The nature of French austerity

From today’s FT:

Mr Hollande himself has acknowledged that the state has got too big. “Public spending has reached 57 per cent of national wealth. It was 52 per cent five years ago. Do we live better for it? No,” he said late last year.

Agnès Verdier-Molinié put it differently:

“The reason spending has exploded is the multitude of different benefits and all the layers of administration,” she says.

Of course the French economy is already a mess.  Spending cuts may well be coming:

The government admits that it has run out of room to increase taxes, with the tax burden now equal to more than 46 per cent of GDP – one of the highest in the EU. This leaves Mr Hollande, who campaigned against austerity, having to persuade the country to accept a programme of public spending curbs of at least €60bn through 2017 from a total currently running at about €1.2tn a year.

I suppose you could argue that the current French slowdown is due to the expectation of future spending cuts, but most of us would find this difficult to swallow.  I will also predict that — if and when the spending cuts come — they will be accompanied by a worsening of output and employment, if only because French labor markets are not very flexible.  Still, it would be odd to suggest that “austerity” is the root cause of the French economic problems rather than a symptom of other, deeper issues.


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