Why Wasn't France Downgraded Sooner?

The immediate reason for France’s downgrading by Standard & Poor’s (from AAA to AA+) may have been hubris, as Tim Worstall suggested in Forbes magazine. Last autumn, President Nicolas Sarkozy embarked on an overall emergency plan to salvage both the collapsing economies of Southern Europe and the euro as a currency. It entailed -- among other things -- French guarantees to the European Financial Stability Facility (EFSF), a newly established fund that will take care of EU countries sovereign debts. A noble gesture, no doubt dictated, in Sarkozy’s case, by the need to appear, within months of a difficult reelection bid, as a great world-size statesman. But a deadly one. In practical terms, France burdened itself overnight with massive toxic loans -- or the equivalent of toxic loans -- that it was hitherto not answerable for, and that will probably never be recovered at full value. Its own sovereign debt ipso facto rose and reached a ceiling. And its credit shrank.

The deeper reason for France’s downgrading, however, is simply that France has been broke for years. And the real question is: Why has it taken so long for S & P and others to take good note of it ? After all, it is an open secret.

Back in the early 2000s, a whole school of influential French whistleblowers – known as the declinists -- warned the nation and the decision-making elite around the world about the sore state of affairs. There was Nicolas Baverez, whose La France qui tombe (Falling France) was published in 2003. Or Jacques Marseille, whose Le Grand Gaspillage (The Great Wastewas published the same year, and who went on with several other books. Or Michel Godet, who pointed in Le Choc de 2006 (The Shock of 2006,) to the extravagant price the country paid for its comprehensive welfare state. Not to forget Claude Allègre, a noted academic and a former minister of education in a Socialist cabinet, or Louis Chauvel, a young professor at the Paris Institute of Political Studies (now a visiting professor at Columbia).

Drawing from their works and similar sources, I wrote in "Can France Be Saved ?", an essay that was published in the May 2007 issue of Commentary:

The public debt grew from the present-day equivalent of 213 billion euros in 1978 to 454 billion in 1990. It then jumped to 740 billion in 1995, and grew again to 1.2 trillion by the end of last year. ... But what is called public debt in France is less than half of what would be listed under that heading in countries like the United States or Canada. The category does not include the retirement funds for the civil service (between 800 billion and a trillion euros), the national-health-service deficit, or various private debts (like that of Crédit Lyonnais) taken over by the state. ... Marseille warns that it may double over the next fifteen years. This is on the scale of the debt of the Ottoman empire in the late 19th century.

As I said, an open secret.