My family and I are visiting Paris after Christmas. As I write this, the “unrest” (what a delightfully value-free sounding word) continues. The French do the Street better than everyone else, and they’ve been doing it at a very high level since 1789. That’s quite a winning record and they still have their protest chops. What’s going on? Well, one might observe that the French don’t need much of an excuse to go to the barricades. It’s sort of fun to have a modern Lord of Misrule moment, marching, singing, chanting, throwing paving stones and burning stuff. Generally, it’s proved to be risk free to engage in these “largely peaceful protests” (yeah, right) and if you’re lucky enough to score a Louis Vitton purse, it’s profitable.
While they don’t need much of an excuse to riot, it seems they might, at least in their minds, have their reasons now. French politicians, of all stripes, have done a cracking job of convincing the folks that they can have, and are totally entitled to have, Miss Antoinette’s cake and eat it too. Money is free! No one has to pay for the government’s largesse (or at least, not you or anyone you know). This sort of magical thinking has regrettably been encouraged by the entirety of the political class. You can hardly blame the paysans and the denizens of the banlieues for thinking that they haven’t gotten their fair share of the goodies. When the folks are disappointed…to the barricades!
The problem, of course, is that the French government can’t practically squeeze enough money from the folks to pay the promised benefits. They can add new taxes and raise old ones, but they are approaching the point, and perhaps have already reached the point, where more taxes doesn’t mean more revenue. It’s fine to tax Guillaume to pay Jacques, but it’s rather more difficult to sell the notion of taxing Jacques to pay Jacques. Not only are the tax coffers empty, but the bond market is getting fractious. Borrowing has always been the politician’s favorite fix (in France and elsewhere). When debt did not constitute an eye-popping percentage of GDP and coupons were tiny, more debt almost felt like free money. Regrettably, the bond market is now saying “Non!”
If you can’t borrow and you can’t tax, what do you do? No one seems to have a clue.
It’s only going to get worse. The French are having a presidential election in March and God knows what that will bring. With the imperial Monsieur Macron out of the game and his party in tatters, the field has been left to the far right of Marine Le Pen and the far left of Jean-Luc Mélenchon. This does not bode well. Both parties have embraced much of the same core fabulist, populist credo of early retirement, more pension money, subsidized housing, subsidized transportation, free education and all other sorts of governmental goodies. But there’s no money!
There’s certainly nothing out there to suggest that either of these parties is prepared to support doing the hard stuff, introducing even a whiff of fiscal rectitude. An old political adage is that most politicians know what they should do, they just don’t know how to get re-elected if they do it. Regrettably, that’s true. “No more cake, Madame,” is not going to work.
The left and right are far beyond the point where they can have adult conversations with each other, or with the populace. If they could, they might…might…in an alternate universe decide to join arms and try to do the right thing together on the theory that if they do it together none of them can get blamed. Given the level of vitriol in currency across France, I don’t think that’s realistic.
For now, the party bowl is likely to be kept on the table, and the French government will continue to shovel out goodies to keep the folks off the barricades. When it becomes apparent that financing the French fantasy (horror show?) has become impossible, the EU is almost certain to step in and bail them out because frankly, the French have a gun to the EU’s head. It’s hard to conceive, and certainly the doyens of the EU cannot conceive, of how the EU could survive the collapse of France or its EU exit. Christ, the place almost fell apart when tiny Greece was about to default on its debts.
Will the other EU members ultimately get tired of bailing out profligate France? And if so, what happens then? The French Street will continue to take it as their God-given right (laïcité not relevant here) that the Europeans will be there with a safety net and they will be shocked, shocked if it frays. (We don’t have to tax Jacques to pay Jacques; we can tax Olaf! What’s wrong with that?)
It’s hard to envision France going cold turkey on austerity like poor Greece was forced to do. Greece could be bullied; France, probably not. The level of austerity in such a scenario would be shocking. More violence would seem almost certain as the Street would, of course, blame the government for austerity. If France’s revenue continues to exceed its income, if it can’t borrow its way out of the problem and if the EU support approaches the breaking point, what’s left? At that point, the only thing left will be exiting the EU’s common currency. That notion heretofore considered entirely beyond the pale will begin to appeal and begin to enter the conversation because issuing and then devaluing one’s own currency is the time-honored way to dig out of one’s insane midden heap of debt.
Look, I’m not telling you that any of this is going to happen, but God knows, it certainly could. Pleases, have at it. Tell me how it will work. We always seem to avoid the ugly denouncement; something always comes up to allow life to go on without drama, without undue distress (and without upsetting the governing classes’ hold on the country), but, please, go ahead, tell me how it will work. Articulate a scenario for France getting through this financial crisis with a more amiable outcome. Come on, show me the exit ramp because I’m struggling to see it. Sure, someone will make noise about growth being the solution, but really? In France? It’s hard to see it happening.
Whatever happens in the next couple of years is certainly not going to be good for business and investment in France. Not only will circumstances be daunting, but the absence of clarity as to a path forward will make everything even worse.
For me, that means that while I’m still going to go to Paris this winter and I’ll happily eat delicious and often over-the-top (and always expensive) fancy food, I’m certainly not ever going to invest a sou there.
France is going to have to sort this out on their own, at least as far as the US is concerned. We’re not going to have a great deal to say about what France does and indeed what Europe does. I would only hope that we in the States will go to school on this tragedy and will avoid the sort of excesses that are currently leading to broad social dysfunction in France. Unfortunately, I’m rather worried that we’re more likely to follow than learn.
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