

French reform

Wishful thinking

François Hollande has unveiled a tough budget. But he has failed to prepare the French for what lies ahead

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Snow Reptile

France and Germany will never settle on a deal for the euro as long as the former insists on eurobonds, a ruse to pick German taxpayers’ pockets and further postpone France’s day of reckoning.


Once again, The Economist urging yet more neoliberal recipes like those which have brought us to the current situation. Not a word about taming a thuggish financial sector. Not a word about a compulsively tax-evading elite. No, the fault is always to be found on the public sector and the services it provides to the public and to those less favored in society, which invariably need to be hacked, to better favor wealth accumulation on the higher rungs of the social ladder, the unspoken but undeniable goal of neoliberal doctrine.

VerySeriousSam in reply to shaun39

Eurobonds are a great idea? Depends on where you live. If in a ClubMed nation, then yes.

Since Eurobonds (which are, BTW, against the Mastricht and Lisboa treaties) would mutualise the debts these nations have already built and still accumulate, and let the core nation's taxpayers pay.

Eurobonds, this idea is comparable to share the costs for a loan a fith cousin took to spend the money on nice cars he couldn't afford.


Having just cycled across France from south to north for the first time, her struggle to stay the pace economically no longer surprises me. Breathtaking numbers of derelict buildings, in countryside and town. With so many services shut for most of the time, and just a tiny sprinkling of grey businesses in the smaller towns, France reminded this visitor of the semi-derelict Norfolk countryside of his 50s youth, and, worse, of the colourless, torpid decay of East Germany in the 70s and 80s. Quirky France, yes, and of course there's the TGV and the food. But what a relief to cross the border to Germany or to return to England.

samy_ahmar in reply to The Opportunist

A degressive tax is defined as "a type of tax in which people with high incomes pay less tax as a percentage of their income than those people with low incomes", which is exactly what I meant, and which is exactly the same as a regressive tax, defined as "a tax in which poor people pay a higher percentage of their income than rich people", the exact mirror of the former. VAT is such a tax.

You make it sound like an either/or, with no other options on the table ! Making the French tax system even more degressive (or regressive if you prefer) than it currently is is not just deeply unfair, it is economically daft and politically explosive.

And it is exactly what Francois Hollande's reform is seeking to address by overhauling the tax system to bring capital income taxation in line with labour income taxation, and by closing a range of fiscal loopholes and exemptions that no longer make sense, are socially unfair and make the whole system dangerously opaque.

A decrease in payroll taxes, which could, I agree, benefit employement and increase France's competitiveness, can only be justified if part of the lost income is collected through bringing taxation of capital income in line with labour income taxation. After all, national health insurance or cash allowances for children are universal in France regardless of income or source of wealth : why should labour alone contribute to these benefits ?

Your article lacks depth, it demonstrates a lack of knowledge of the French economy and the government's programme, and most of all seems to ignore a concept which, let's face it, has never been the Economist's strong point : fairness.


I have to disagree with The Economist's prescription for France. Far too many countries are struggling with excessive government spending and crippling labor regulations that strangle all private sector initiative. In response, these countries are attempting modest reforms (essentially trimming around the edges in the hope that protests will be less severe) and everyone generally agrees that lower government spending is part of the solution. Here's a chance for France to proclaim "vive la difference!" Holland was elected firmly on a platform of pure economic fantasy. It's far too early for him to back down, Mitterandesque, and reluctantly embrace reality. Surely the right thing to do is for France to forge ahead, absorbing ever more of its shrinking GDP on state spending, until through a process of reductio ad absurdam, the last person in private sector employment in France is paying a trillion% tax rate to support every other person in the country. In order to ensure the very few ultra-rich people don't abscond before doing their patriotic duty and handing it all over to the government, the Bastille should be recreated to house France's super-wealthy in small apartment-style cells where they could enjoy the rest of their days hobbling around while firmly shackled to the wall. Meanwhile the rest of the world can look on in awe and wonder, and - one hopes - finally and forever learn some fundamental economic truths that for the last 50 years the developed world seems to have imagined were somehow suspended, as the wealthy countries borrowed from the poorer countries to achieve standards of living that were inflated and ultimately unsustainable.


Just working on a letter to Monsieur Hollande. Can somebody tell me how you spell "imbecile" in French please. Or maybe "idiot".


The Economist is very erratic and inconsistent in its economic prescriptions, if not to say hypocritical. Last week, discussing Britain's economy, it was recommending George Osborne not to strangle the British economy by imposing further austerity. However, The Economist would like to see further government spending cuts in France. Why exactly ? There is less need in France: the French budget deficit is approx. half the size of the British budget deficit.

And what about high government spending ? Sweden, like the other Nordic countries, has a very competitive economy, despite (or thanks to?) high levels of government spending, in excess of 50% of GDP. For the Economist to argue that there is some correlation between competitiveness and levels of government spending is very flaky.


