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AB 2000 studies

Alain Boublil Blog


Republican pact: United States set an example

When, in France, some political leaders suggest that parties, which, usually, confront each other, met together to favor the emergence of solutions for the diseases the country is suffering, first of them unemployment, in Washington, Democrats and Republicans, with the support of president Obama, have just given a stunning demonstration of the merits of that approach.

American institutions are different from ours. Congress cannot be dissolved and when the current majority is from a different political side than the president, there is a “cohabitation” situation. The former, in case of disagreement can only oppose its veto and to surpass it, Congress needs a qualified majority. So, necessity occurs sometimes, for the two Parties which dominate American political scene, and which confront every day, to work together to find satisfactory compromises. It is what has just happened. Let’s have a dream and suppose that, in France, working groups, gathering members from the right and the left, make proposals regarding the simplification of the organization of the local administrations, or the energy policy or the housing policy, and that the Parliament votes in favor of them. French people might reconsider its judgment about political elites.   

In the bill adopted by the Congress at the end of the year, a bill, in France we should qualify as mishmash, three majors topics have been settled by consensus, but after tough negotiation. First, there was the public debt ceiling which has been reevaluated. It is the Congress which determines the limit. And when there is cohabitation with a persistent and important budget deficit, it sometimes generates endless arm-wrestling with even the delay of civil servants payment and the interruption of basic public services. Financial markets don’t panic since they are familiar with these situations, even if the threat of a default by the United States was not theoretical. The issue has just been settled in the last bill, with mutual concessions, notably regarding fiscal measures, until September 2016. 

The second breakthrough is the ratification of IMF statutes reform, adopted by members in 2010, but not yet into effect, due to the hostility of the Republican Party. The White House supported the reform, which contributed to the improvement of its relations with China. The purpose of this reform is to increase the role of emerging countries, with China being at the top of the list, and to be consistent with their real economic weight. The ratification is a good sense decision. It comes a few weeks after the official recognition of China currency, the Yuan, denominated also Renminbi, the money of the people, as a reserve currency and its inclusion, with a 10.92% weight, in the IMF reserve basket, above the Yen and the Pound. The ratification  is also a support to China, to achieve the necessary reforms in the perspective of the internationalization of its currency and to normalize its interventions on its quotations on exchange markets, which is wished by Washington.

Yuan “Long March” had started in 2010 with the first swap agreements with few partners. Then, companies got the authorization to trade with their clients and suppliers in using Yuan. Close to zero in 2011, the transactions using the Chinese currency rose to next to 3% of all international trade transactions in 2015. In the same time, the Yuan made its appearance on the financial markets through the authorization to issue, outside of China, bonds in Yuan, the “dim sum” bonds and later, in China, the “panda bonds”. The success of the latest emission in Pekin, issued by the Republic of Korea, five times oversubscribed, has definitely a political signification, as Moscow choice to bypass sanctions, to issue Renminbi bonds. But that also illustrates the growing importance of the Chinese currency, consistent with government policy, which wants to give to its currency the same role, for its economy the dollar has for the American economy, both as a currency reserve and a currency for international trade.

The third progress included in the bill approved by the Congress is the lift of the ban on oil exports, supported by the Republican Party, in place since 1973 oil crisis, as a counterpart of the prorogation of fiscal incentives for renewable energies, supported by the Democrat Party. Until now, the exploitation, thanks to new technologies, of the “Cowboyistan” resources, was slowed because refineries were saturated, storage installations were full and it was forbidden to export the new production, in other countries than Canada, itself also saturated, and Mexico. Contrary to what has been written, it is not the fall of prices following OPEC decision in 2014 to maintain its level of production, which was at the origin of that slowing. So, production of this high quality oil will increase and the price differential between posted prices in Texas (WTI) and the European Brent will narrow again.

This decision will have major consequences on international markets because it turns down any price rebound on the short term. This is not good news for countries which have high production costs, like Brazil, which hoped to become exporters, and not at all for traditional exporters like Gulf countries or Russia, which are going to lose substantial revenues. On the opposite, it is very positive for the major oil importers like, apart with United States, China and France. In return, the new and deep price fall since November, in anticipation of Congress decision, with a barrel under 40 $, is not going to encourage economic agents to reduce their consumption.

The “Paris Agreement”, announced at the end of COP 21, definitely did not include commitments including figures and was rather a statement of principle. But, to go from intentions to achievements, it is necessary to put in place credible incentives or rules, especially since behavior changes will be more difficult to obtain due to the steep and durable fall of fossil energies prices. Unfortunately, it is not going to happen in Europe, with Brussels unwillingness to sustain carbon credits market in reducing allocations and in the U.S. with the hostility of many states to tighten coal power plants regulations, not to say a word about the spectacular rebound of the sales of heavy and powerful vehicles, with huge CO2 emissions.

But the most important lesson from the adoption of this bill is the demonstration of the fact that two political parties, which fight again each other for the conquest and the exercise of the power, can gather around the table to find solutions when major national issues for the country are at stake. It was absurd to wait for the last moment to authorize the state to take up resources necessary to its functioning, as it was contrary to U.S. interests to maintain a row with China about IMF or to renounce to export, and to produce, one of their natural resources.

Even if political and institutional situations are different, it is a lesson that, in France, we should remember because there many issues where majorities, built on common ideas, above traditional political splits, could bring solutions.   


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