The year 2024 begins in uncertainty for the French economy. What state is our economy in? Are there reasons for hope or should we be worried?

Although it is customary to wish each other a happy new year in January 2024, the economic situation is poor, as evidenced by all the French macroeconomic indicators being in the red: while France has indeed experienced a disinflationary movement – that is, a slowdown in the rise of consumer prices – throughout 2023, the leading indicator of the annual change in producer prices has started to rise again in recent months, which means that the inflation French households will suffer is likely to rebound, or at least remain high for a long time. Following the increase in key interest rates since July 2022, French real estate is also suffering, and, like all periods of monetary tightening, the current episode will end – which is, after all, the objective of central bankers to try to control inflation – with a generalized recession in the eurozone: after Germany, it will be France's turn to see its GDP decline in 2024. Wherever one looks in the INSEE statistics, the indicators are scarlet: the state budget deficit is expected to reach 4% of GDP for 2023, to which must be added a current account deficit (mainly trade) of around 2%, making 6% before any recession, which could easily double France's overall deficit in 2024 to 12% of its GDP, which is absolutely unsustainable. As for our public debt, the mother of many of our problems, it now approaches €3,100 billion (about 115% of GDP), held for more than half by foreign investors who will tolerate no default on payment; not to mention the so-called "off-balance sheet" debt, which never makes the headlines, although it amounts to at least as much and corresponds to concrete commitments of the state towards, for example, the retirement of civil servants. Unfortunately, our successive governments could not have shown so much incompetence in managing public finances since the early 1970s without this having the serious consequences we are seeing today.

To get out of this situation of budgetary and trade deficits, what measures need to be taken? Emmanuel Macron promises, after all, to continue with reforms!

Since its foundation ten years ago, Samarie & Cie has advocated for "sovereign liberalism," the only way, in our view, to get out of the rut in which a politico-administrative elite has kept France. The quintessence of the work of this oligarchy was the Maastricht Treaty in 1992, which promised, let us remember at the time of Mr. Delors' disappearance, "growth and peace," in short, prosperity. Sad balance thirty years later: recession inside and war at our doorstep! If, between 2000 and 2020, Germany's industrial production grew by just under 40% (the euro being tailored for it), it was not the same for Spain (-20%), Italy (-15%), or France (-5%) where its weight in GDP has been halved over the last forty years, to reach a mere 10% today. If Frexit is therefore necessary, with more or less radical modalities, which can always be debated, it is far from being a magic wand. To become free and sovereign again, it is not minor reforms that we need, which are there, like the pension reform in spring 2023, to reassure financial markets for a while, at the cost, as we have seen, of extreme social tensions, without ever addressing the root of the problems (the almost complete absence, in this case, of capitalization in the financing of our pensions), all against a background of often unfair or hypocritical small measures (what was the point of pushing back the legal retirement age when we know that the average age was already 64?): France needs to become truly competitive again by getting rid of the rentier economy and crony capitalism in which it excels! To do this, it must break all monopolies, whether private (when they persist beyond patents) or state-owned; protect our high-value-added knowledge, our non-relocatable know-how, our services carried by a local tradition, our expertise sectors, our "intangible and incorporeal capital" that the European bureaucracy does not defend at all against American or Chinese giants. This requires, finally, defending the central figure of the entrepreneur as a man of vision, independence, and practicality, who is not only guided by profit but also rooted in a national genius. Small is always more beautiful: contrary to what was done in managing Covid, we must defend the small independent, much less inclined to bureaucratic inflation than the large company or administration.

The issue of purchasing power, housing, and public services remains central for many French citizens... Does our country have the financial means to restore even a decent hospital sector?

