Tax-advantaged bonds reserved for French citizens, a debt write-off at the ECB, or shifting part of the bill onto the Germans — France’s approach to its national debt is at times creative, at times brazen. Above all, this curious collection of ideas reveals complete helplessness in dealing with public finances.
When societies drift toward central planning and state-run economies, only nuances separate political clownery from its disastrous real-world consequences.
Political initiative turns into permanent intervention — and eventually, the resources run out.
At the moment when fiscal reality hits, political elites appear overwhelmed and helpless.
France, in particular, has taken its state-run economy and welfare system a long way. The latter has settled over society like a sedative. In its naïve belief in the omnipotence of the state, the country has spiraled into a debt trap.
In an effort to create some financial breathing room, the parliamentary LIOT group (Libertés, Indépendants, Outre-mer et Territoires) presented an unusual proposal. It wants to raise a kind of citizen loan worth 50 billion euros, financed through government bonds available exclusively to French citizens. An interest rate of 3.5 percent is supposed to channel French savings into this financing vehicle, which would also guarantee tax-free interest payments.
With a maturity of ten years and an inflation rate that has now climbed above three percent in France, this is hardly an attractive deal — particularly as the country’s debt continues to rise unchecked and the budget deficit is expected to exceed six percent next year. With every passing year, the default risk on French bonds increases. Nor will the attempt to shift the debt from foreign to domestic creditors change that. The lawmakers expect this curious bond to generate interest savings of up to 25 billion euros over ten years. The government has so far rejected the proposal. France is in a state of political lockdown.
There is no room left to maneuver in fiscal policy. Any attempt at austerity is met by the United Left in the streets. Migrant riots, looting, and orchestrated chaos block this route out of the budget crisis. That leaves tax policy. With government spending accounting for more than 57 percent of the economy, tax increases have become inevitable year after year, as the economy can no longer develop.
Prime Minister Sébastien Lecornu has turned the tax screws sharply. This year, his government extended the special levy on the profits of large corporations as well as the 20 percent minimum tax on high incomes. This was followed by a levy on certain luxury assets held in wealth-management structures and a two-euro charge on small parcels shipped from outside the EU — a measure that was subsequently scrapped because the EU is now taking care of the matter. The 2027 budget proposal also envisages further additional burdens, including for companies and employers, as well as for certain food products and rental models.
France is becoming an expensive place to do business. Its private economy is shrinking. The welfare state is exploding, while private investment is nowhere to be seen.
A proposal from the far-left fringe of parliament comes at just the right moment. Jean-Luc Mélenchon, founder and leading figure of the La France insoumise party, came up with the brilliant idea of eliminating that portion of the national debt held by the Banque de France within the Eurosystem.
A fiscal magic trick: one side simply burns the other side’s junk — after all, it is all the same club, the state apparatus.
Public debt would shrink by roughly 18 percent, seemingly out of thin air. Such is the economics of the radical left.
The potential feedback effects and panic reactions in the bond market in response to this extraordinary proposal are simply ignored. That is as far as the superficial thinking of the radical left goes. They are economic gamblers who will keep playing until, as Maggie Thatcher once observed, they run out of other people’s money.
But France would not be France if it did not also attempt to combine patriotism with fiscal ingenuity. Politicians, as we know, are creative when it comes to bending the rules. Rational solutions involving possible social hardships that might hurt their electoral prospects, however, are not particularly popular. The question, then, is how to outdo LIOT’s curious national bond and the communists’ infantile fiscal destruction.
An answer came just a few weeks ago from Marine Le Pen, the potential next president of France. The leading figure of the Rassemblement National came up with the bridge-building idea of using the carbon intensity of each national economy as the basis for calculating part of the EU member contributions. Put simply: Let the Germans pay through the nose while we take it easy.
Cut spending in Brussels and make the Germans foot the bill for our own lavish pensions, hyper-expansive welfare state, and inability to reform — this is precisely the kind of issue from which the coming conflicts within the political right will emerge.
A fragmented political right coming to power in the EU, one that ultimately retreats into national sovereignty even in matters of fiscal and monetary policy, would spell the end of the European Union and, in particular, the Eurosystem. A quick look at the rising national debts across the eurozone reveals that everything in the EU is moving toward this final crescendo.
Big Government, state-run economies, and welfare systems — these are the defining features of Europe in our era. A cultivated apathy in economic life, an astonishing delusion in matters of migration policy, and the expanding role of the state in an increasingly unfree society will become stumbling blocks for Western Europe. The mounting public debt is an expression of a desperate attempt to cling to the prosperity of the past. Only now is it slowly becoming apparent that this prosperity was long ago ground down in the name of the welfare state
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