7 December 2024
France is bankrupt. It matters because it cannot manage its currency and furthermore the Euro is a weak currency, while it is the dollar that leads as the world's reserve currency.
Since 2020, the French national debt has increased by €850 billion, but its GDP has increased by only €450. They've put in €850 to get out €450 There's €400 gone missing in four years, in waste and corruption.
In 1990, by GDP per head, France was 11th. Today she's 25th. Over the last two years, France is the only country in Europe to see its national debt increasing, with the result that interest rates are now higher in France than even rates in Greece. This amazes anyone with the slightest love or knowledge of the country.
So I want to compare France with Germany from the beginning of France's economic woes. We will skip part I, the post-war 30 glorious year boom, and focus here in part II on the following 30 years of economic history under Mitterand, Schroder and Merkel. In part III, let's look at the last thirty years.
FRANCE
Mitterand 1981 - 1995
Over President Mitterand's three termain office, 1981-95, debt to GDP increased by :
Term 1 - 20-25%
Term 2 - 30-40%
Term 3 - 50%.
Economic policies were local - Mitterand's socialist reforms, nationalisations and increased public spending led to inflation and stagnation;
But the context was global - the global recession of the early 1990s - The global oil crises of 1973 and '79 were the result of arab protests and oil embargo after the 1967 six day war and the failure of the attack by egypt and syria on israel, in the 1973 Yom Kippur war, over continued occupation by israel of these countries' land.
(As an aside, we note that israel to this day has never defined its borders which can only mean a fundamentally expansionist policy from the get-go in 1948.
We don't understand enough, or rather we don't have "a narrative", a peer-reviewed account by historians of repute, explaining how France's economic success known as "the 30 glorious years" after WW2, was stopped by events in the Middle East : Israel's UDI in1948, the responses in the form of the 1967 and 1973 wars, further reponse with the oil embargoes in 1973 and 1979.
Maybe there is no agreed-upon tying together of the pieces, but following widespread condemnation of Israeli govt behaviour after 7 October 2023 we are freer to openly talk about these things....end of aside.)
The sudden rise in oil prices led to stagflation (low growth, high inflation), which persisted into the early years of Mitterand's time in office '81 to '95.
After the wars came the embargoes and the inflation, and this brought, thirdly, domestic challenges - in the early 80s, unemployment was 8% esp young pple and industrial regions. Inflation peaked at 13.4% in 1981.
Mitterand's socialist economic policies, in the context of these global and local contexts, meant that structural deficits referenced above began to build up and became more pronounced as economic growth slowed.
In sum, to understand why France is bankrupt today, look firstly at events during Mitterand's 14 years in office :
- Early socialist economic policies
- The shift mid-term to austerity and later fiscal pressures
- Global economic challenges dating back from 1948, through The Thirty Glorious, to wars and embargoes from the 1970s, through to the stagflation of the 1990s.
GERMANY
Let's remember that by the early 2000s, Germany was known as the "sick man of Europe" (inflation, unemployment). How did Germany manage to recover? Could this help France?
Schroder 1998-2005 and Merkel 2005 - 2021
Strategic goals : Tax reforms, industrial relations, nuclear power
Germany’s economy revived, outpacung France's, driven by a series of structural reforms focused on labour market flexibility, fiscal discipline and industrial competitiveness. Simple things like low-paid, low-tax "mini-jobs", better matching of claimants to vacancies and tightening welfare eligibility conditions. These are simple, practical things that seem to have escaped the french administration.
Germany made some obvious improvements
1. Tax Reforms
- - lower corporate taxes to encourage investment
- - simplified taxation for SMEs
- - pension reforms : gradual increase in retirement age to address demographic pressures.
2. Industrial Relations
- - sectoral wage agreements, so companies could negotiate directly with employees rather than unions.
3. Nuclear Power
-- Germany also decided to shut down its nuclear power industry, which had negative consequences for france as well.
Under Angela Merkel (2005–2021)
Various strategic goals : balanced budget, eurozone stability, support for high-tech industries, vocational training, energy transition.
1. Fiscal Discipline & Balanced Budget Policy
Restrain govt spending. Merkel itroduced a "debt brake" in 2009, enshrined in the German constitution, limiting federal and state governments’ ability to run deficits.
This ensured fiscal sustainability and so built investor confidence.
2. Eurozone Stability
Stabilise the eurozone during the 2008 financial crisis and the 2010 European debt crisis, keeping Germany at the heart of European economic policy.
3. Industries of the future
Push innovation with support for small enterprises and high-tech through programmes promoting digitalisation and automation in manufacturing.
4. Encourage vocational training and apprenticeships to align education with industry needs.
5. Energy Transition
Controversial yes, but Merkel’s energy transition policies (shift from nuclear and fossil to renewables) created growth in green technologies and related industries, although at higher costs, costs that France too had to bear.
CONCLUSIONS
We have referenced France's 30 glorious years when it was recovering from the effects of World War 2. We have looked at the roughly following 30 years under Mitterand, Schroder abd Merkel. Comparing economic policies in the two countries, we can notice:
1. Labour Market Rigidity in France
France retained a more rigid, less mobile, less flexible, labour market, with stricter employment protections and higher costs for employers.
(Reforms like Macron’s 2017 labour laws came much later and faced and continue to face much heavy resistance.)
2. Fiscal Policies
While Germany prioritised fiscal discipline, France failed to limit budget deficits and public debt, and this meant less to invest in sectors that might have driven future growth.
3. Economic Orientation
Germany focused on manufacturing and export, France relied on domestic consumption and services.
(Export-oriented economies tend to outperform consumption-focused economies as this forces an emphasis on productivity, competitiveness, and - where successful - rising external demand. Thus employment and balance-of-payment surpluses.
If Germany is failing today, it is because it has lost it's source of cheap Russian inputs to manufacturing; and because instead of investing in future growth, it has again made the mistake of focusing on political objectives in its war with its neighbours....this shoulsd be an op-ed!)
So in sum, Germany created a competitive labour market, fiscal sustainability, and export-driven growth.
Aswhere France, through political and societal resistance to reform and labour rigidity, some call it simple laziness on the part of the French, who had become accustomed to an easy life from colonial profits, could not propose, still less implement, changes to make her economy more competitive. Even now, Barnier's proposal to trim public debt has cost him his job after only two and a half months in office.
Lessons learnt. Winning strategies emphasise adaptability, fiscal discipline, industrial innovation and outward economic orientation.
PART II
Coming next...
