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Why Wasn't France Downgraded Sooner?

One of the reasons for Sarkozy’s election in 2007 was that he was expected to take France’s national debt seriously. One of the reasons for his subsequent fall of grace is that, here like on many other issues, he was not able to deliver. The debt, as measured by the conservative French criteria, grew at a 100 billion/year pace during his five years mandate and is now over 1.7 trillion, while the GDP almost froze. If things are allowed to go on like that, it would -- hypothetically -- reach a staggering 2.7 trillion in 2022, against a low growth GDP of 2.2 or 2.3 trillion. Marseille’s dark prophecy will then be fulfilled. Again, anybody with a brain was aware of that. Still, both the French political leadership and the world financial elite (including the notation firms) seemed to take the country’s triple A rating for granted. How so?

Policies are rooted in culture, history, idiosyncrasies. Historically, the French are a predominantly continental, military, Statist nation, whereas their Northern or transatlantic rivals (the Dutch, the Brits, the Americans) are predominantly oceanic, commercial, and free -enterprise oriented. As Statists, the French take the epithet sovereign more seriously than the noun debt. They may assess their debt, and nevertheless see it more a partnership of some sort than a liability. All they will insist for is the world market of finance to be disciplined, or regulated, to that effect. While the oceanic nations (and their late 20th century converts, the Germans) think that a debt is to be repaid in one way or the other, either by legal and contractual agreements or -- beyond regulatory niceties -- by the naked requirements of economic life.

However, even oceanic nations resort to credit laxity and public debt practices for extended periods of time. In fact, they do it even more easily than Statist nations, since they know that some reckoning will be exacted from them at some point; they let their Obamas borrow since their Tea Parties are watching. What happened in the case of France was that its own idiosyncratic habit of public spending and public borrowing coincided with a very lengthy period of oceanic indulgence in these matters. Even the Germans could not lecture their French friends for about twenty years, because of their own public overborrowing on behalf of the former Communist GDR.

The tragedy of Nicolas Sarkozy is that he did not grasp that it was just a coincidence. An America that has itself been degraded from AAA even before France is not going to grant much help any more. As for Germany, it managed to restore its economy in an impressive way, and thus to restore its credit. And Chancelor Angela Merkel, who will be facing elections in 2012 or 2013, will not be popular unless she jealously defends German interests only. Two excellent reasons not to support France too much.