The French economy has long been the problem child of the European Union. With the recently passed budget by Prime Minister Lecornu, little seems set to change. Economists and professors are increasingly alarmed by the state of France’s finances. “Our country has become the Argentina of Europe. France is trapped in a hellish spiral leading it toward third world status,” warns Nicolas Baverez, a renowned French economist.
The current state of the French economy is clearly reflected in its inflation figures. While inflation in many European economies has stabilized around 2%, Paris reports an unexpectedly low figure of 0.4%. For years, France has struggled with sky high national debt, while the budget deficit continues to spiral out of control. Attempts to tackle these deficits repeatedly hit a political dead end. Furthermore, major reforms never see the light of day because the French parliament is extremely divided, a situation that recent parliamentary elections have failed to resolve.
A Tax Trap
The core of the problem is that potential tax hikes may not provide a way out. Although they increase revenue, the national debt will continue to grow as long as government spending remains unchecked.
Frédéric Douet, a professor of private law, observes how France is “slowly impoverishing” due to “consistent policies that are both costly and inefficient.” Writing in an op ed for Le Figaro, he expressed his disdain: “The mantra of our technocrats and politicians is that higher taxes will solve our problems.”
High Unemployment and Low Productivity
These concerns are well founded. For the third consecutive year, France’s GDP per capita has fallen below the European average. Additionally, inflation sits far below the eurozone average, and the country faces significantly higher unemployment than the EU mean. Baverez warns that raising taxes will be counterproductive, pushing more people into poverty without necessarily generating immediate revenue.
Baverez believes increased productivity is the only solution. He points out that the French enter the workforce relatively late and have short careers. On average, the French start working at age 22.5 and retire at 62.5. This stands in stark contrast to life expectancy, which is 80 for men and 85.6 for women. Furthermore, the French work an average of only 679 hours per year, while other major European economies see between 715 and 780 hours. In the Netherlands, that figure reaches 837 hours (link to Eurostat). See the chart for 2024 here.
Billion Euro Tax Burden
The economist is also critical of the tax measures in the new budget, which aims to raise an additional 44 billion euros, including 12 billion euros from the corporate sector. Baverez warns that these plans accelerate France’s “financial suffocation” and create “the conditions for a major financial shock.” If France continues on this path, he fears the country will “no longer be among the world’s ten largest economies” by the end of this decade.