After near two months of uncertainties, the new French government will have to elaborate an economic policy able to answer to the difficulties with which the country is confronted: low growth, persisting unemployment, trade deficit and heavy public indebtedness. The alarming messages dedicated to make accepted by public opinion unavoidable unpopular measures are contrasting with the self-satisfaction talks of the previous government. The results of the last two elections have shown that the message had not convinced. The government so will have to identify the causes of this situation and to propose appropriated remedies.

The trade deficit is growing for twenty years. The measures adopted to reestablish French economy competitiveness so have failed. Between 1981 and 2002, the trade balance was mainly influenced by oil and dollar prices. Without energy, we had seen a spectacular recovery. Since that year, the deficit has not ceased to worsen. It has reached 55 billion in 2008, 70 billion in 2011 and then 160 billion in 2022, before probably falling back under 90 billion in 2024. This trend was first assigned to the creation of the euro. That absurd analysis, in front of the surplus of two such different economies like Germany and Italy, has been abandoned to leave the place to an argument quite also disputable: the excessive labor cost would be at the origin of the loss of competitiveness. Was born then the “supply-side policy” targeting the reduction of enterprises social and fiscal charges with, as its counterpart, an increase of the public deficits.

That policy was focused on low wages to the detriment of qualified jobs and so has not promoted the industry and new technologies sectors. But the huge transferred amounts have incited enterprises to launch foreign acquisitions which have been at the origin of their disappearance (Alcatel, Lafarge) or which have compelled them to delocalize production to the detriment of employment in France (Renault). The public money has not been lost for everybody. The major groups and the banks have used it to pay their executives and their shareholders or to proceed to massive share buybacks.

But, thanks to a large services surplus, France current accounts balance remained near equilibrium which has justified the financial markets trust and the rather lenient attitude until now of the notation agencies. It will not be the same regarding budget deficits and the rise of the public indebtedness. The alarming message dedicated to make adopted unpopular measures has already have consequences on the interest rates. The spread with Germany on the 10 years bonds is near 80 basis points when it was less than 60 three months ago and has overpassed Spanish one. It is dangerous to make a confusion between communication and action. That could incite notation agencies to be less indulgent and the foreseeable rates increase will have consequences on the public debt charge and on the budget deficit.

Yet, France is not the only country to be in this situation. Japan is twice more indebted and has no problem to finance itself. The United States have a huge internal and foreign twin   deficit and are no more threatened. In Europe, comparisons are biased. There are first the French military expenses much more important than elsewhere. There is also the pension system by repartition which is included in public charges when the capitalization systems in the other countries are not included in them. Another positive point, the demographic situation for several decades is much more favorable, even if these last years the trend has softened. With the increase of the life duration, the transmission of the heritage occurs a few time before the end of the professional activity, which improves the level of life of the retired persons. At last, French people have a higher and higher financial saving rate which makes easier the financing of the public deficits. But that must not exempt to put an end to the deterioration of the public accounts which has aggravated for ten years.

The political instability triggered by the dissolution of the National Assembly in a context of international tensions weights on growth and so on fiscal and social receipts. The worries about the 2024 and 2025 budget deficits which result from it make indispensable structural reforms regarding the organization of the State and taxes increases along with a durable reduction of the public expenditures.

During the past, taxation has not only been used to finance expenses. It has been used to make households and enterprises behaviors to evolve through the multiplication of fiscal niches. But nobody has thought to proceed to a serious evaluation of their efficiency, except with reports immediately put into cold storage. There is there the possibility to recover new and permanent resources. Household tax system is today almost exclusively calculated on their revenues and their expenses. But uncertainties weighting on the future incites these ones to spend less and to save more. A rebalancing of the withholdings toward revenues from savings and the level of accumulated wealth would allow to get a tax system in the same time fairer and generating more resources.

But the most important effort would be based on an institutional revolution allowing to de-bureaucratizing the French society and to reducing the functioning expenditures of the State and of the local communities. The origin of the bureaucracy, it is the production of laws and of regulations. Its inflation is without any precedent for thirty years. It comes from the increase of their production capacity. Most of the past institutional reforms went to this direction: augmentation of the duration of Parliament sessions, of the number of deputies and of senators and interdiction of the plurality of offices. These elected persons had nothing else to do except to elaborate and to propose texts. To the contrary, the creation of territorial counsellors replacing departments and regions elected members would contribute in the same time to a reduction of the expenditures and to the simplification of the procedures. It would allow to reduce the number and the size of public administrations in charge of the local control of these institutions.

In the same spirit, it must be put an end to the practice consisting in creating an organism each time a new issue occurs, which has leaded to these new operators “High Authorities, High counsel and so on”. During the past, when a file had to be treated, a commission was created. But it disappeared once the report was sent. Today, not only these costly institutions are endless but in administrations, new jobs have been created to supervise them. Their suppression will be very unpopular in the political world because the employed persons are civil servants and their managers former politicians. But it would be well received by the citizens.

These bad economic and political choices are at the origin of the French deficits but they don’t put the life of the country in danger, contrary to the frequently alarmist talks which are delivered. On the other hand, they are the main cause of the discontent provoked by the degradation of the public services. Expenses are not employed where they would be the most useful and the withholdings are not debited where is the country true wealth. It is in taking account of these realities that trust will be restored and France will be cured.