FRANCE'S POLITICAL AND ECONOMIC CHALLENGES FOLLOWING BARNIER'S RESIGNATION

13 December 2024

France's Political and Economic Challenges following Barnier's resignation

We will consider the current political and economic situation in France following Macron's calling elections in July 24 and the resignation of michel barney, the prime minister, after only two months in office, together with its budgetary challenges, its market implications, and the broader European context. 

We will also need to consider the very limited options available to address these issues and provide a long-term stable outlook.

Key Themes:Political Fragmentation: France's recent snap election resulted in a fragmented parliament, making it difficult for Macron to govern effectively and pass necessary reforms. The election led to a parliament split among: Right-leaning parties (~1/3 of seats), Establishment and Left-leaning parties. This split made it difficult for Macron to implement policies effectively.

Budgetary Crisis: France faces a really significant budget deficit, exacerbated by a populist backlash against spending cuts proposed by the government, as well as, one suspects, rhe effete warlike and changeable Mr. Macron. 

This led to a no-confidence vote, further deepening the political crisis. The Prime Minister Barnier proposed a plan to address France’s large budget deficit by curbing spending. But this plan faced strong opposition: Both right- and left-wing parties in France are generally populist and opposed to budget cuts.

Financial Market Concerns: The political turmoil and budgetary issues have negatively impacted France's financial markets. Borrowing costs for French sovereign debt have increased relative to German yields, even passing Greek, reflecting heightened risk perception. The political turmoil has affected France’s financial markets: Borrowing rates for French sovereign debt have widened relative to German yields, reflecting increased risk perception and raising interest repayments.

Structural Economic Challenges: France's problems reflect a wider trend in Western democracies where generous social programs are promised without sustainable funding mechanisms. The situation is further complicated by France's membership in the Eurozone, which means, it does not have sovereignty over its currency and thus limits its control over monetary policy and imposes the EU's strict 60%-3% deficit and spending limits. In fact, France’s fiscal issues reflect a broader trend across Western democracies: Governments often promise generous benefits without clear funding mechanisms. This increasingly worries bond markets, which are after all, the major source of liquidity in the system. France, in particular, is known for its "expansive" ie generous, welfare system.

Limited Options for Solutions: France faces a "trilemma" - it cannot print money freely, it cannot significantly increase taxes without negative consequences including capital and entrepreneut flight, nor can it easily stimulate economic growth. 

This lack of flexibility severely constrains its ability to address its economic challenges. The inability to tax, grow, or print money freely presents a severe challenge for France and other EU nations.

Long-Term Outlook: The long-term economic outlook for France and the broader Eurozone remains pretty unclear and uncertain. Without significant innovation and productivity improvements, how can France meet its financial obligations and sustain generous social programs? The depreciating euro and potential further rate cuts by the ECB European Central Bank could exacerbate these challenges. Without significant innovation or productivity improvements, the economic outlook for Europe appears bleak.

Key Facts:

• Debt has been steadily increasing
• High marginal tax rates, particularly impacting lower-income earners
• European economic growth has been slow, largely due to low productivity
• Europe lags behind in technological advancements, particularly in the burgeoning AI sector.

Worries:

• This has left France in a political limbo, with a new Prime Minister tasked with drafting a more widely acceptable budget.
• Unlike monetary sovereign nations (e.g., the US), France is constrained by EU rules and lacks control over monetary policy (managed by the ECB).
• Monetary policy is controlled by the ECB, which enforces strict deficit limits of 60% debt to GDP and max 3% govt deficit, that are more like a gold standard and just as unattainable.

Conclusion: France faces heroic political and economic challenges that demand immediate attention. The lack of easy solutions and the constraints imposed by EU membership further complicate the situation. 

Addressing these issues and worries will require not just bold and innovative policy solutions to stimulate growth and improve productivity, and ensure the long-term sustainability of France's social programs, but agreement in a fragmented Assembly of representatives, whose main concern are accession to the presidency rather than the country's national interest and a national interest that is, in any case, difficult to define, given the mix of ethnic and religious groups now making up most western societies.

