France yet another case of the failure of socialism
Drummer chided me for not writing about France – although in Random #88 I did. I know there is a lot of interest in who is rioting – and I will discuss this in a later post – but as an economist, I want to talk economics here. France is the latest example of the failure of socialism. It can no longer pay its bills, and, as Margaret Thatcher would say, “it has run out of other people’s money.”
Although labeled in the press as a “children’s crusade,” the rioting has grown into something more, having been hijacked by the extreme left. To what purpose? The betting odds are that in next year’s elections the winner will be the far right’s Marine Le Pen of the National Rally. But the far left’s Jean-Luc Mélenchon, leader of La France Insoumise, is poised to make a run too, while actively participating in the riots.
To what end? A Mélenchon administration would certainly make things worse. He says the central bank should simply forgive the French bonds it currently holds and has even accused the head of the French central bank of treason for suggesting spending cuts. Certainly, with that agenda, he has no chance of being elected. Right? The financial markets would abandon France, which now has some of the highest bond rates in recent memory, and the government would not be able to finance its debt.
Also, Le Pen is not putting forth an agenda to deal with France’s financial woes. In fact, she is campaigning to lower the official retirement age to 62 and even previously suggested dropping it to as low as 60. That would, of course, worsen the debt problem. Although once thought of as anti-immigrant, she seemingly tried to shed that label when she opened her campaign by saying, “Every citizen, with their different backgrounds, talents and sensibilities, is called upon to take part in the movement for France’s renaissance that I am proposing.” She offered something for everyone, promising higher pay for workers, a stronger social-welfare net and greater job security alongside tax cuts for businesses, inheritance-tax relief and tighter controls on public spending. Then she said: “I am neither the right wing nor the left wing. I am the bird.”
Not surprisingly, this did not allay the markets’ distrust of France, which is political as well as economic. Markets fear the country has become ungovernable and is unlikely to make any necessary changes regardless of who wins the next election. Bond investors worry that the country is becoming socially volatile and institutionally paralyzed.
France may not find help at the International Monetary Fund or the EU, as Greece did before it, because of the sheer size of the French economy. France will have to pass a more austere budget and commit itself to financial responsibility. It will have to suffer that transformational pain, which might widen the street protests and violence. The government can only hope that those protests will peter out or can be forcefully stopped. One modest suggestion would be that any immigrant arrested for committing a violent crime be immediately deported and any nonimmigrant face an automatic prison sentence. This may run afoul of the courts, but I would take those actions and deal with the courts later.
Recall that the mass demonstrations were triggered by mostly immigrant students decrying run-down classrooms, missing teachers, and buildings that aren’t equipped for rising temperatures. Protesters blamed years of underinvestment in public education. However, spending on education is not the issue. France’s spending has increased with each budget and is among the highest in the EU. It is just that over a quarter of the spending on education goes to teachers’ pensions and not to the classroom. There is no way politically for the French to touch those pensions.
Moreover, the socialist system is collapsing in areas other than education. The French healthcare system is one of the worst in the EU. One person complained that in some areas you have to wait a year just to see a doctor. He also said that government control has contributed to declining standards in education and other public institutions. “Basically, like, the education, everything touched by the states, it’s just crumbled and becoming bad and bad year by year.”
What can be done? Sébastien Lecornu, the country’s prime minister, has proposed a 2027 budget that would modestly bring the deficit down to 5% of GDP from 5.4%. The budget faces its first critical vote in the National Assembly. France could avoid imminent catastrophe if Le Pen orders her allies in the Assembly to abstain on the budget, allowing it to pass. If the government fails to pass the budget, the cost of servicing French debt may explode.
The mathematics are sobering. France is running a budget deficit of about 5% of GDP, and nominal growth – real economic growth plus inflation – is optimistically forecast to be 3% at best. Since taxes broadly rise in line with a growing economy, the government needs to raise new debt of 2% of GDP a year. But instead of growing, the economy is now shrinking. France’s GDP shrank by 0.2% in the first quarter of 2026. It was flat in the second quarter, then grew only 0.1% in the third. France’s CAC 40 is the only major European stock index to lose value this year.
France is confronting the consequences of an economic model that has promised more than it can sustainably deliver. In the words of Rev. Wright “Its chickens have come home to roost.” France has a socialist-style approach to economic policy built around expansive government programs, high taxation, and extensive regulation. The cost of maintaining those commitments has continued to grow. Meanwhile, economic growth remains weak, public debt keeps climbing, and the burden of financing the system falls heavily on businesses and workers. France – also the United States – has built a system that continues to feed upon itself. It has grown like Topsy demanding more and more resources to feed it. The public may complain but is loathe to cut any part of it.
France’s enormous public safety net represents a much larger share of government spending than that in the United States and has been on an unsustainable path for decades. The bill is finally coming due. Yet raising taxes and reducing government spending, which would be part of a potential solution, are politically unpopular decisions and might risk further angering an already livid public. France has only bad options, and it has only itself to blame.
France’s debt is 120% of its GDP. In the EU, only Greece and Italy have worse debt burdens. Foreigners hold over 60% of France’s debt and are showing resistance to holding more debt even as rates rise. If France is unable to become austere and restructure its economy, it will have to resort to having the European Central Bank print euros to finance itself rather than borrowing in the markets. (Since 2002, euros have been printed by the national central banks of the Eurosystem, with each central bank responsible for producing, and bearing the cost of, the proportion of notes used domestically.) If France wanted to produce more euros for its own use, it would have to be approved by the Governing Council of the European Central Bank. Also, the European Central Bank has signaled it would not intervene in France’s fiscal situation. But it could, if it had to, buy the French bonds rejected by the market.
But living beyond its means seems to be at an end for France.
In response to the riots, President Emmanuel Macron has called out over 70,000 police. Eventually, the rioting will die down as protests – even in France – always do. But France will not be able to escape the markets unless and until it gets its house in order. The question is, “What is next?”
And some are even asking if France will survive. What Jeffrey Blehar in National Review says is frightening. https://www.nationalreview.com/carnival-of-fools/the-french-left-unleashes-revolution-politics/
He suggests that Mélenchon wants to lose. “Mélenchon is an ‘accelerationist.’ He has been constantly clear that his goal is revolution: He cannot win at the ballot box, so his hope is that once he loses to Le Pen, the mass civil unrest will topple France’s Fifth Republic altogether, clearing the way for a militantly socialist Sixth Republic — presumably led by people like him.”
Vive la France!
