Yes, the French economy is in crisis. Not because its activity is collapsing, nor because its inflation rate is too high. The French economy is in crisis because it lacks the resources that would allow it to converge toward growth without imbalances in the medium term.
In the early 1980s, its major imbalance was an excessively high inflation rate, even though France had just established the European Monetary System (EMS). The comfort of wage indexation made inflation less painful for the French. On the other hand, its loss of competitiveness resulted in repeated devaluations of the franc. The choice of the then president was to make the necessary commitments to ensure that devaluations would cease and that France would once again become a reliable partner in Europe.
Today, the imbalances are obvious. Two measures shed light on the debate.
1- The potential GDP profile is too limited to be able to eliminate the public deficit in the long term. In Bercy’s medium-term projections, the deficit remains at 3%, which is not natural.
2- Public debt has been increasing almost continuously since its low point in 1975. This reflects the mismatch between the needs of the social model and the capacity of the economy to produce a sufficient level of income.
In 1982, the choice was to make commitments to our European partners. More generally, Tom Sargent made it clear that the significant imbalances of the past had been resolved by strong commitments from governments to their foreign partners. This shows that a country left in crisis and left to its own devices is incapable of taking the necessary measures to reduce imbalances.
The situation in France is not entirely different from that described, which is worrying its European partners.
The proposed solutions are insufficient to imagine them being sustainable. Increasing taxes is not a good idea, even if there are issues of tax fairness. Resorting to debt to revive the economy and imagining that this will be enough to reverse the trend might be laughable, given past failed experiments.
This configuration, without any real solution, will not be sustainable in the long term. Tensions are already causing political instability and an inability to govern.
In 1982, successive devaluations were the necessary warning shots to change the trajectory. What forms will they take in 2025?
The economy is changing at every level around the world, and France must adapt its model to stay in the race and avoid becoming locked into a mediocre framework. It must make strong commitments to its European partners.
The additional question is that of the messenger. Who will choose to place reformed France within this European and international framework?