In memory of Dr. Andreas Höfert

The French exception, for how long?

“The year is 50 BC. Gaul is entirely occupied by the Romans. Well, not entirely… One small village of indomitable Gauls still holds out against the invaders.” This is how each story of Astérix the Gaul, one of France’s and Europe’s best known and cherished comic characters, begins.

More than a spunky Gallic warrior who beats every villainous Roman scheme with his wit and great strength conferred on him by a magic potion, Asterix is also a metaphor for how the French like to see themselves: rebellious, forcefully independent and something special.

L’exception française has often defined international French politics, from General De Gaulle's decision to leave the integrated command of NATO in 1966, to the introduction of the "cultural exception" concept in the General Agreement on Tariffs and Trade and World Trade Organization negotiations of the 1990s.

This has appeared too in how France treats its populace. After the Chernobyl nuclear catastrophe in 1986, most Western European authorities alarmed their populations quickly, while France stayed much longer in a mood of public denial.

We observe a similar pattern of French exception since the start of the euro crisis. Southern Europe and Ireland are suffering austerity fatigue. Northern Europe has bailout fatigue. But one country – not a small one – holds out against the crisis. France so far has neither demonstrations against EU-imposed austerity nor hefty debates among economists, legal experts and philosophers about the sense and nonsense of European bailouts.

The official narrative of the euro crisis in France has made a U-turn, going from the Merkozy storyline of junior partner and best friend of austerity-prone Germany, to that of President François Hollande spearheading a Latin “growth” coalition with Italy’s Mario Monti and Spain’s Mariano Rajoy. Both stories simplify the euro crisis and France’s position in it for the French public.

France was able to issue bonds with negative interest rates last summer, but the country is far from solid financially. The public debt-to-GDP ratio is on track to hit 100% in a couple of years, the economy shows zero growth this year and likely also for 2013, and a deeply negative trade balance mirrors a decade-long loss of competitiveness against Germany. Hence, something must be done for France to avoid becoming the next falling domino.

In this context, the EUR 30 billion austerity package recently decided is formidable by historical standards. Remember, France hasn’t managed one balanced governmental budget since the early 1970s. The last time it came close in the late 1990s was under Socialist Lionel Jospin’s government. But back then, the remote chance of a budget surplus triggered a surrealistic political debate about “la cagnotte fiscale” a supposedly fiscal kitty, which should be spent more usefully than to pay back the public debt.

There are several reasons to remain pessimistic about France’s future. First and foremost, 30 billion euros is not enough; more will have to come. Given that this package is already difficult for the French population to swallow, and knowing that in France the street has political power, we should expect strong social tensions going forward.

Secondly, three quarters of the austerity package came from tax increases and not from spending cuts. With a tax burden as high as that in France, the negative fiscal impulse of tax increases is much higher than from a cut in expenditures. Hence France could enter a similar spiral of austerity and lower growth experienced by other Southern European countries.

Finally, the issue of competitiveness has yet to be addressed. Doing so will certainly add to the social stress. When France begins getting sucked into the euro crisis maelstrom, I doubt that a magic potion will be at hand to save the day.