Just twenty years ago, France, for the first time won the soccer World Cup. Next Sunday, its team may win the right to have a second star on its shirt. 1998 victory contributed during a few years, to strengthen the country cohesion thanks to a team which gathered players with diverse origins : the “blacks”, the “whites” and the “beurs” coming from North Africa to which we could have added the “basks”, coming from Basque country. It was also given this success for a significant contribution to the strong economic growth France enjoyed until 2002, a result which has not been matched or even approached since that time. Will a victory in 2018 have the same consequences and sustain the economic rebound observed in 2017 but which seems, since the beginning of the year, running out of steam?
The economic and political context is obviously quite different. The Jospin government President Chirac had to appoint after the disastrous 1997 snap election was also taking advantage of a favorable environment. France had just qualified for entering the eurozone and the transition toward the currency for financial transactions was about to come as soon as in 1999. During all these years, the economy benefited from a very low oil price, around 20 dollars per barrel. Foreign trade recovered with a surplus superior to 20 billion euro in 1999 and a 60 billion cumulated one during the period. Growth rate will be near 4% in 2000 and unemployment will continuously decline thanks to a never equaled job creation increase: 2.2 millions, i.e. three times more than between 2012 and 2017, according to INSEE statistics. A virtuous circle was established: unemployment fall gave back confidence to households who consumed more, which profited to enterprises which started to hire new employees.
The reduction of the week working time to 35 hours has also contributed to this rebound, even if that measure is still even today highly debated due to its too technocratic and authoritarian introduction in the public sector. Fiscal receipts as contributions to the social Security system and the unemployment insurance increased which allowed France to meet Maastricht criteria. Euphoria generated by the 1998 victory contributed also to increase that trust feeling which was good for investment and spending. Companies were not yet thinking about launching a delocalization policy or making costly acquisitions abroad which will be the characteristic of the following decade. At last, the euro rate against the dollar was low, by large under its nominal value, despite short term interest rates around 4%, when they are negative today. These indisputable economic successes will not be enough to guarantee Lionel Jospin victory in the following elections. His inability to gather together the left will result in his elimination after the first round of the presidential election.
The 2018 economic context is not less favorable than in 1998. Oil price is certainly much higher, even calculated in dollar whose exchange rate has fallen but interest rates are near zero, which helps a lot the State and the public administrations which are heavily indebted. Households have known how to take advantage of that and the number of housing starts has increased since 2016, which is good for the construction industry. But growth remained very weak, 6% cumulated on the 2012-2017 period against 15% between 1997 and 2002.
Economic policies have also been quite different. Twenty years ago, the reduction of working time and the increase of the purchasing power had been considered as a priority. The policy followed since 2012 and which have been very closely pursued in 2017 has chosen to put the priority on the restoration of enterprises margins with major transfers in their favor. CICE, decided in 2013 has represented every year 20 billion euro and it will be transformed from 2019 in a definitive reduction of social charges. Nobody has been able to prove its efficiency. It came at a time when a reduction of public deficits had become indisputable to comply with European rules. It has been compensated by an important rise of taxes paid by households. This simultaneity explains, for a large part, the weakness of the growth between 2012 and 2017, even if these constraints became less heavy last year.
Regarding enterprises, the expected improvement of the competitiveness has not been there. France trade deficit hasn’t stopped becoming heavier and the whole impact of oil prices fall has been neutralized. During the last twelve months, it reached 60 billion euro, i.e. the same amount than when the barrel was at 110 dollars in 2012. The investment rebound occurred in 2017 has mainly concerned the construction of office buildings or retail centers. The creation of new production capacities would have permitted to increase, on a stable basis, production and employment remained at a marginal level. Industrial production grew only by 3% in three years. On the other hand, businesses profits, especially in the biggest groups, significantly improved, which has profited to the top management and to the shareholders. Contrary to that, employee purchasing power has not much increased and the energy price rise, due to an increase of taxes and to the rebound of oil prices, constitutes a threat.
A new fiscal policy could correct the mistakes made during the previous years to the condition to be presented as a choice in favor of the purchasing power but until now, it is not the case since financial wealth is privileged compared to the level of life of retired people and savings are even becoming under threat. For the first time since near to ten years, the rate offered on savings accounts (0.75%) is by large inferior to inflation (2% for the last twelve months). So the economic choices are quite different from these made in 1998. A French victory would certainly strengthen the country trust in its capacities. Optimism, after the feast which will celebrate the event, will prevail. And political leaders, especially if they have the wisdom to renounce to any exploitation, will take advantage of that victory. But they will be quickly confronted to a dilemma.
They can hold on to their current choices. The economy running out of steam, observed since the beginning of the year will get worse and the short period, after the victory when we believe that everything is possible will quickly appear as a parenthesis. Comparison with the years which followed 1998 victory will be cruel. French people will quickly understand that the feast is over. Returning to the reality will be painful. But these leaders can also take advantage of the boost generated by the victory, of course if it occurs, to change the direction of their economic choices. It is not about opening the floodgates of public expenditures but to understand that without protecting savings and without an increase of the purchasing power, it is impossible to obtain a real economic success. The 1998 victory did not allow Jospin to stay in power but, at least, France had made progresses. A victory in 2018, if it is not followed, on economic issues, by shared progresses has few chances to convince French people in the future, that the policy decided by Emmanuel Macron, has been successful.