While Europe’s governments and financial markets have been fixated in recent months by the ongoing fiscal and political disaster otherwise known as Greece, the challenges facing one of the EU’s smallest members are, frankly, quite minor compared to what may well be Europe’s biggest looming internal problem.
The name of that challenge? In a word: France.
It’s no exaggeration to say that France is facing one of its most systematic crises since the Fourth Republic’s collapse in 1958. This time, however, there’s no man of destiny—no Charles de Gaulle—waiting in the wings to save France from itself. In fact, that’s part of France’s problem: a political class that, regardless of party, isn’t adept at imaginative thinking, especially concerning Exhibit A of France’s problems: its economy.
To appreciate the gravity of France’s economic problems, and why many Europeans are extremely nervous about what’s happening—or, rather, not happening—in what was the world’s fifth largest economy in 2013, one need only look at the recently released 2015 Index of Economic Freedom. France now ranks as the world’s 73rd freest economy out of a total of 178. Italy—the other big EU economic basket case—is the only developed country with a poorer ranking. France’s economy has in fact been teetering on the edge of being graded “mostly unfree” for over 20 years.
Looking forward, the IMF is projecting that France will experience anemic growth in 2015: a mere 0.8 percent. This is well below EU and world averages. Of advanced economies, only Italy’s outlook is worse. Since 2000, growth in France has barely exceeded 2 percent annually, and is usually some points below that. Among other things, low growth negatively impacts employment. In France’s case, the number of people seeking work hit a record high in December of last year.
Some of the factors driving this situation aren’t hard to identify. For one thing, government spending equates to a whopping 57 percent of France’s annual GDP. By comparison, government spending in America is approximately 33 percent of GDP. Overwhelmingly, this expenditure is on France’s welfare state. Paying for this imposes an incredible burden by way of taxation and regulation on the French economy’s wealth-creating side.
It’s not as if France’s political leaders are oblivious to their country’s dismal economic circumstances. The latest attempt to liberalize parts of the economy, launched by Prime Minister Manuel Valls late in 2014, follows on numerous efforts since 2000 by governments of right and left to implement reforms. These have generally failed outright or been so watered down as to be rendered meaningless. In each case, the playbook follows a similar pattern: (1) government announces severe economic crisis and proclaims determination to implement tough reforms; (2) unions, students, and pensioners protest at profound injustice of proposed changes; (3) mass protests and street marches ensue against gross violation of solidarity; (4) government announces decision to re-examine proposals; (5) demonstrations and marches continue unabated; (6) government poll-ratings start plummeting; (7) government caves.
At this point, there’s no reason to assume that a different fate awaits Mr. Valls’ agenda. In his case, it’s exacerbated by the fact that much of his own Socialist Party opposes his relatively minor deregulatory proposals. Nor does it help that Valls’ boss, France’s president, François Hollande, has spent much of his political career opposing market-orientated reforms and any other manifestation of that ultimate West European bogeyman: “néolibéralisme.” In short, Hollande brings zero-credibility to the discussion.
France’s unwillingness to change underscores that, for all its claims to intellectual openness, French society is remarkably monolithic when it comes to thinking about economics. This is exemplified further by one politician with a very serious chance of becoming France’s next president: the Front National’s Marine Le Pen.
Madame Le Pen has gone some way to detoxifying the FN from the shadow of her father and the extreme French right: so much so that her party is now attracting support from many French Jews. But the main reason her party did so well at the 2014 EU parliamentary elections (gaining almost 25 percent of the vote) is that she’s not seen as part of the French political establishment. She says things, for instance, about immigration, that mainstream French politicians generally won’t. This is just one reason why her party is doing so well in what were once working-class Socialist strongholds.
Regarding the economy, however, Marine Le Pen is yet another economic nationalist. A confirmed protectionist, she’s outspoken in her opposition to free trade and suspicious of privatization. While she opposes the EU’s biggest subsidy programs—the Common Agricultural Policy (from which France is the biggest beneficiary)—that’s only because she’d like the French government to do more in this area by itself. Nor does Le Pen hesitate to deploy populist rhetoric such as “ultraliberal ideology” to describe the cause of France’s economic problems. All in all, it adds up to a message that resonates across the French electorate. In other words, Le Pen merely reinforces the general aversion of millions of French citizens to acknowledging economic reality.
Making the situation even worse for France is that, for all its endless chatter about solidarity, France is becoming an ever-more fractured society. This goes beyond the traditional post-Revolutionary left-right divide. One ever-increasing gap is between professional politicians and much of the citizenry. Another is between young people who can’t get jobs because of France’s hyper-regulated labor market, and older folk whose jobs and pensions are well-protected by the status quo. In the realm of social policy, the fight over France’s marriage laws split the nation clean in two. Then there is the ever-growing gulf between Muslims in France and, well, everyone else.
But perhaps the most disturbing symptom of France’s dysfunctionalism is the perceptible rise in anti-Semitism throughout society, especially on the French left and among the Muslim segment of the population. In February, a former foreign minister and prominent Socialist Party veteran, Roland Dumas, suggested that Prime Minister Valls was “under Jewish influence” because his wife is Jewish. Dumas’s comments were condemned by many of his fellow Socialists. Anyone, however, who has spent time in France in recent years knows that similar comments are increasingly commonplace. As for what is said about Jews in many Muslim neighborhoods in France, it’s unspeakable. The degree of anti-Semitism in a society, it’s often said, is a key barometer of its inner health. By that standard, France is in very bad shape and things are getting worse.
Unfortunately there are no obvious candidates to administer the medicine. Back in 1958 in the midst of a severe economic downturn and the political crisis unleashed by the Algerian war, France only avoided a military coup d’état and possible civil war because Charles de Gaulle possessed an unrivaled prestige among Frenchmen and had been an outspoken critic of the Fourth Republic. This stature enabled the General to endow France with a constitution that ended almost 90 years of chronic political instability. But it also permitted him and the great French free market economist, Jacques Rueff, to force through a currency reform, balance the budget, cut spending, and liberalize important parts of France’s economy.
To say there’s little chance of something similar happening today is an understatement. It says a great deal about the state of contemporary French politics that the main center-right party, the UMP, recently selected as its chairman Nicolas Sarkozy: the ex-president elected with a mandate for change back in 2007, but who failed to implement any substantive reforms and then lost the 2012 election to François Hollande.
France is not of course Greece. Much more would have to happen before a catastrophe of Hellenic-like proportions unfolded on the Seine. What’s not in question, however, is that France’s economic decline and inner fracturing are accelerating to the point whereby meaningful efforts to reverse direction will be extremely traumatic for a society not known for measured responses to crises.
And that perhaps is the primary reason why Europe needs to be concerned about France. Containing the fallout from as small a nation as Greece has already strained the EU’s financial and political resources. Limiting the collateral damage from a nation of almost 67 million people that’s been central to Europe’s fortunes for more than 700 years would be near-impossible.