On Friday Standard & Poor’s, the bond-rating agency, downgraded France. The move made headlines, with many reports suggesting that France is in crisis. But markets yawned: French borrowing costs, which are near historic lows, barely budged.
So what’s going on here? The answer is that S&P’s action needs to be seen in the context of the broader politics of fiscal austerity. And I do mean politics, not economics. For the plot against France—I’m being a bit tongue in cheek here, but there really are a lot of people trying to bad-mouth the place—is one clear demonstration that in Europe, as in America, fiscal scolds don’t really care about deficits. Instead, they’re using debt fears to advance an ideological agenda. And France, which refuses to play along, has become the target of incessant negative propaganda.
Let me give you an idea of what we’re talking about. A year ago the magazine The Economist declared France “the time bomb at the heart of Europe,” with problems that could dwarf those of Greece, Spain, Portugal and Italy. In January 2013, CNN Money’s senior editor-at-large declared France in “free fall,” a nation “heading toward an economic Bastille.” Similar sentiments can be found all over economic newsletters.
Given such rhetoric, one comes to French data expecting to see the worst. What you find instead is a country experiencing economic difficulties—who isn’t?—but in general performing as well as or better than most of its neighbours, with the admittedly big exception of Germany. Recent French growth has been sluggish, but much better than that of, say, the Netherlands, which is still rated AAA. According to standard estimates, French workers were actually a bit more productive than their German counterparts a dozen years ago—and guess what, they still are.
Meanwhile, French fiscal prospects look distinctly non-alarming. The budget deficit has fallen sharply since 2010, and the International Monetary Fund expects the ratio of debt to GDP to be roughly stable over the next five years.
What about the longer-run burden of an ageing population? This is a problem in France, as it is in all wealthy nations. But France has a higher birthrate than most of Europe—in part because of government programs that encourage births and ease the lives of working mothers—so that its demographic projections are much better than those of its neighbours, Germany included. Meanwhile, France’s remarkable health care system, which delivers high quality at low cost, is going to be