2024-11-11 07:00:00
LThe explosion of the public deficit is not a cyclical problem. For almost forty years, the French public debt has only increased. To these public deficits have been added for nearly twenty-five years external deficits which have been accumulating, and consequently, external debt which is swelling.
The current budgetary crisis is only the indicator of a growth model that is running out of steam. Therefore, reducing deficits can only be done by attacking their roots: the progressive atrophy of our productive fabric, with an economy increasingly unbalanced between consumption and national production, and increasingly dependent on public spending.
The French economic model was built on consumption, and the deindustrialization of the last forty years has only accentuated the dependence on this lever of growth. Support for demand and deindustrialization are self-perpetuating in a vicious circle from which it is increasingly difficult to escape: stimulating demand is beneficial for short-term growth, but at the cost of an increase in imports ( especially strong as the country is deindustrialized) and a deterioration of our competitiveness – prices are increasing, driven by activity in sectors sheltered from international competition. The corollary of this stronger support for demand is thus to redirect activity towards sheltered sectors, in particular services or construction, to the detriment of the manufacturing sector.
A trend that the single currency has further reinforced: thanks to the euro, France was able to pursue expansionist policies without worrying about the external deficits which accumulated and seemed painless… while our deindustrialization accelerated. This support for demand has notably included an increase in social spending (more particularly pensions and health), which has increased over the last forty years by 16 points of gross domestic product (GDP) in France, compared to 4 points of GDP in Germany. or in Switzerland, and which even fell in Sweden (by 1.5 points) over the period.
An infusion of public money
Today, it is the very sustainability of our growth model that raises questions. The gap between almost continuously stimulated consumption and stagnant industrial production can only be filled at the cost of increasing external debt: whereas in 1999, France had a net debt on the rest of the world representing almost of 15% of GDP, this position gradually deteriorated to reach an external debt of − 37% of GDP in 2023.
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**Interview with Dr. Claire Dubois, Economist and Public Policy Expert**
**Interviewer:** Thank you for joining us today, Dr. Dubois. The recent reports indicate that France’s public debt has been on an upward trend for nearly forty years. Can you explain the main factors contributing to this persistent increase?
**Dr. Dubois:** Thank you for having me. The ongoing increase in France’s public debt is primarily the result of two intertwined issues: consistent public deficits and a growing external deficit. For decades, the French economy has embraced a consumption-driven growth model, which has led to a significant reliance on public spending. Compounded by a gradual deindustrialization over the last forty years, this has resulted in weakened productivity and competitiveness.
**Interviewer:** You mentioned that there is a vicious cycle at play. Can you elaborate on this cycle and how it impacts the economy?
**Dr. Dubois:** Certainly. The cycle begins with the need to stimulate demand to support short-term growth. While this can provide an immediate boost, it increasingly leads to reliance on imports, particularly as domestic production diminishes. As a result, while consumer spending might rise, it comes at the cost of our local industries, further weakening our manufacturing sector and pushing us toward a service-oriented economy. This cycle is self-reinforcing, making it difficult to break free without significant structural changes.
**Interviewer:** With this in mind, what steps can be taken to address these issues?
**Dr. Dubois:** Reducing deficits requires a multi-faceted approach. We need to focus on revitalizing our productive fabric, enhancing competitiveness, and encouraging domestic manufacturing. This means not only cutting unnecessary public spending but also investing strategically in industries that can create sustainable jobs and reduce our dependency on imports.
**Interviewer:** What do you consider the most significant challenge facing policymakers who wish to implement such changes?
**Dr. Dubois:** One of the biggest challenges is finding the balance between short-term economic pressures and long-term sustainability. Policymakers may fear that aggressive measures to reduce public spending could exacerbate economic and social unrest. Thus, the strategy must be both cautious and bold, ensuring that any reforms do not stifle growth or disproportionately impact vulnerable populations.
**Interviewer:** what is the broader implication of France’s economic model if these issues continue unaddressed?
**Dr. Dubois:** If we fail to address the root causes of our public and external deficits, we risk perpetuating economic stagnation. This could lead to a loss of global competitiveness and limit our capacity to invest in critical sectors like technology and green energy. Hence, it’s crucial for France to rethink its economic strategies to avoid further entrenchment in a shrinking economic landscape.
**Interviewer:** Thank you for your insights, Dr. Dubois. It’s clear that tackling these economic challenges will require thoughtful and strategic action moving forward.
**Dr. Dubois:** Thank you for having me. It’s a critical time for the French economy, and I hope we can engage in productive discussions about our future.