Why are France and Britain in a dead-end? An analysis
In the end, it wasn’t even close. On Monday, François Bayrou, the outgoing French Prime Minister, tried to face down his opponents in the National Assembly and press ahead with controversial budget measures. Despite an impassioned plea, he lost 364 votes to 194. Emmanuel Macron has just appointed his fifth prime minister in two years. To paraphrase Lady Bracknell from Oscar Wilde’s The Importance of Being Earnest: to lose one prime minister may be regarded as a misfortune, to lose four just looks like carelessness. In Britain, Keir Starmer is in a difficult position. Despite a decisive victory in the UK general election a year ago, his popularity has plunged and he is losing political fights on multiple fronts. Why are France and Britain in these dead-ends? The answer lies, in large part, to the state of their economies.
Author: Jonathan Surr
Photo credit: Flickr. Photo credit « Prime Minister Keir Starmer attends NATO Summit » by UK Prime Minister is licensed under CC BY 2.0.
Despite some resistance on both sides of the Channel to the comparison, France and Britain are remarkably alike economically. They have roughly the same size of populations; similar sized economies; influential global capitals which, if you include suburbs, are larger than their next ten cities combined; and face thorny political issues on topics like housing, spending and growth.
The parallels between the two countries have, if anything, strengthened since the pandemic. Both are caught in an economic trilemma of high debt, no political room to cut spending, and a tax take which is well above the OECD average.
The choices are grim. Bayrou tried to cut €44bn from his budget and staked his entire leadership on it with a no-confidence motion. It was a vote he widely expected to lose. Why did he take such a gamble on his premiership to push for something so unpopular? Quite simply, France’s deficit as a percentage of GDP is 5.4%. With already high levels of public debt – over 110% of GDP – and no sign of compromise, markets have taken fright. French borrowing has climbed sharply and is now one of the most expensive in continental Europe, recently surpassing Greece.
The situation in the UK is not much better. Whilst headlines were dominated last week by the resignation of the popular Deputy Prime Minister, Angela Rayner, the greater danger for Keir Starmer will be on 26 November. That is the date that Rachael Reeves will announce the UK budget, which is widely expected to include unpopular tax rises. Before the summer, the government had to climb down on controversial welfare spending cuts after a rebellion within Keir Starmer’s own governing party. The spending reductions amounted to £5bn, a significant sum, but barely touching the sides of the estimated £50bn that the National Institute of Economic and Social Research (Niesr) says Reeves will need to find to make her budget balance.
Breathing down the necks of Macron and Starmer are right-wing populist parties, which now look like real threats to the governing parties. Marine Le Pen used her speech at Monday’s no-confidence vote to press the advantage. “Dissolving Parliament is not just an option, it is an obligation…without a snap election, Macron is blocking the country,” she said. Putting the politics aside, the economics are alarming. According to analysis done by the Economist, Reform UK is promising £200bn of ‘giveaways’ (nearly 5% of UK GDP), funded by a staggering £100bn in ‘savings’ from the current budget. Keir Starmer had to back down after proposing savings of a mere £5bn. It is true that the next election in the UK isn’t likely to be for some years, but according to Ipsos Mori (at time of writing) Reform UK is polling 34% in opinion polls, compared to Labour’s 25%.
Whilst the situation is undoubtedly difficult, it is important not to take the alarmism too far. Talk of financial crises or 1970’s-style IMF bailouts are premature. In France, the euro provides some cover and is helping to keep borrowing costs lower (they are below Britain and the US). Britain still bears the scars of the doomed Liz Truss experiment. One suspects the Labour government will do almost anything other than risk something like that again. What may be more likely is deferring difficult choices for political expediency. This could provide fertile ground for populists, despite a fanciful economic prospectus. After all, they will say, if the mainstream parties have tried everything else and failed, why not take a chance on something radical? It may become tempting for weary electorates.
Both governments will need to find a compromised way out of this economic dead-end. This is likely to be some combination, to a greater or lesser extent, of tax increases and spending reductions. Relying on pushing debt levels further to delay unpopular decisions is unlikely to work. But crucially, both governments need to communicate an inspiring vision for why these changes are worth it. There is very little from either government explaining what this economic pain is for: lots of medicine, but no recovery.
The choices each country faces are incredibly difficult. However, if mainstream parties cannot find a way through, suddenly they may wake up to populist governments. And that is something, quite literally, neither country may be able to afford.