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WHAT'S WRONG WITH MACRON

1 Ocrober 2024

Macron completed a philosophy degree and for his Masters wrote a thesis on Machievelli and Hegel. In evaluating Macron, you have to start somewhere, so let's start with this fact.

As though the French aren't analytic enough, this will have made him even more academic and analytical when he examines problems. Doing Machiavelli will make him more pragmatic or we might say opportunistic or expedient. He flip-flops around like this, thinking he's being pragmatic and adaptable, but actually he comes across as weak, uncertain, uncommitted. 

And Hegel will have given him as the French call it "action-reaction" or dialectical thinking, where conflicting ideas lead to progress through synthesis. Hegel focused on history’s unfolding and the state’s role in actualising freedom, so this too may explain his pragmatic approach, balancing competing forces in society, such as globalisation versus national identity or reform and tradition. His belief in progress through dialogue and reform reflects Hegelian thought, as does his focus on long-term societal evolution. Macron’s appreciation for complexity and the interdependence of opposites, likely shapes his centrist policies, striving for unity in the centre ground, amidst political polarisation.

You can see this scheming mind at work when he made a deal with the Left grouping At the National Assembly elections to keep Le Pen out, even though he called the election in response to lapend's popularity in the previous European elections and despite the pen winning the popular vote. 

And once the Left had got the most seats, he then installed the tiny Centre-Right (his own party called Ensemble and a traditional though shrunken party called Les Republicans LR) into government, with Michel Barnier, highly competent manager, but puppet of the EU, as PM. The French currently appreciate barnier At the time of writing but you wonder whether this will last past his first mistake.

Maceon thinks he has the support of Le Pen's nationalists on account of the new governments anti-immigration policies. There's some truth in this as a third of the French voted mainly to keep immigrants out and even repatriate dual passport holders.

Anyway to continue the theme of evaluating Macron from rhe effect a philosophy Masters has had on his politics.. . 

You could say that these highly analytical and pragramatic stances, coming from his studies, have made him into a technocorat, which is something that people who are interested in politics don't like at all because it cleanses politics of ideological content and just puts economics, the interests of the elite and the status quo above truly "political" objectives, with the result that he come across as an insincere somewhat haughty propagandist ( I choose my words carefully, I did not say purveyor of snake oil).

Also from my own experience, if you see all sides of a question then you tend to develop pretty complicated solutions, to include risk mitigation, and this will definitely alienate you from the public who are drawn to simple goal-oriented, emotionally argues, headline answers and don't want all the intricacies of "project management" to do their heads in.

In addition, pragmatic usually means short term and yet France's problems are so profound they need real long-term commitment in the face of relentless opposition from all sides. Well he tried it with the pension reforms, didn't have enough grit, and backed away.

Like most western democracies, the publics are turning populist which means national sovereignty is a lot more appealing than joining international bodies like the EU. Yet Macron is a strong advocate of EU integration and a federalist Europe, for all the complicated reasons we can imagine.

Furthermore - and here it's a bit hard to express the argument - Macron is an internationalist and doesn't really seem to value the traditional side of French life. He may be with its culture but he's not with its history and traditions. When people think of the great presidents of France, those who led France through pivotal moments In its history and introduced lasting reforms and took a big place on the national and international stage, they think of two: de Gaulle and Mitterand. These people rang the national bell if you like and tapped into national feelings.

Macron is not really able to run France effectively it seems that his machinations have brought France to chaos. A true French president wouldn't spend all that time faking listening to the public and vacillating - a true French president would with clarion sonority identify the key issues the nation needs to tackle and would lead the people, as one, to the promised land, restore national pride (at the same time as the balance of payments) and tap into national narratives and sentiments to get there.

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WHAT IS "THE GREAT REPLACEMENT"?

25 June 2022

You see in France that Eric Zemmour made a great start in the Presidential election and got 18% and then dropped down through the floor through 7 to 4% in the second round and failed to win a single seat in the legislative elections.

He made many mistakes in his campaign, but the mainstream media are trying to get him to apologise for his saying that the greatest issue facing France is an identity issue and is not a cost of living issue.

