The Public Finances in Turmoil: An Analysis of Current Problems in the Light of Past Experience

This article is published in Futuribles journal no.375, juin 2011

Like many other industrialized countries, France is faced with budgetary imbalances on a scale unprecedented in peacetime. The country has not recorded a budget surplus for 35 years. Having felt the effects of the financial and economic crisis that began in 2008, as other countries also did, France’s public deficit in 2009 exceeded 7% of Gross Domestic Product (GDP) and its total public debt stood at more than 78% (whereas, by the Maastricht criteria, public deficits are supposed to remain under 3% of GDP and debts are not to exceed 60%). Alexandre Siné had already sounded the alarm in the columns of Futuribles in 2005 (issue 313). The situation since then has continued to deteriorate, moving dangerously close to the critical debt threshold which lies at around 100% of GDP. France is not, admittedly, the only industrialized country in such a situation. But, as Carine Bouthevillain and Gilles Dufrénot explain here, unlike other countries, its deficit is not a consequence of productive investments, but funds current expenditure. Moreover, unlike Germany or the UK, the state appears incapable of controlling its outgoings. And France is not in the same situation as Japan, which has high levels of savings, or the United States which, thanks to China and other Asian countries, benefits from easy terms of payment. Must we fear, then, that France will be unable to meet its financial obligations, like Greece or Ireland or, in the past, Weimar Germany, Mexico, Argentina and Russia? After painting an unvarnished picture of the troubling evolution of the public finances, Bouthevillain and Dufrénot show how certain countries (Canada and the Scandinavian nations) have managed to implement debt-reduction programmes. They go on to demonstrate what paths France could take to improve its situation (inflation, increased levies, expenditure cuts…), without putting too much of a brake on the crucial economic recovery.