As I follow the early French legislative elections, I think of Tocqueville’s description of the French Revolution: halfway up the stairs, we threw ourselves out of the window to get to the ground more quickly.
Emmanuel Macron is far from the ideal president, but he has encouraged many other Europeans to look again at France. In fits and starts, it began to look like a reformable country, as well as a possible destination for investment and not just tourism. Macron managed to bring down inflation, increase employment levels, make pensions more sustainable and, through a series of structural reforms, increase prospects for future growth.
However, large sections of French society believe that not enough has been done to protect purchasing power, pensions and employment, and wonder if it would not be better to throw themselves out the window . Because this is what the projects of the two main alternatives to Emmanuel Macron boil down to. Conventionally, the far right and the far left are considered opposites, but in reality, they have a common ideology: breaking the bank.
They both want to repeal Macron’s pension reform, and thus make the pension system dangerously unsustainable for an aging population. They both offer long lists of freebies, perks, wage increases and price cuts, but are woefully tight-lipped about financing plans. To say that we are going to seek to make savings in the vague category of “fraud” is to say that we have not identified these savings. Worse, the proposed taxes on wealth and finance seem intended to scare away the investments that France desperately needs.
© / The Express
Second least free economy in Western Europe
The reason this is so dangerous is that public finances are already in a precarious situation. Macron’s great failure is not to have done more to give France a solid fiscal base.
French taxes and spending are higher than in any other OECD country. However, the public deficit amounts to more than 5% of GDP, and the public debt exceeds the incredible figure of 110% of GDP. According to the Economic Freedom of the World project, France is the second least free economy in Western Europe, after Italy. The National Rally and the New Popular Front are now looking at this powder keg and thinking about how they could ignite it.
In the words of French economist Olivier Blanchard, former chief economist of the IMF, the RN program is an incoherent and fiscally irresponsible aggregation of gifts. But the NFP program is almost worse precisely because it is consistent – consistent in the way it undermines incentives to produce wealth and jobs. None of them seem to have the slightest interest in growth and competitiveness.
The proposed tariffs on foreign products would not only provoke conflict with the EU, it would also erode the purchasing power of the population and threaten the international position of French companies. The prospect of having one of these political forces at the head of the French government, or of having a Parliament without a majority and subject to these decisive influences, can only rejoice the enemies of France.
The bad Swedish example
For the Swede in me, this situation is strangely reminiscent of Sweden in the 1980s. At that time, the country had increased the size of its government as well as taxes to reach current French levels. The deficits had widened and the debt had increased dramatically, but we still felt invulnerable, because we had been on this path for a long time and nothing serious had happened until then.
We therefore found ourselves in a situation of one-upmanship. The government and opposition offered increasingly expensive gifts to voters. When the ruling Social Democrats proposed that the state build 1 million new apartments in a short time, the main opposition party promised 1.1 million new apartments. Sweden’s growth rate began to lag behind other countries, investments and companies like Ikea left the country, and debts piled up. Ultimately, the big-government model could only be sustained with higher deficits, and the rest of the world ended up wondering why it had to finance it when prospects for future growth dwindled. In the early 1990s, this all collapsed, when no one wanted to lend to the prodigals anymore. We were invulnerable, until we weren’t.
For a brief moment, the Swedish central bank had to raise its interest rate to 500% (yes, you read that right, 500%) to encourage people to keep their capital at home. Without an independent currency, France cannot do that, but it can be forced to pay extravagant rates on sovereign debt.
France is not Greece
The bailouts after the euro crisis and the temporary reduction in interest rate differentials should not give anyone a false sense of security. France is not Greece. It is too big to be saved and, in any case, French national pride would leave no room for the type of remote control of an economy that a country like Greece has suffered at the hands of the European Commission and Germany.
There was a time when Macron said he feared that France would become Cuba without the sun. Under the RN or NFP regime, it risks becoming the Sweden of the 1990s, without the social cohesion that allowed it to emerge from the abyss peacefully, thanks to painful reforms accepted by consensus between the left and the right.
With the knife at their throat and the creditors at the door, the Swedes had to carry out in a few months all the spending and structural reforms that they had postponed for decades. It worked, and Sweden soon began to do better than other countries again. But it was much more painful than if we had done it early, in an orderly manner, when we still had time.
Many comfort themselves by hoping that populists become more moderate when in power, and that is obviously a possibility. But we must not exclude the opposite risk. Sometimes power is not a moderating influence, but a liberating one.
France’s friends are holding their breath today, for the French and for Europe. As Tocqueville also pointed out, France, by its size and its example, is both more brilliant and more dangerous than other European countries, the most certain to inspire admiration or pity, but never indifference.
*Researcher at the Cato Institute, Johan Norberg is notably the author of The Capital manifesto (Atlantic Books) and No, it wasn’t better before: 10 good reasons to have confidence in the future (Plon).
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