Why France will end in crisis

International focus on France is going to increase as its 2027 presidential campaign gets going, but also as its economic and fiscal outlook continues to darken. Interest rates are rising worldwide while France’s public debt is nearing 120% of GDP. France’s real economic growth has been anaemic for over a decade, and its budget deficit is stuck at around –5% of GDP. The social security and retirement system are economically unsustainable and there are doubts whether the 2027 budget can even be agreed upon. As the watch-dog Court of Accounts wrote recently, the “demanding and difficult task of regaining control over our public finances starting in 2026 is imperative for debt sustainability.”

« L'exception française »

How could France have let it come to this? Any self-respecting country in France’s position would have made structural reforms long before. Indeed, most countries in Europe have undertaken major fiscal and pension reforms over the past 30 years, including Sweden, Germany, Italy, Spain, the Netherlands, Latvia, Poland, and Greece. Many underwent forms of “austerity”, of belt-tightening, sometimes imposed externally, but generally affecting both state bureaucracies and public services.

Only France has not introduced any major reform to address its now dismal situation. Instead, the French have doubled down with higher taxes, more public spending, and fewer hours worked. The EU – not known for its thriftiness – has for over two decades frequently exhorted successive French governments to initiate reforms in many areas, but to no avail. But is even France capable of reform now? The answer to this question concerns the economic wellbeing of the whole euro area and beyond.

The precious « acquis sociaux »

In other EU countries, reform was possible because these societies accepted an impact on public services, such as an increase in the retirement age, labour market deregulation, and more means-tested services. In France, the attitude towards social security is as much political and emotional as it is pragmatic and rational. Most French people consider their public services and welfare benefits to be “acquis sociaux”, or social gains that cannot be taken away once they have been granted. These positive “rights” are considered “progress” – the results of historical social struggles that “cannot” be undone. This is the French political mythos that makes structural reform so difficult.

In France, social gains emerged from decisive political ruptures: in 1936, during the socialist Front Populaire, paid vacations and the 40-hour work week were conceded after nationwide factory occupations. In 1944–1945, at Liberation, the Conseil National de la Résistance established the Sécurité Sociale – healthcare, family allowances, and pensions – as the moral foundation of a new anti-fascist republic. These gains form the core of the “Social Republic”, since the preamble of the 1946 Constitution (still legally binding today) enshrines rights to health and security. They are thus constitutional obligations of the state, making any attempt to roll them back widely viewed as a breach of the social contract.

Attempts to curtail these acquis sociaux make the French go on strike and aggressively demonstrate, as they have many times. In French political culture, democratic expressions are considered legitimate not only in parliament but also in the street (“la rue”). Thus, mass demonstrations have been able in the past to strongly influence or even reverse policy (e.g. the massive 1995 strikes against pension reform, the 2006 CPE protests, or the “Yellow Vests” movement from 2018).

This attitude also explains why the French are willing to endure a high fiscal pressure: they accept one of the world’s highest tax rates, as long as their cherished “acquis sociaux” are preserved, even though the majority is largely unaware that many other countries have more efficient and sometimes more “generous” welfare systems than France. This ignorance stems from a certain chauvinism and a lack of interest in what happens across the border.

The French tolerate their state’s gargantuan expenditures, even though it is common knowledge that fraud, inefficiency, corruption, and overspending are widespread. Tens of billions of public funds are lost in this way every year. But these facts do not elicit any street protests, even though they reasonably should. Though many complain about the squandering of public funds, what really matters are the social gains.

France boxed in

As a result, French politicians have stopped promising major fiscal and spending reform, because the preservation of the acquis sociaux is far more important to the French electorate than reducing the size of the state, even though ironically, the two are closely linked. Furthermore, most French people are not disinterested: many know a civil servant, since there are now nearly 6 million of them (over 20% of the workforce!).

The current situation has created a tragic, downward spiral for French society, where both the technocratic ruling minority and the governed majority find themselves boxed in. Today’s cohort of French politicians are not courageous or motivated enough to push through an economically sound but politically suicidal position on fiscal reform. The state bureaucracy does not want to give up its tax-funded special privileges, while the majority refuses to concede anything more than the edges of their “precious” acquis sociaux.

The solution is freedom

France’s woes are fundamentally political. They are the result of decades of heavy-handed redistributive statism. When the state meddles in society, getting involved in individual choices of health, welfare, and retirement, the results are predictable. Indeed, the difficulties France is experiencing are well known and have often been described, not only economically but also sociologically, e.g. by Ludwig von Mises in works like “Bureaucracy" (1944) and “The Anti-Capitalist Mentality" (1949).

The solution for France to these difficulties is also well-known, not only morally in the sense of giving more freedom to the people and reducing property rights violations, but also pragmatically: halt the societal decline and trigger an upswing. France urgently needs massive cuts to public spending, radical pension reform, public accounts cleansing, labour law deregulation, red tape cuts, and dramatic tax reductions to boost consumption and economic activity. Tax revenue could likely be sustained, however, since France has long operated past the peak of the Laffer curve.

Yet, not one candidate for the 2027 elections is making such obvious liberalisation proposals. They all propose different tweaks to the existing statism. As so often in French history, resolution will thus likely arrive not through proactive and consensus-based political action, but with heated confrontation during an acute crisis. Ultimately, the French rejection of any substantial regression to social gains means that reform will only be possible after financial and social crises hit. The effect will be a more severe decline in living standards than would have been necessary and a collective toll on French society that could have been mostly avoided. The future will be rocky for France.