French air traffic control called a one-day nationwide strike for Thursday, designed to force the cancellation of at least 70 per cent of flights over France. Nothing unusual in that: such strikes are as common in France as bank holiday rain in Britain.
In the event the strike was called off when France’s equivalent of the Civil Aviation Authority made a last-minute increased pay offer — too late to avoid widespread disruption, with about 50 per cent of flights still grounded.
The air traffic control unions showed their gratitude by calling another, longer strike over a holiday weekend in May over other proposed changes to their working conditions.
The French state’s habit of buying its way out of repeated industrial strife is only one of many reasons why President Macron is finding it hard to get a grip on public spending. Last year, France’s budget deficit was 5.5 per cent, much higher than the Eurozone average, when it had been expected to fall below 5 per cent.
The High Council of Public Finances, France’s equivalent of the Office for Budget Responsibility, doesn’t see the deficit getting much below 4 per cent before 2027. The International Monetary Fund thinks it will still be 4 per cent in 2029.
President Macron is finding it hard to get a grip on France’s public spending. He promised major economic reform and renewal but nothing has really changed
So a decade during which France will have failed to comply with Eurozone rules, which limit deficits to 3 per cent. Not a good look for a president who thinks of himself as the model European leader.
French government debt is set to continue to soar for the foreseeable future. Debt as a percentage of GDP was under 100 per cent before the pandemic struck but is now almost 111 per cent.
The IMF projects it to rise to 115 per cent before the end of the decade, which is where it was at the height of the pandemic.
No wonder international credit agencies are talking aloud about downgrading France’s credit rating.
There is no mystery why French deficits remain stubbornly high and its debt is ballooning: it is governed by a spendthrift state. French public spending as a share of GDP is the highest in Europe.
‘For 50 years, France has not had balanced budgets,’ says Finance Minister Bruno Le Maire. ‘Public spending is seen as the answer to every problem, when it is not.’
Quite so. But after seven years of Macron, who promised major economic reform and renewal, nothing has really changed. When he came to power, state spending as a share of GDP was 57.5 per cent. Last year it was 57.3 per cent. So no difference that matters. It is worth pausing to take in the enormity of these figures.
The French state accounts for almost 60 per cent of the French economy. This is not widely realised. It’s pretty much at the outer limit for any country that also thinks of itself as a functioning market economy.
It’s far higher than anywhere else in Europe, including the big spending social democracies of Scandinavia. It’s almost 12 percentage points higher than the current share of public spending in the UK — and we’re at our highest level since the 1970s.
Even the highest tax burden in Europe — which France has (the highest of any member of the OECD club of rich countries, in fact) — cannot cover the French state’s tab. Hence endless borrowing, big budget deficits for as far as the eye can see and a massive national debt.
Of course, state spending has its benefits. French infrastructure, from roads to railways to nuclear power, is generally far superior to ours and the country has the highest ‘social protection’ (welfare and pensions) in Europe. But it all comes at a cost.
A protester holds a placard which reads ‘Macron declared war on the people’ during a demonstration as part of nationwide strikes in Paris last April
State spending is paid for not just by taxes and borrowing but through massive social charges on employment, paid by business. They can add over 50 per cent to a company’s wage bill. So, naturally, companies do what they can to avoid hiring too many people, which keeps French unemployment elevated.
Macron promised to cut the jobless numbers and made some early progress. But the unemployment rate is still 7.4 per cent, far higher than Britain’s, and double that among the young.
The social cost can be seen in the sprawling inner suburbs surrounding France’s cities, increasingly populated by migrants, where young and old languish without hope of a job.
France might have the highest social protection in Europe but that hasn’t stopped huge tracts of urban squalor developing. Those who think the answer to Britain’s social ills is more welfare spending may care to ponder on this.
Then there’s the massive cost of servicing the debt. It’s currently €57 billion (£49 billion) a year, twice what it was three years ago, and is projected to rise to €87billion by 2027 — more than France spends on defence or national education.
In many ways France is to economics what the bumble bee is to aviation. Just as the bee shouldn’t really be able to fly, so the French economy, with its eye-watering tax and spend, shouldn’t really function.
That it does is testament to its big businesses: world-beating companies which somehow overcome a system stacked against them with levels of productivity far superior to their British counterparts.
LVMH, for example, is the biggest luxury goods company in the world and the biggest company in Europe. Last year, it exported — in value — more than all of France’s agricultural sector combined.
But even French big business struggles to compete these days. Nor is it hiring. Indeed it needs to shed labour to stay competitive.
More importantly, not enough new upstarts and insurgents are being created. The famous quote assigned to former U.S. President George W. Bush — that the problem with France is that it doesn’t have a word for entrepreneur — is probably apocryphal. But dynamic small businesses are not prospering in France these days.
Perhaps the biggest causality of France’s predilection for tax and spend is economic growth.
Herein lies a salutary warning for Britain. The French economy has largely stagnated since the pandemic, growing more slowly than Spain, Italy or even Greece. Only Germany has done worse but it has huge structural issues of its own.
Last year France grew by less than 1 per cent. It is forecast to do at least as badly this year. This low growth is hitting tax revenues, so Macron is having to implement some austerity of his own, with €10 billion (£8.6 billion) of emergency spending cuts in February and perhaps twice that next year. Up to €50 billion (£43 billion) might have to be cut by 2027.
All over Europe, but particularly from France, the message is the same: high tax and public spending burdens are a drag on growth. When the state gets too big and the tax to pay for it too high, growth suffers.
By the end of last year, the GDP of the Eurozone was only 0.1 per cent bigger than at the end of 2022. Lower tax, smaller state America was 3 per cent bigger. Lower growth means less tax revenue, forcing governments who’ve maxed out their credit cards to cut spending as more borrowing ceases to be an option.
Britain’s tax and spend is already at record levels. Our economy has also largely stagnated since the pandemic and is only now showing signs of flickering back into life. We’ll still be lucky to see growth of 1 per cent this year, barely better than France.
It is a curious, even perverse fact that, ever since Brexit, in terms of tax and spend we’ve become much more like a mainstream European economy, with the lacklustre growth that goes with the territory. Yet it is as certain as night follows day that Labour, on track to form the next government, will tax and spend even more.
It talks in vague generalities about unleashing economic growth but in reality its insatiable appetite for more spending (and the higher taxes which inevitably follow) will make faster growth all the harder to achieve, as all the evidence from continental Europe illustrates.
The ‘Europeanisation’ of Britain started, ironically, under the Brexit Tories. But it will gain momentum under Labour, perhaps unstoppable momentum, because another lesson from Europe is that once you become hooked on tax and spend, it becomes well nigh impossible to reverse, as Macron is discovering.
As not just France but most of Europe contemplates the consequences of perennial low growth, there is talk in European capitals of yet another lost decade in store for the continent.
Who would have thought, after that Brexit referendum in 2016, that Britain would likely be part of it.
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