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A wrong fiscal strategy


The motto of the French President is “protect the French people”, protect against covid, protect against inflation, protect against everything. This is to reinforce the French into an attitude of dependence and infantilism vis-à-vis the state able to do everything. The speech of the new PM, Mme Borne confirms this policy to please everybody giving them more benefits and subsidies.


The Minister Le Maire is wrong when he says that the role of the state is to protect their citizens against inflation. Inflation is not caused by the government but by monetary factors (excessive QE) and cost-push inflation, all exogenous factors. The fight against inflation should be done in Frankfort not in Paris. This protection policy is somewhat ineffective and populist.


I don’t know if in 2022 the Netherlands and Germany are spending as much as France (France has not given its fiscal strategy to the EC), but I know that the debt ratio of Germany is 70% of GDP, 57% for Netherlands whereas the French debt ratio amounted to 112%. Germany and Netherlands have fiscal space, not France.


Mr. Le Maire is certainly right to mention that some additional public investments are necessary in renewable energy, nuclear central to provide electricity, and for more defence spending, but he forgets to mention that yesterday (July 6), the PM Mrs. Borne did not mention these objectives as a priority, she was speaking about maintaining the purchasing power of French by raising expenses (subsidizing fuel prices, electricity prices, increasing social transfers for the middle class, increasing pensions) to “protect” the French against inflation. These additional recurrent expenses will add up to the highest public expenditure ratio in the world. Never the PM, nor the Minister of Finance did mention seriously where expenditure savings could be done. Again, the French fiscal situation is not sustainable.


For French authorities (they are not the exception), the fiscal deficit reduction can wait (2027, the horizon is always moving latter) (In France a fiscal deficit amounting to 3% of GDP is considered as a balanced budget) and the debt reduction will be taken care by economic growth (another exogenous factors which depend from labour and innovation not from fiscal deficit whatever thinks the Keynesian economists).


“Achieving full employment is the key to repairing France’s public finances” said B. Lemaire. The causality should be reversed, you need to repair public finance first to achieve full employment. To achieve full employment, certainly the most important goal for France, consists to reduce definitely tax on labour and social contributions on enterprises harming French competitiveness, these structural reforms cannot be implemented without reducing useless expenses (not mentioned by Macron, Le Maire and Mme Borne).


Mr. Le Maire as Mr. Macron have not chosen between two contradictory objectives: please the French people (by populist measures) or supply-side policies favoring growth and employment. One thing is sure the Macron’s way to please everybody at the same time (“en même temps”) will please nobody.

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If we look at the data, UK misfortune is somewhat puzzling. Let’s assume that the Kwarteng’s mini budget amounted to an additional deficit (energy subsidy plus tax cuts) amounting to about £70 bn or 2