Five weeks ago, the French President, Nicolas Sarkozy, was a happy man.
He said, ‘The [Greek] problem is solved. How happy I am a solution to the Greek crisis … has been found.’ Which is good. Everyone, even presidents, deserves a little sunshine.
Looking on the bright side: France’s President Nicolas Sarkozy should not think the eurozone debt crisis is solved
Alas, the weather in April is notoriously undependable. Sarkozy’s sunshiny mood probably didn’t survive too well when he heard the Greek Prime Minister admit that his battered little country might yet need a third round of bailout money. It probably darkened further when the markets choked on Spain’s most recent bond auction.
Nor will Sarkozy’s mood improve when he considers that the interest rate on Spanish government debt has risen relentlessly since the start of March towards unsustainable levels. The same thing has happened (albeit less abruptly) in Italy. Although France’s bond yields are still more or less OK, they too have started to nudge upwards from their recent permissive levels.
Setbacks of some sort are, sad to say, part and parcel of any President’s life: the price of office. But these things aren’t just part of the ordinary turmoil of politics. These are waves – still small, still gentle – lapping at the walls of France itself. Waves, which, if they rise to Spanish or Italian levels, could yet threaten the integrity of the nation itself.
And the mathematics looks dire. The official debt to GDP ratio of the French government is around 86%, which is higher than in Spain and Britain, if not yet at Italian or Greek levels.
Only that word ‘official’ hardly gives you that warm, fuzzy glow of truth, does it? Because France also has liabilities of hundreds of billions of euros via the EU, not counted by the official stats. Add those in, and you get to a debt/GDP level of more like 145%. Add in the present cost of future pension liabilities, and you’ll be way over the 200% mark. Add in the cost of bailing out France’s own creaking banks, in the event of meltdown elsewhere in Europe, and you’ll be getting to figures that the country cannot possibly pay.
Parallel reality: Socialist candidate Francois Hollande has promised to increase public spending
These facts aren’t hidden. It takes a bit of detective work to dig out the exact data, but there are plenty of detectives out there. That’s why Standard & Poors removed their AAA credit rating from France. That’s why French borrowing costs are almost double German ones (and one-and-a-half times British ones). All this as France is facing a general election. The first round is next week.
You’d expect the election to unfold in sombre fashion. When Britain held its last election, also deep in the shadow of financial crisis, all three candidates for Chancellor said in a TV debate that they would impose spending cuts deeper than anything forced through by Margaret Thatcher. You might expect that kind of honesty from French politicians now – as those bond market waves go on lapping.
But no. France’s politicians live in some parallel reality of lowering pension ages, hiring gazillions of new public sector workers… and all paid for by a 75% tax on the rich which (when various other levies are added) will be nearer 90%.
Didn’t we try these things already, back in the 1970s? And didn’t we try them in an era when bond markets were less powerful? When trade was less open? Before globalising technological changes, most notably the internet? Before China had opened? When rich people were less likely to hop on a plane and work elsewhere? And you remember the results: strikes, deficits, inflation, the three-day week and the death of growth.
Sarkozy once said to David Cameron, ‘You have lost a good opportunity to shut up.’ Alas, Sarkozy is currently losing a good opportunity to speak the truth. To his electorate. At a time when the stakes are higher than ever.
And here’s another thing. Wherever you have a political culture with a blatant lack of transparency and honesty, you also have one with a total lack of accountability. Among the senior French political figures who have been enmired in scandal are Sarkozy himself; his predecessor, Jacques Chirac; former Prime Minster Dominique de Villepin; IMF chief (and former Finance Minister) Christine Lagarde; Charles Pasqua (former Interior Minister); Jean-Christophe Mitterrand (son of a former President and his political advisor); Dominique Strauss-Kahn (head of the IMF and once expected to be a leading candidate for the presidency) – and too many more to name. Some of these have been found guilty. In some other cases, investigations are still ongoing (and all those charged deny the allegations).
But in general, where there’s fume you’ll often enough find a feu. You can’t have this many corruption scandals and not believe that the fundaments of the politics are broken. Those bond market waves may be destructive, but there can be creation in destruction too. The French political system is broken. Maybe these waves will eventually wash it all away.