Today, France's debt is heavy: 111.6% of GDP at the end of 2022, which Bruno Le Maire wants to reduce to 108.3% in 2027.
To reduce France's indebtedness, 10 billion euros in savings by 2027 are therefore on the agenda, to be dipped at will in social protection or health, or even by betting on new reforms. , such as pensions or unemployment insurance
Plane strokes are a French specialty. Since 2007, the acronyms follow one another. The RGPP with Nicolas Sarkozy, the MAP of François Hollande, then, under the first five-year term of Emmanuel Macron, the CAP 2022 plan, are all failed throws – or semi-failed – to straighten out the degraded accounts of France.
That the 2024 budget makes it possible to achieve "at least 10 billion euros in savings" as affirmed by the Minister of Economy and Finance Bruno Le Maire, the Court of Auditors seems to doubt it. Overly optimistic economic assumptions, declining tax revenues, need to finance a green transition, financial magistrates consider the promised efforts insufficient. And economics professor Jean-Marc Daniel gives us a brilliant analysis on this subject in an article in TheConversation.
Insufficient effort
When we analyze France's public finances, we immediately see a spectacular increase in the weight of expenditure in relation to GDP. This rose from 34.7% in 1960 to 55.4% in 2019, just before the Covid-19 pandemic, and to 59% in 2021, after the confinement period.
This evolution seems to translate an implicit refusal of the population to accept the reality of public charges or at least an explicit will of the government not to confront the population with this reality. The most tangible consequence is a steady increase in public debt. In the first quarter of 2023, it exceeded the symbolic threshold of 3,000 billion euros, or 112% of GDP. At the time of the introduction of the euro in 2002, the debt amounted to 936 billion euros, which is more than three times its current amount.
However, it is very likely that the population has understood that an increase in public spending today will have to be financed later. This has generated a savings reflex to face this uncertain fiscal future: it is better to build up reserves when an effort will be required. This trend has led to an increase in asset prices. Real estate bubbles and the strong comeback of gold are the most obvious manifestations of this situation. The household savings rate, which was 14.5% in 2003, now stands at 18.3%.
This mechanism, known as "Ricardian equivalence", was highlighted in 1974 by the American economist Robert Barro in an article entitled "Are Government Bonds Net Wealth ?". Barro states the "Barro-Ricardo theorem", according to which "public debt reduction - that is to say the budget deficit - generates an equivalent increase in private savings".
Public debt with harmful consequences
Public debt has major drawbacks.
First, there is a question of balance between supply and demand. Any public expenditure not financed by a drain on private expenditure increases demand. If this increase is maintained over time, it leads either to increased dependence on imports, widening the current balance of payments deficit, or to an opportunity offered to the production system to increase its prices, thus causing inflation.
In practice, France has rather accumulated external deficits. Its net foreign assets, ie the difference between the value of French assets abroad and that of assets held by foreigners in France, is increasingly negative. It went from -40 billion euros at the end of 2001 (i.e. 2.7% of GDP) to -800 billion euros at the end of 2021 (i.e. 32% of GDP). This results in a loss of sovereignty which, although often overlooked, poses a threat to future generations.
The second drawback lies in the anti-redistributive nature of the public debt. This situation could be described as "Robin Hood in reverse", where the State plays an inverse role to that of Robin Hood by levying taxes on the entire population to pay interest to the holders of public securities. who are usually among the wealthiest. With the current rise in interest rates, this mechanism will only become more pronounced.
In addition, we can add to these elements the progressive suffocation of the room for maneuver of the State, forced to devote more and more resources to the payment of interest on the debt (42 billion in 2023 and risks rising to 70 billion in 2027.), the disruptions in the financing of the economy caused by the withdrawal of savings operated by the State, as well as the weakening of our relations with our European partners due to the non-respect of the treaties.
For a policy of austerity?
Should we then return to austerity policies? It was the socialist Prime Minister Pierre Mauroy who introduced this expression in March 1983. Criticized for having abandoned the promises of 1981 and for carrying out a policy similar to that of Raymond Barre, his more liberal predecessor, he claimed that it was not not the case. According to him, "rigor is austerity plus hope".
In the current context, similar measures, also called "austerity", seem to be necessary. The challenge lies more in their content than in their principle. In 2017, in its document titled “Better Policies for Better Lives”, the Organization for Economic Co-operation and Development (OECD) wrote:
“Fiscal consolidation, which is about regaining control of public budgets, requires difficult political choices regarding public expenditure and revenue.
This means re-examining social protection systems to avoid waste and strengthen incentives to work, as well as cutting the salaries of civil servants."
The OECD studied the fiscal recovery plans of 24 countries between 1978 and 2002, i.e. 85 periods of consolidation, and found that, in general, these measures slow growth in the short term, but that it recovers relatively quickly while long-term growth improves.
Two cases are particularly highlighted in this study: Denmark between 1983 and 1986 and Ireland in 1987, where austerity was even accompanied by an acceleration of growth from the outset.
One of the reasons for their success is that austerity was combined with measures to encourage private investment, which took over from public spending. It works on three conditions. First of all, it is essential not to penalize companies by increasing their taxes.
This also applies today, when taxation must become a privileged tool for ecological transition: it is necessary to lighten their tax burden while making it more ecological. Then, we must count on the Ricardian effects in households, whose desire to dissave will manifest itself as soon as they become aware of the positive effects of the policy followed. Finally, it is crucial that the will to conduct a fiscal consolidation policy is clear, so that the dual dynamics of corporate investment and household dissaving can fully assert themselves.
It is essential to recognize the challenges posed by the continued increase in public spending and public debt in France.
Austerity policies can be legitimate if implemented thoughtfully and accompanied by measures that encourage private investment and stimulate the economy. |
|
