France’s latest fiscal trade-off

France’s deficit is set to reach 9.4 per cent of GDP this year, more than last year, even though France's first lockdown was more severe and lasted for a longer time. This may relate to accounting issues, as some spending is only reported this year even if it is related to last year. But these are details – the main issue is something else entirely. The journalist Dominique Seux wonders whether France has maxed out its spending capacity at the moment when environmental challenges require extraordinary efforts. Were France's spending choices last year done with full awareness of how they would compromise future fiscal room for manoeuvre?

France was always amongst the high deficit countries in the EU. There was always a reason to justify its higher-than-expected deficits: the economic situation, social tensions and the forever promise of investment into the future. But this fiscal version of whatever-it-takes comes back to bite just as climate change requires more funds. Spending is not the only tool the government has to pursue a climate change agenda. But it helps to have some money to spend on a climate change agenda. Without money, will the transition be slowed down?

The unprecedented increase in deficit and debt due to the pandemic reveals another trade off: how much public funds shall be used to save the economy in the direct aftermath of this health crisis, versus funds made available to protect the planet from climate change? 'Whatever it takes' seems incredibly short-sighted. This is an issue for politics that may be decided in the courts, pitching human rights versus the rights of nature, or current versus future generations. Would the French courts eventually make that case, as the German constitutional court did, reminding politicians of their obligations towards future generations?

Amid low interest rates, it is easy to argue that the issue is hardly relevant. But again this seems short sighted. The financial newspaper Les Echos quotes the Institute for International Finance, which suggests that France is leading the table of 50 countries when it comes to the rise in private and public debt last year, when France's overall debt increased by 50 percentage points of GDP. This is a staggering number. Another metric from Oxford Economics suggests that public debt as a percentage of GDP is growing the fastest in France this year. Is there any reason to be concerned? So far this has not featured in the public debate in France, nor in the French courts.

Eventually, interest rates will rise again and France will be vulnerable and constrained. Short-sighted politics puts a band-aid on the pains of today, long term politics imagines a future and gets everyone ready to embark on the journey, no matter how hard the transition is. That takes some bold decisions.

This article first appeared in Eurointelligence