France: The Coming Waterloo

By Fabio Rafael Fiallo

In France, conditions appear to be set for a rout that - relatively speaking - bears a triple similitude with the defeat of Napoleon at Waterloo in 1815. Except that, this time, the scene takes place, not on the military-geopolitical ground, but in the realm of finance, and for that matter of the economy in general.

First similitude: in both cases there exists a gulf between, on the one hand, the illusions fostered by the ruling class and, on the other, the world as it actually is.

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Indeed, just as Napoleon's France tried to impose her geopolitical pretensions upon the whole Europe even at the twilight of her power, so too a good tranche of today's political establishment in France keeps the public opinion under the illusion that a France with a shrinking weight in the world economy can maintain alive a profligate Welfare State that is seriously impairing the country's competitiveness and finances.

A manifestation of this Napoleonic rejection of reality relates to the flow of extravagant, capitalism-bashing stances taken during the current electoral campaign. In order to explain why things go bad in France, presidential candidates make believe (some more than others) that the culprit of the country's woes is to be found in the outside world - globalization of the world economy, low wages in emerging economies, "voracity" of financial markets, transnational corporations' search of profit-maximization, immigration flows - rather in France's dispendious "social model" and labor-market rigidities.

Most worrisome of all is the fact that the likely winner of this presidential contest according to all the polls, namely Socialist Party's François Hollande, has been prolific in making counterproductive promises. These include: restoring the retirement age to 60 for a number of categories of workers even though the trend everywhere else in Europe is toward pushing back that age; the creation of 60,000 jobs in public education, even though France already has a public spending to GDP ratio above 50 percent; and higher income taxes.

Measures of this kind tend to deepen public deficits and kill incentives to invest, induce financial markets to request higher interest rates on France's sovereign debt and undermine further the country's competitiveness.

The markets have begun to worry. In an interview given to a French radio station, George Soros said that he expects the markets to attack France's sovereign debt after the presidential election. Bank of America has in turn published a study indicating that, among the major European economies, France is, aside from Spain, the country that could most likely give a bad surprise in 2012.

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Fabio Rafael Fiallo is a Dominican-born economist, author and retired official of the United Nations Conference on Trade and Development (UNCTAD).

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