the supply and demand rule. Constant supply, and a drop in demand would lead to a drop in the price. The question is why don’t we see this adjustment in the oil market. After all, the economies of China and India are cooling down (which is not good for reasons i will tackle in my next post), and the economies of the eurozone are on life-support literally. You add winter and the fact that people drive less during this time of the year, and the real demand for  oil is at a lower level compared with this past summer or with the summer prior to that. However, the price of the barrel is at $113, which is twice the price it was trading at 5 years ago when the global economy was booming and the demand for at all time high. The question is, why? What is driving oil prices up in a time of a low demand? This what Fareed tries to explain and i wholeheartedly agree with his analysis

Why oil prices will stay high

By Fareed Zakaria

The next time you pay $3.50 dollars for a gallon of gas, stop and think about a basic rule of economics. When demand is low and supply is strong, prices should fall. Right?

Now apply that to oil. People drive less in the winter. The American economy is slow. The Euro Zone has stalled. China and India are slowing down. So demand for oil worldwide is low. So why is oil trading high at $113 a barrel, more than twice the price it was trading at five years ago when the global economy was booming? What in the world is going on?

There’s a school of thought that suggests the global economy is doing better than we think. China and the U.S. are proving resilient to Europe’s problems and so traders are expecting renewed demand in the world’s two top economies. But another school of thought argues we’re in the midst of a bubble. Speculators have been driving up the price of oil and eventually it will crash.

Now I think that the economic fundamentals really can’t justify oil prices at their current levels. The real driver of high oil is not the stuff you find in the business section of the newspaper – the demand for oil in India and China. It’s on the front page: Global politics.

You see, traders worry about risk. And the biggest risk to oil supplies is the threat of war in the Persian Gulf. Meanwhile, in Nigeria mass protests are raising worries about the supply of fuel from there. Venezuela is in a slow-motion collapse because of Hugo Chavez’s mismanagement. There have also been protests in Russia, the world’s top oil producer. And remember the fallout of the Arab Spring – Libya’s oil production in 2011 was severely curtailed. Iraq continues to disappoint with its oil output and its recent political tensions certainly haven’t made things any better.

So a mix of war rhetoric and local troubles in key oil states are factors driving up the price of crude. And that translates to higher prices at the pump. Now that logic suggests that prices will fall when the news calms down.

But perhaps not. Perhaps oil producers want these sky high prices. Usually the major oil producers understand that keeping prices too high in the short term means people start finding alternatives to oil. They start driving more efficiently; they start looking for alternate energies. But this time, oil states face crucial challenges. Look closer at the Arab Spring. The only oil rich country that has been forced into regime change is Libya. Why? The Gulf states lavish subsidies and salary increases on their citizens. They’ve upped spending to record levels to suppress any popular discontent.

I saw some striking numbers this week: Look at the “break-even” costs for the world’s top oil producers. That is the minimum price at which these countries need to sell oil so that they can balance their budgets.

Russia now needs oil at $110 a barrel to manage its finances. For Iraq, the number is $100. Even Saudi Arabia now needs oil to trade around $80 a barrel just to balance its budgets. The numbers are also high for Algeria, Qatar, and Oman. Only a decade ago Saudi Arabia was able to balance its budget with oil prices averaging around $25 a barrel.

So now it is in these countries’ interest to keep oil prices high, which they do by curtailing supply in one way or the other. This is perhaps the most lasting impact of the year of global protest: High oil prices.

So, the bottom line is an oil crash seems unlikely. Even though the engines of global growth are sputtering, be prepared for a period of expensive commutes. Maybe it’s time to trade in your Escalade for a Prius.