Debt and deadlock test Macron’s final term

President Macron had to say au revoir to yet another prime minister and appoint a new one, Sébastien Lecornu. Emmanuel Macron has only 18 months until the end of his second presidential term. He is constitutionally prohibited from seeking a third.

Seasoned politicians have failed as prime minister. Among them was Michel Barnier, who was the EU’s Brexit negotiator.

There is gridlock in the National Assembly, the lower house of the French Parliament. The largest party is Rassemblement Nationale (RN), a hardline anti-immigration party. There are several far-left parties too. The centrist parties that dominated French politics from 1944 to 2014 are now smaller and feebler. Macron’s own party, La République En Marche (France on the Move), is much weaker than it was a few years ago.

France is facing severe economic difficulties. Public spending is rising while revenues are falling. The country has to borrow ever greater amounts, and its credit rating has been slashed, making it more expensive to borrow.

The obvious solution is to cut public spending. France has high benefits payments, a retirement age of 60 (the lowest in the Western world), six weeks of paid holidays per annum, short working hours, and very extensive workers’ rights, making it almost impossible to sack people. Right-wing and centrist politicians have proposed slashing public expenditure and limiting workers’ rights. As the Chairman of the US Federal Reserve once said: “If they can’t fire, they won’t hire.” Unemployment remains low, but it is rising.

Any attempt to rationalise public spending and restrict workers’ rights leads to demonstrations and strikes. Overmighty trade unions frequently paralyse France. Bus drivers, train drivers, and air traffic controllers often go on strike. This impacts France’s neighbours: buses and trains often run from France to Germany, Italy, Spain, Belgium, and Switzerland, while flights over French airspace can be affected by air traffic controllers taking industrial action.

The government recently proposed cutting two public holidays a year to boost productivity, but it backed down in the face of fierce opposition. The public is unwilling to accept the economic fact that France will have to work harder and spend less if the current system is to be preserved.

France boasts some of the best healthcare in the world and has a very long life expectancy. Short working hours, low workplace stress, long holidays, and plenty of exercise are good for health. This means there is an ever-growing number of pensioners, now making up more than 30% of the electorate and still rising. They are more likely than others to turn out at election time. Therefore, reducing pensions is electoral suicide.

The war in Ukraine has obliged France to increase defence spending, adding pressure to already struggling finances. France has donated only 20% of what the United Kingdom has given to the Ukrainian military, despite France and the UK having similar populations and economies of around 70 million people each.

France has a major arms export industry. Desperately in need of money, it is not overly fussy about whom it sells to. French arms exports often go to Pakistan.

The government has to make a new budget this month. There is a proposal to increase tax on fortunes over 100 million euros by 2%. The richest man in France said this would be an economic catastrophe. Many wealthy people would simply emigrate. They have the right to reside in any other European Union country, as well as Switzerland or Monaco, almost all of which have lower taxes than France.

Rich French citizens often pretend to live in the tiny state of Monaco, which is surrounded by France except for its 1 km of Mediterranean coastline. Monaco has no income tax and is the only country where most people are US-dollar millionaires. French people frequently rent the cheapest studio apartments there and claim residence to avoid income tax. Property is 10 times more expensive than in adjacent France, but with no passport control in Monaco, there is no way of proving how long residents actually spend there. In reality, many continue to reside in France while claiming Monaco residency to escape taxes.

The problem with democracy is short-termism: politicians always think of the next election, which is only five years away at most. Politicians in France, as in most countries, have tended to delay difficult decisions even though they know the problems will only become more insoluble the longer they are left unresolved.

France may eventually need to seek a loan from the European Central Bank or International Monetary Fund. Such loans always come with conditionality, and Paris may be obliged to make bitterly unpopular public spending cuts. There might be no alternative. Demagogues on the left and right will no doubt raise hell about this.

There is ballooning public debt and a crisis of entitlements. This is what caused the French Revolution in 1789. People need to accept short-term pain for long-term gain. The benefits of reform will not be felt for several electoral cycles, by which time the politician who proposed it will either be out of public life or have died of natural causes.

Yet France’s travails should not be overstated. There is some economic growth, public services are functioning well, inflation is under control, and the euro is stable. France remains the most visited tourist destination in the world. The country’s place in the European Union and the North Atlantic Treaty Organisation is unquestioned.

France is still the seventh largest economy in the world by most reckonings. Its GDP per capita ranks around 25th out of 193 countries. Many people from African, Latin American, and Asian nations aspire to live there. It has a superb quality of life and what most consider a very attractive culture.

No one believes there will be a revolution or civil war in France. There may be serious civil disorder, and the country could be plagued by even more strikes than usual. However, there will be very little, if any, bloodshed.

The United Kingdom faces similar economic difficulties. Many in the UK say that, in a year or two, the British will be where the French are now—staring cataclysm in the face.