France: The Reckless Prodigal of Europe

 Just now, another “all guts, no glory” moment—France is sprinting toward the cliff edge.

Today’s note will be short. A few weeks ago, in both our Knowledge Planet forum and on this page, we walked through Germany’s jam: unemployment spiking, the welfare state on the chopping block (see “Europe’s 500-Year Holiday Is Over”). But compared with its eastern neighbor, Europe’s other pillar—France—looks even more precarious. Inside Paris, policymakers are already whispering about calling the International Monetary Fund for a bailout.

Wait—IMF rescues are for emerging-market basket cases, right? France is a charter member of the rich-kids club. How did la République end up on the same ventilator as Argentina?

In truth, it checked into the fiscal ICU long ago. Few outsiders realize that France has posted a budget deficit every single year since 1974—half a century of nonstop red ink. The last time Paris finished a fiscal year in the black, Gerald Ford was in the White House and disco was still underground.

And the red is turning crimson. The IMF projects that by 2030 France’s public debt will hit 130 % of GDP—double the pre-2008 level. Meanwhile the French already shoulder the heaviest tax burden in the OECD: almost 44 % of GDP in 2023, higher than Sweden and inching close to Denmark. So how did they survive 50 years of spend-now, tax-later? Easy: free money. Since the global financial crisis, and especially in the last decade, borrowing costs flirted with zero. Rolling over debt was cheaper than paying civil-service pensions.

Enter Jerome Powell—and, indirectly, Joe Biden. When the Federal Reserve began jacking up rates in 2022, the European Central Bank followed. Overnight, the carry cost of France’s IOUs tripled. In 2020 Paris paid less than €30 billion in interest; by 2030 the bill could top €100 billion. That is real money in a budget already hemorrhaging €150 billion a year.

Is the IMF France’s only escape hatch? Not yet. It can still tap bond markets or plead with Brussels. But Europe itself is a ward of creditors: Italy’s debt ratio is 140 %, Spain’s 110 %, and Germany—once the continent’s paymaster—has slipped into recession. If France sneezes, nobody in Europe can afford a tissue.

“Fine,” you say, “let them kick the can another decade.” Good luck. The future invoices are piling up:

• Ukraine, the fiscal black hole. If the war drags on and America pivots away, the EU—read: France and Germany—must bankroll Kyiv. If a cease-fire emerges, Paris has volunteered to lead a 200,000-strong “European” peacekeeping force. London already shrugged: no tanks left—every tracked vehicle is somewhere east of the Dnipro. (Fun fact: the British Army now boasts twice as many generals as tanks.)
• Reconstruction. Securing the battlefield is the down payment; rebuilding Ukraine will cost multiples of its annual GDP. The European Commission’s own back-of-the-envelope figure is €750 billion over ten years—more than the entire EU annual budget.

Paris talks big on defense, yet its own cupboard is bare. Last year France spent €55 billion on the military—roughly one-third of China’s budget—with only 205,000 active-duty personnel to show for it. Where did the money go? Ask the Monsieur Smiths of French procurement: the same revolving door of contractors, consultants and ex-generals that devours Pentagon dollars has a French accent. Ships cost double, jets arrive a decade late, and barracks lack heating.

Which brings us to Ursula von der Leyen. The European Commission president shuttled to Paris last week not for macarons but for manpower and cash. The conversation, insiders say, was grim: how to conjure soldiers the French army does not have and funds the treasury cannot spare.

So here we are. The country that once bankrolled the American Revolution may soon need its own revolution in bookkeeping. For fifty years France financed joie de vivre with other people’s money; now the global credit card is maxed out and the minimum payment just jumped. If the IMF knocks, it will not be a bail-out—it will be a wake-up call heard from Brussels to Bordeaux.