His party is called Reconquest and his issue is called The Great Replacement. What is it about?

It is not some conspiracy theory where there are plotters who are moving in their people from south of the Mediterranean and the Sahel to take our places in France. No.

It is an observation. An observation that there are more and more women in the streets wearing the hijab and men dressed in jelabas. That if you look at the Register of births marriages and deaths, you see that those dying are called Pierre and Lucette and those being born are called Mohammed and Fatihah. That the average number of births to Muslim families is greater than to classic French families.

There's also a regret or sadness at the cultural loss that can be epitomised in the replacement of boeuf bourguignon by couscous.

And then there's that disgraceful story of the Stade de France where the English got blamed for Arab scum misbehaviour. They live off welfare and get poor results at school and in the workforce. They threaten our security. We are heading for civil war.

This is more than simple political manipulation: it indicates that politicians are afraid of reality. That's a very good point.

So Eric zemmour is projecting these trends into a future 5 or 10 years away and that's what the great replacement is about.

But why didn't the French share his opinion? The answer is that the short-term drove out the long-term in the shape of a) the war in Ukraine (prior to the Invasion, Zemmour was sympathetic to Putin's arguments and he also did not think it right that France take in refugees); and b) the cost of living crisis (that resulted from the war as well as from covid). 

And that seems like a very good point to me, and this is the problem with democracy. You have the technocrats - efficient, fair, emotionless - who assure continuity and maturity of direction from one electoral term to the next. Then you have the politicians who are prisoners really of increasingly diverse groupuscules of public opinion and powerless against global forces for change.  And finally, you have a public who can only think of their short-term troubles. But politicians overwhelmed by powerful global and domestic forces are powerless to represent them, they system loses credibility, winning your case becomes more important than preserving the system by respecting the majority.

That is how civilisations collapse - they crumble from the inside out.

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WHAT'S WRONG WITH MACRON?

12 March 2022

Macron is the only politician keeping in touch with Putin. Good for Macron.

But otherwise, Macron is one of those hussard rowdy types. He needs to be a bit less flamboyant and declarative, he needs to listen and concentrate more, be less concerned by public opnion and focus more on policy, make attainable objectives instead of massive shattering unreachable goals esp given the coffers are empty, he needs to recognise that France is a middle-ranking power and he isn't some emperor-in-waiting, get away from the illusion of action and into real actions for the medium term for the european powers that be.

He really is foolish to crticise the UK the way he does and drive us further from common European interests.

He doesn't seem to recognise France's role or what will make France great again, which is more about listening and mediating and waiting with patience for results. He should help Germany find back its confidence so it can express itself on matters of foreign policy and this will help Germany loosen its tight purse strings, to facilitate a Europe that can take care of itself, promote peace in the world, and not need America or NATO who are remarkably aggressive and have goals quite unrelated to Europe's, with values quite the opposite of the values learnt in Europe after 400 years of war.             

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IS MELENCHON RIGHT?

Melenchon is a utpoianist who believes man if perfectable. 

I know that man is flawed and only a functioning state with an operational legal system keeps man in place. (Religion can perform the same function.)

Melenchon thinks that the interests of the group must predominate over the freedom of the individual. And these interests are decided by the State. 

I think that direction is not given top-down from some autocracy, but rises bottom-up from the summation of the wishes of the people.

There should only be one party rule because competing interests leads to anarchy.

No! Let those who wish to represent the people put forward their policies for our consideration. The government has no interests other than those of the people.

Melenchon believes that private ownership is "expropriation". He thinks the state should own everything on behalf of the people, and decide how the assets of the country are best used.

I think maximum happiness and efficiency comes from private ownership.

Melenchon thinks that workers are "alienated" from the production process because they only see one little bit of it and do not share equally in the benefits.

Melenchon see society as composed of "classes".

I can see this is useful for a company's marketing and pricing, but society is composed of individuals and families living in nations. Workers do not identify with workers in other countries, individuals identify with those of the same or similar culture, language, credo, values, cuisine, clothes ... their neighbours preferred.

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