“Words of readers”

IIt is easier, because it is more popular, for a finance minister to open the budgetary floodgates than to close them. The ministers in charge were probably aware of this, but the end of “whatever the cost” and the attempt to return to more orthodox practices confirm it to them. As expected, after the euphoria of a resounding resurgence of activity, and in the expectation of the benefits of vigorous growth, the outlook seems to be darkened in a general context of fear for business and investment. In addition, the return of inflation, the nightmare of the governments of the 1970s and 1980s, is compromising the displayed serenity of the last months of 2021.

It is true that the health crisis has partially disrupted production and especially international trade which, due to lack of visibility, is struggling to regain a climate of confidence conducive to business. And that, moreover, the return of war in Europe, the outcome and consequences of which are increasingly unpredictable, is likely to alter the forecasts of the most distinguished experts.

With regard to the rise in prices, the tendency is to consider it, with some relevance, as imported, and therefore cyclical. However, it should be noted that in fact it manifested itself well before the Russian aggression in Ukraine. From there to thinking that these crises and the difficulties they cause are not the only causes of a return of pressure on world prices and rates, that its origins are more structural, there is only one small step to take.

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Indeed, among the most significant concerns, the one about which we still speak relatively little but which could soon become a major concern, is that of the debt, the regular and rapid increase in which could lead us to budgetary collapse. During a decade in which we borrowed at will and almost without pain because of low or even negative interest rates, our comfort was maintained… on credit.

This time was that of the magic money thanks to which one could generously practice without concern for measurement the “whatever it costs”. The deficits were financed not by the growth of the GDP, as it is desirable, but by that of the debt. This option seemed all the more attractive and easy to practice as the central banks bought it back without flinching. Almost everywhere in the world monetary creation was at work. Life was beautiful and the future bright!

These massive injections of liquidity have certainly been beneficial in the short term by artificially financing economic activity and de facto avoiding recession. However, by postponing the deadlines, they have also weakened the economy in the long term. Indeed, the growing distortion between the real production of wealth and the money supply in circulation can only create tensions on prices. In this regard, times are changing: the prospect of free money is receding. With a return to a significant increase in key rates to respond to the vigorous acceleration in prices and to attempt to curb it, or at the very least slow it down, the budget constraint is once again becoming a major concern.

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It is precisely on this aspect that a stubborn reality presents itself. As we reimburse the
capital of the loans at their maturity, not – as it would be good management – with the
budgetary surpluses, the fruits of growth or tax revenue, but in
contracting new loans, naturally at the current rate, the charge increases significantly. For many countries in Europe, including France, the debt service budget line will soon see a marked increase. This could amount to billions more. And this at a time when public deficits are expected to be reduced to more reasonable, that is to say bearable, levels.

Moreover, a new miracle of modern times, it is announced that it will not only be without providing for new taxation, but simultaneously by promising both a reduction in existing taxes and by providing for new expenditure of a social nature. Here we encounter the limits of Emmanuel Macron’s philosophy, that of wanting to achieve the synthesis of opposites, illustrated by the now classic ” at the same time “. In this case lower taxes and increased public spending. Which could only lead to the digging of the debt.

However, on the eve of the return to parliament where the drafting of the finance law is looming, the silence is deafening on the elementary question in the circumstances: where will the money come from, from whom will it be taken? Is the answer, if it exists, so difficult to formulate? Or will we continue to let the deficits slip away, to increase the debt by postponing budgetary rigor to times of better fortune?

Bruno Le Maire and Emmanuel Macron on August 31 at the Elysée Palace.

The other hypothesis which is not much easier to implement: restrict spending. We cannot escape the fact that household aid, although desirable, and even essential, weighs heavily on public finances. But, another truth, at a time when the question of purchasing power is acute, it would be reckless to restrict social budgets. More generally, restrictions on the budgets devoted to health, education, justice or national defense (the list is not exhaustive) would be very badly perceived. Also the list of possible savings is actually very short. It is therefore probably not on this side that the governmental hypothesis will be located.

It is therefore not surprising that the super finance minister, a realist although a little forced into witchcraft, entangled in an insoluble equation, thought it necessary to show his fear by declaring that the “alert rating” was reached. He knows very well that, sooner or later, the time of the cicadas always succeeds that of the ants; that inevitably comes the time to restore order in a system that has gone wrong. And that to do this certain bad habits must be abandoned, including that of spending more than one earns, to return to a little budgetary rigor to stabilize the surge in prices. Has he been heard? Was his words audible? There is nothing to suggest that.

Preventing citizen-voters that the time for facilities is inexorably fading away is obviously not an easy exercise. Especially since an opposition that was not really so numerous and so turbulent exerts permanent pressure, harasses with constancy, cultivates fertile ground for discontent and ideologically persists in denying the realities of a situation which looks very uncertain. President Macron, however, came out of the woodwork, seizing the opportunity of a summer speech, sibylline but nevertheless full of meaning, to declare “that we will have to show fortitude”.

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A friendly understatement that allows us to whisper that we will have to accept some effort and consent, if not to sacrifices, at the very least to renunciations. Indeed, the socio-economic context presents worrying indices. Among them, the downward slope on which Great Britain is engaged could well be the harbingers of a Europe on the verge of a recession characterized by volatile prices and aggravated by a debt which weighs down investment capacities.

It is therefore to be expected that the start of the new school year will be dominated by the treatment of the short term, which will take precedence over the structural reforms announced, both in terms of resources released, energy… and political strategy. This time again, it will be possible to verify the observation that what happens in politics is rarely in line with what was projected. But we will console ourselves with Churchill’s formula: “The good politician is the one capable of predicting the future and who is then also capable of explaining why things did not happen as he had predicted”. We have no doubt that the President of the Republic will be up to it.

Bernard Duquesnoy, Donneville (Haute-Garonne)

The world

“Words of readers” – The laborious exit from “whatever the cost”