Une solution européenne pour régler le "problème français" Il faut une volonté politique européenne pour sortir la France de la difficulté et, pourquoi pas, créer un Trésor Public européen.

15 years ago, I wrote in “Le Monde” that a painless way to sort out the problem of Southern Europe public debt would be to mutualise sovereign debt in the Eurozone. Unfortunately, Germany rejected the plan. As expected, given the asymmetries between the integration of monetary and fiscal policies, the initially Greek only problem propagated all across Southern Europe and Germany, like many other EU countries, ended up paying a higher cost with the so-called rescue packages. On top of this, Greece and other countries suffered more than they should have. The burden of the adjustment felt almost entirely on the shoulders of the peoples of Southern Europe while German banks mismanagement of risk was kindly bailed out. However, it was only when Draghi chaired the European Central Bank and shouted “whatever it takes” that the situation changed.

In these 15 years we have somehow advanced a little in the integration of financial markets in the Eurozone. Too little for the size of the potential problems lurking in the horizon. France is bigger than Greece, or Portugal, or Spain. The Republique´s risk premium can´t be allowed to increase. I have little faith in that the current EU Commission chaired by Mrs Von der Layen has what it takes to face and sort the problem. Instead, an intergovernmental solution may be more appropriate.

The good pupils in the class, Italy, Spain, Greece and Portugal, together with all other countries in the Eurozone, should agree with France an unlimited swap of debt instruments. They should issue debt, at a cheaper cost, and exchange it with France for French debt. France could raise finance at a cheaper cost than now she is able to and at no cost for Spain, Italy or any other funding country as they would receive from France the monies needed to pay back the debt they have issued. A similar mechanism worked during Liz Truss premiership in the United Kingdom. The Bank of England was able to defend the pound and avoid a total collapse of the British economy because the Federal Reserve decided to lend the BoE as many dollars as were needed.

Such a “whatever it takes” policy will only work if France uses the extra time it will buy to do the reforms that the French Economy so badly needs. In my view, the root cause of all pains in the French public finances is the collapse of productivity and this is the first thing that needs to be addressed. France needs to redirect all resources available to business investment and infrastructure. It´s no secret that prices in France are too high when compared with neighbouring countries. It would be difficult to persuade businesses to invest more if they know that, whatever they produce, will be hard to sell at the actual production costs. These needs to be lowered. Before these investments kick in and productivity increases, they need to increase the number of people producing. If not by being more productive, you can be more competitive by being more. Its public sector also needs primary surpluses to stop public debt reaching unsustainable levels.

A golden opportunity has coincidentally appeared in the defence sector. Europe needs to invest more in defence and to become autonomous. The most powerful military industry in Europe is in France. It would be myopic if Europe didn´t restrict public spend in defence to “Made in Europe” products. This would not only ensure its defence autonomy but provide France with a demand stimulus to its economy and resources to fund the research that will nurture its future productivity. The cherry in this cake would be if European leaders followed J Monnet advice when he warned the allies that collaboration could only get them so far and that integration of military capabilities was needed to defeat the enemy. See, about this, Manuel B Desar´s article.

Jose Antonio Poncela