Funny old world. For years the Socialists opposed all the changes that they are now going to have to bring in. If they had not opposed them when M Sarkozy was in power then there is a good chance France would not be in the mess it is now.

James Yarwood in reply to 2C


As clearly stated in that article, Britain has the flexibility to both borrow cheaply, and print money. Because France is in the Euro, it can do neither.

This is basic macro economics. Blindly comparing France's funding situation or government spending to Britain or Sweden is moronic, stop doing it.

Plazidus in reply to bastille

‘Well, actually it seems that the French are more prepared to what lies ahead than Hollande himself: "Les deux tiers des Français convertis à la réduction des déficits" - Les Echos [bastille]

The sub-heading translates : ‘Only 30% of the people polled by CSA for « Les Echos » consider ‘excessive’ the efforts to put right the public accounts.’ [‘Seules 30 % des personnes sondées par CSA pour « Les Echos » considèrent comme « excessifs » les efforts de redressement des comptes publics.’]

What efforts? What cut-backs in the entitlement gateau? Are the wealthy being deprived of their family allowances, or the ‘intermittents du spectacle’ [‘resting’ members of the entertainment industry] being deprived of their grotesquely inflated unemployment pay? Is unemployment pay still based on previous rates of pay, rather than a realistic sum for the State to have to fork out?

Aren’t the French experiencing nothing but the prelude to real adversity ? A mere foretaste? How they cope remains to be seen. I hope they surprise their detractors by their stoicism. I fear, however, that the French have been fed too many self-serving versions of their history, and that republican mythology – barricades and all – will do little to buttress the communal soul in its hour of need. Expect much anger to be directed at the thrifty neighbour across the Rhine. Scapegoats will be sought: the traditional foes and the guileless theocrats of Brussels, I suggest.


"higher VAT would do less harm than the current payroll" ???
Are you really suggesting bringing down a proportional form of taxation to replace it with a degressive one, hurting purchasing power for the less well-off ? Shocking even by your standards

shaun39 in reply to Snow Reptile

Actually, eurobonds are a great idea. It's just that we need an established and credible framework of budget discipline and prudent sovereign finances first.

Right now, German Bunds act as the favoured liquid asset as collateral for interbank lending, or for meeting financial sector cashflow needs. This increases demand for German Bunds, and lowers the financing cost for Germany's debt.

It would be far fairer if the liquidity rents paid by banks across Europe were also distributed more evenly to governments across Europe. And indeed, debt mutualised over the whole eurozone has potential to be far more liquid (and cheaply financed) than even Bunds. Would definitely be useful for a competitive and joined-up European financial sector.

Eurobonds, if issued, should be senior to other national debts, and there should be an effective mechanism for extracting financing payments from member countries (necessary for credibility). They should be set at a fixed proportion of eurozone GDP (say, 50%), defined and adjusted based on market demand. And that debt can either be used by member states for public finance (at the proportion of their GDP within the eurozone), or in eurozone sovereign wealth (Scandinavian style - issue low yielding liquid government bonds, and profit from investing in higher yielding commercial securities & equities).

Eurobonds are a great idea. They just aren't part of the solution to this crisis. Eurobonds are a structure that should be launched after first forming a banking union (joint regulation, auditing, resolution & deposit insurance), and second establishing a new record for fiscal prudence across the eurozone.

Kęstas Brumas

" Far better to insist on spending cuts, which do less harm to growth."

These days Ireland and UK, Clinton's America, and whole history of Great Depression convince us that this statement is not true. Why are we still repeating it?

MarkAnthony in reply to raymonj

Quite frankly, La Grande Nation was sarcasm in the Hollande context.

I am not French, but speak the language and used to live, work and pay taxes in France; I had great time and do like France and the French people. However, the unions are utterly unreasonable, as are many of the Socialist politicians. At the end of the day, the French people will have to pay.

And if you think that it were the French that brought us the age of reason as well as decent public administration ....

guest-ioamnjm in reply to BrayneWorker

Well actually France has a bigger overall GDP as well as a bigger GDP per person than the UK. The UK is in recession, not France. France is the 5th biggest world economy (as mentionned in the article) the UK 7th.

MarkAnthony in reply to raymonj

More understanding? This article does give Hollande the benefit of the doubt, that is more than I would have done.

Hell will freeze over before we will see a serious realistic reform with Hollande; too bad. Get ready for more wishful thinking. Let's hope he will end up being a one-term president.

La Grande Nation deserves better.


on the other hand, should your article have not been more understanding? His budget is already more radical than anything proposed int he last 30 years. Hollande seems prepared to loose popularity, if he didn't, he would have kept to his election vague promises. So I fear the expections in your article are totally unrealistic, and you should at least have given credit were it was due.


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