French Resistance

In Euro Zone, France Stands Alone

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  • Why it matters

    Why it matters

    If France does not yield and begin to cut public spending, its own growing national deficit could undermine the value of the euro currency and exacerbate tensions within Europe.

  • Facts


    • France wants an exemption from E.U. deficit rules that Portugal and Ireland never received.
    • Even Italy, which also has a Socialist government, is making tougher economic reforms than France.
    • France’s intransigence is increasingly isolating the country politically within Europe.
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The rule of three times being lucky may date to Germanic law in the Middle Ages, when the accused was given three chances to appear before the court. If they missed the third time, they were pronounced guilty in absentia. The Germanic phrase and the inherent threat it carries is unknown in France, where the saying is “Jamais deux sans trois.” This translates as “never two without three,” but can also be formulated as “only what you do three times is really good.”

This bit of wisdom has become the political leitmotif for the government in Paris. Twice the euro zone tolerated massive violations by France against the Stability Pact’s austerity rules. Now France wants to get away unshorn for a third time with a deficit ratio that still remains far above the European Union’s limit of 3 percent. Prime Minister Manuel Valls insists that Brussels must respect a big country like France.

Arrogant speech like this may sound good to the French, but Mr. Valls is not making a good impression on the rest of Europe. In fact, the governments of smaller countries find his remarks offensive. Both Portugal and Ireland, for example, endured drastic austerity programs imposed by the European Union and the International Monetary Fund. Belgium was forced to roll back government expenditures to avoid a financial penalty from Brussels.

What’s demanded of smaller nations should also apply to bigger countries. This was the message Portuguese Finance Minister Maria Luís Albuquerque delivered in no uncertain terms to her French colleague, Michel Sapin, at the Economic and Financial Affairs Council (ECOFIN).

For many years now, the French people stood by and watched their political elite fail.

Things are slowly getting tight for France. The lax Parisian budget always has been viewed skeptically in north, central and eastern Europe. Jeroen Dijsselbloem, the Dutch president of the European Stability Mechanism, the euro zone’s financial lending firewall, doesn’t miss an opportunity to demand social reforms from France.

What’s new is that France is now losing its traditional allies in southern Europe. Only one nation in the euro zone, Italy, still stands firmly alongside France, but even here, French President Francois Hollande has reason to fear he’ll lose the support of his Social Democratic friend, Matteo Renzi. Mr. Renzi is dealing with unpopular reforms in Italy with more determination than Mr. Hollande and is positioning his country for a better economic future. If Mr. Renzi succeeds in modernizing Italy, his allegiance to the lethargic Mr. Hollande could quickly lose its appeal.

The threatening political isolation comes as France confronts a frightening economic downturn. Since southern Europeans have embraced economic reform, France’s weakness as a business location have become more apparent: the 35-hour work week, excessive red tape from a centralized state bureaucracy, an entrenched system of higher learning and inefficient social insurance. If France fails to address these vexing problems, the rapid deindustrialization of the country will accelerate with a dramatic impact on the labor market.


Frances Budget Struggle-Debt-Deficit-Growth-01


For years now, the French people stood by and watched their political elite fail. The governments – whether right or left – always reacted to dramatic economic decline by blaming others. It’s the monetary policy of the European Central Bank that is responsible for France’s problems. Or it’s the European Union’s austerity policy or a supposed lack of German investment.

France’s political class, of course, is only trying to divert attention from its own ineptitude. They cannot find the courage to push through unpopular but urgently needed changes and the French are paying a steep price for their inaction: high unemployment, a drop in prosperity and the steady decline in political influence in Europe and the world for this once-proud nation.

That’s punishment enough for France, but theoretically, the European Union could increase pressure and impose financial sanctions because of the countr’s excessive budget deficit. Luckily for France, the rules of medieval Germany are not in effect. The country doesn’t have to fear conviction and punishment, even though it has violated E.U. budget rules for a third time.

But the French finance minister still faces an uncomfortable truth. Unlike 2013, the European Union cannot unconditionally give France more time to consolidate its budget. This time, its partners in the euro zone will demand concrete commitment to reform, a fact Paris cannot escape.


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