The Barnier government fall after the likely vote of a motion of censure regarding the Social Security financing law is the consequence of the contradictions between the economic policy choices adopted for ten years and the necessity to contain the evolution of the French public debt. But the alarming words employed these last two weeks are immoderate: the comparison with Greece doesn’t make any sense due to the different sizes of the two countries and these about Germany are groundless because the country is going to be confronted with heavy economic difficulties and a real political instability caused by the coming elections to the Bundestag.
But the financial markets as the notation agencies with the recent confirmation of France good note, continue to very largely trust the country. The December 2nd issuance of Treasury Bonds has been by large oversubscribed because the demand was three times higher than theTreasury offer, and on November 21st, near 30 billion euro had been subscribed when the State has taken only a little more than 11 billion.
The only true issue is to know how France has arrived to such an indebtedness level along with having such poor economic results. The strategic choice made in 2013 has been to privilege the massive reduction of the social and fiscal charges weighting on enterprises to recover their competitiveness, which might allow to get back growth and foreign trades equilibrium. A part, which was not negligible, has been financed by an increase of the taxes on household which has weighted on the following years growth. But no significant result has been obtained regarding the reduction of the public deficits which would have come from the expected return to growth. The Covid-19 crisis with the indispensable policy of the “whatever it costs” has so occurred in a context where already the public indebtedness was high.
The amount of the taxes cuts and the financings offered to enterprises have been estimated at 70 billion euro per year as an average which has generated the deficits and the rapid rise of the public debt from 1900 billion in 2013 to 3100 billion at the end of 2024. But that policy is far from having constituted a support to growth because that one has reached 2% only once during that period, if we except the rebound in 2021 and 2022 after the recession caused by the Covid-19 pandemic in 2020. In 2024, the GDP will hardly grow by 1% and the forecasts for 2025 are at the same level.
The public deficits have not supported growth and the taxes reductions granted to enterprises also have not more improved enterprises competitiveness. The trade deficit, without energy became largely heavier. The trade balance was broadly positive at the beginning of the Twenties. It has started to deteriorate and this deterioration accelerated from 2015 when the supports to the competitiveness would have started to produce their effects. The deficit in 2024 will be near 100 billion and 40 billion for manufactured goods, i.e. twice more than the one registered in 2013.
These who defend that policy put forward the results regarding employment with the significant diminution of the unemployment rate. That one was 10% in 2013 and will have fall back to 7.5% at the end of this year. But this trend must not make an illusion because it comes from, for a large part, the country demographic mutation with every year more retirements and less young people coming into the job market. Two other points also allow to question the result perspective. The unemployment rate was already inferior to 8% at the eve of the 2007-2008 financial crisis which has been followed by the crisis of the euro. It then rebounded to 10% in 2013. The recent evolution is also due to the measures in favor of training which make disappearing from the statistics hundreds of thousand young people. That allows them to come into enterprises for a limited duration without having any guarantee at the end of the period.
If these measures are justified because they offer an appropriate training for the enterprise needs, definitive conclusions about employment must not be taken as must not be forgotten that the unemployment rate is twice higher in France than in Germany or in the United States. Regarding the number of available jobseekers for a full-time employment (A category), it was still above three million at the end of October.
The growth figures of the 3rd quarter which has just been published by INSEE don’t show any inversion of the trend but they well illustrate the weaknesses of the economic policy followed for ten years. The consumption rebound generated by the Olympic Games (+ 0.4%) is quite modest and by nature temporary. It mainly regards services because the demand of consumption goods doesn’t recover. Along with public administrations operating expenses, it is the only growth factor. The foreign trade contribution is negative and we observe for the fourth consecutive quarter an investments reduction. Regarding enterprises, it would reach 2% this year and for household overpass 5% with the unprecedent fall of the new home constructions. The public investments will be able only very partially to compensate these falls.
Household behavior is quite also revealing. The saving rate would beat in 2024 a record with a preference for the financial saving (8.8% of the gross available revenue during the third quarter). The population ageing as the growing wealth inequalities explain this phenomenon: from a middle-age, the needs of goods diminishes when the revenues are protected (pensions, financial assets) which provokes an injustice feeling which also weights on the economic activity.
Successive governments alone do not carry the full responsibility for these bad results. The European Central Bank, through its rates increases to fight against an inflation which did not have as its origin an interior demand excess of the related countries but external factors, has doubly penalized the French economy. That rise has provoked the fall of the construction of new homes when the demand was still strong. It has also generated an increase of the public debt charge by 4 billion in 2023 and by near 5 billion in 2024.
But the political crisis France is going through is the consequences of these economic mistakes. The action of the successive governments for ten years has provoked a deep and lasting worry, which has expressed itself during the recent elections by the defeat of the political parties who supported this policy. But the choice of the new government and the economic orientations it has adopted were a denial because this one has sent to the National Assembly bills regarding Social Security and Budget which were persisting in the past mistakes along with expecting a reduction of the deficits when these ones were the consequence of these mistakes.
The challenge of the next government so will be to convince that the return to a mastering of the public finances is incompatible with the pursuit of the past policies and to constitute a new majority supporting an economic policy both fairer and more rigorous.