Modernization or Decline: That Will Be Choice Facing France in 2023.
France will no longer be able to make an illusion with its public debt.
The year 2022 marks a historical break and a change of era for the world.
On the strategic level, with the opening of the great confrontation between authoritarian empires and democracies, from Ukraine to Taiwan, the return of high-intensity warfare in Europe, the engagement of a hybrid conflict against the Union by Moscow, which uses energy, food, migrant flows, cyberattacks, populist parties as weapons of mass destabilization.
On the diplomatic level, with the formation of new blocs in the East and West and the emancipation of the global South.
On the economic level, with the break-up of globalization into ideological blocs, the resurgence of inflation, and the end of the cycle of unlimited and free money.
On the technological level, with the deflation of the Tech bubble but also the confrontation between China and the United States with the semiconductor blockade.
On the ecological level, with the rise of climate disorders, which contrasts with the impossibility of concerted management of planetary risks due to the conflict between the great powers.
The European Union is, after Russia, the great loser in this new situation. It is falling into recession; it is seeing the resurgence of systemic risk in the eurozone with the ECB's monetary tightening; it is experiencing a drop in its potential growth, cut back by the energy shock and the questioning of its development model; it is affected by the multiplication of social movements against rising prices; it is divided over the energy crisis, the outcome to be sought for the war in Ukraine and its rearmament.
In this vulnerable and battered Europe, France was able to create an illusion.
Growth was established at 2.5% during the year 2022, while unemployment fell from 3.2 million to 3 million people and the loss of purchasing power was limited to 0.5%. But this was only made possible by the continuation of Emmanuel Macron's “whatever it takes” strategy, which results in an unsustainable double deficit in public finances (4.9% of GDP) and the trade balance (156 billion euros).
In 2023, France will be caught up in the energy, food, and financial shocks, and will experience a serious air pocket. Growth will level off at best at around 0.3 percent; output will fall in response to soaring electricity prices, higher wages than in high-inflation countries, and reduced demand, further weakening France's competitive position; inflation will exceed 6 percent; unemployment will rise again, to 7.5% of the active population; poverty will increase, affecting more than 9 million people; the public deficit will be close to 6% of GDP and the trade deficit will exceed 160 billion euros.
This deterioration is not temporary, but lasting for France.
Firstly, the shocks that are hitting France are part of a long time frame, whether it be the energy crisis, inflation, the climate transition, or the rise of strategic threats from Russia, but also from China, Turkey, and Iran.
Secondly, this deterioration is linked to structural problems that are becoming increasingly serious: the slowing down and aging of the population, amplified by the falling birth rate; the de-industrialization and downgrading of the French offer, except luxury goods, aeronautics, and arms; the collapse of public services in education, health, transport, the police and justice; the impoverishment of the population; and the impoverishment of society.
Finally, because economic policy no longer has any room for maneuver, while the United States is mobilizing $430 billion through the IRA to boost its productivity and finance the climate transition, and Germany is investing 8% of its GDP to support its businesses.
In France, the strategy of the State, which is failing in crisis management as well as in the delivery of basic services or the realization of reforms essential to the modernization of the country, is reduced to the issuance of cheques to households, financed by the public debt, which is about to exceed 3,000 billion euros.
But energy shields are as untenable from a financial point of view as from an ecological one. And the purchase of social peace by the infinite multiplication of public aid is now proving to be as ruinous as it is ineffective, as the spiral of strikes shows.
At the same time, the ECB is now giving priority to the fight against inflation and will continue to raise its rates while starting to reduce its balance sheet from March 2023. France is thus methodically preparing to crash into the wall of debt (public and private debt amount to 361% of GDP), like Greece in 2009, Italy in 2011, and the United Kingdom in 2022.
The accumulation of energy, food, financial and strategic shocks constitutes the last chance to modernize France and to deal with the problems accumulated over the last four decades. The end of the bubble economy and free money buries the model of degrowth on credit.
And France has real assets in the new norm of capitalism that is succeeding neoliberal globalization, marked by the re-establishment of the primacy of politics and the centrality of sovereignty, by the search for a rebalanced partnership between the state and business, by the need to plan strategic sectors or the ecological transition.
But the French economic and social model must be rethought around five priorities:
Production, investment, and innovation, to reconstitute a competitive offer in Europe and the world.
Resilience, which implies regaining sovereignty in the key areas of energy, agriculture, health, and defense.
Inclusion and the fight against inequalities, which implies breaking with the disintegration of the education system by rehabilitating the channels of excellence, encouraging work, and investing massively in the training of unskilled youth and the unemployed.
The reform of the State to guarantee basic services for the whole population and the territories.
The resumption of control over public finances, reducing public spending, and concentrating it on factors that increase potential growth.
France's recovery remains possible, but time is now running out. It is conditional on a double break with the persistent denial of its decline and with Emmanuel Macron's mortifying strategy of “at the same time.”
As in 1945, France must face a major choice for its future: modernization or decline.
Some reading
How to Help Ukrainian Refugees Rebuild Their Country? Ukraine will benefit from the experience, knowledge, savings, and know-how accumulated by Ukrainian refugees in the workplace.
The EU Single Market Celebrates Its 30th Anniversary. Like Democracy, It Is Something That Is Never Fully Realized. While the European Union’s internal market is its greatest strength, the pandemic has shown that it can be challenged by crises.
More Blinded Than Ever by His Failure, Vladimir Putin Glorifies the War in Ukraine in His Wishes to the Russians. In the real world, casualties continue to mount for the Russian military, which has surpassed 106,000 soldiers killed since February 2022.
Emmanuel Macron Wants to Change France’s Military Strategy, but With a 114% Debt-to-GDP, the Path Will Be Difficult. This strategy remains conditional on France’s economic, financial, political, and moral recovery in the years to come.
Germany Is Increasingly Dependent on China’s Huawei, Which Could Affect Its Sovereignty in the Future. Germany’s 5G telecom network uses even more Chinese technology. A report points to the threat to Berlin’s strategic autonomy.