Our famous "social model," of which we are so proud, but which no other developed country, in reality, envies, has failed: over the last fifteen years, our public debt has increased three times more than GDP in value! The government is seeking to reform this social model, according to information from the Ministry of Finance. We have the gold medal among eurozone countries in this respect. Since the beginning of 2020, France has incurred more than €700 billion in additional debt and has only managed to generate a little more than €300 billion in additional GDP at the same time: the engine is broken. None of the Keynesian recipes advocating countercyclical fiscal policies alternating between fiscal stimulus (reputedly left-wing) and fiscal austerity (reputedly right-wing) have worked, nor can they work: it is necessary to get out of this false debate and make a Copernican revolution in our mentalities. We have often had the opportunity to say it in these columns, but it is necessary to repeat it: the state must absolutely stop considering the taxpayer as a cash cow and the private sector as a milk cow! In this spirit, an essential prerequisite is to return to a balanced budget in the medium term, even if it means making the eurozone explode if the latter prevents us from doing so; in the short term, to drastically reduce public spending, including through the abolition of certain public services, whose existence is based more on corporatist or ideological lobbies than on the general interest; then, in the long term, to bring our public debt back below 100% of GDP. This is the sine qua non for any hope of restoring the country's competitiveness and thus its purchasing power. Only then can the debate on the financing of public services, including the hospital sector, which is so dear to us, be reopened.

The French have never paid so much in taxes. Where does the money from suffocating taxation go when public services seem to be disappearing? Gabriel Attal has made education and health his priorities!

It cannot be said enough: with nearly 46% of GDP, France is indeed the world's number one in terms of tax pressure! Our Swiss neighbors have kept a mandatory levy rate stable at around 30% of GDP, which seems more than sufficient to administer a developed market economy country. About 30% was the tax pressure in France under General de Gaulle, who, with J. Rueff, had considerably slimmed down the bureaucratic machine to make public spending "efficient." The problem with France today is that it represents a little more than 2% of global GDP, but its social spending represents 9%. This cannot last much longer, and every day that passes brings us closer to the deadline for default, the same one that Argentina has experienced many times or France during the "two-thirds bankruptcy" of 1797 (the Assignats crisis). In such a scenario, we would be attacked in the financial markets since a large half of our sovereign bonds are held by non-residents who, already scalded by the bond crash since July 2022, would not appreciate this turn of events. In addition to its fiscal gold medal, France is also on the podium for the weight of its public spending, of which nearly 60% finances... our social protection and just half (30%) our retirement system! By comparison, the French state spends only 2% on Research & Development and 6% on its sovereign missions. We need to collectively review our priorities. Several referendums are necessary.

The decrease in rates in Europe should continue in 2024... Will this give a boost to growth and employment?

Unfortunately not, because the already announced cuts in the United States and likely ones from the ECB in the first half of 2024, only occur because the recession is already here! It is unprecedented to "reflate" even before the recession arrives, which could be interpreted as a sign of central bankers' nervousness. In terms of monetary policy, it is indeed necessary to distinguish between monetary interest rates (short-term rates) and bond rates (long-term rates): if the former, administered by a central bank, should indeed experience a slight decrease in 2024 (less than one percentage point), the latter, determined by the markets, will remain high for at least all of 2024. Yet, it is these latter rates that are paid by borrowers, whether they are households for a real estate purchase, companies to finance their investments, or of course the State whose debt service will continue to increase. It can thus be estimated that within 5 to 7 years, just the interest on the public debt will cost the French State some 70 to 90 billion euros per year. With GDP growth permanently lower than long-term rates, France is trapped in a debt trap.

Do you think Emmanuel Macron's goal of full employment by the end of his five-year term in 2027 is achievable?

Given all these elements, it is purely and simply a smokescreen, like the cosmetic transformation of Pôle Emploi into France Travail, which also illustrates the "Republic of cronies and scoundrels" since it is a very loyal follower of the president, Thibaut Guilluy, who took the reins. In fact, and it is little talked about, there are already almost 100,000 more people unemployed in all categories combined since just last June, and with the recession coming, it is unfortunately not over! The hitch lies in the Government's communication, which suggests that the unemployment rate has decreased since Macron was elected in 2017: this is true if we only consider the 3 million unemployed in category A (France as a whole), but it is to be very strongly relativized if we include the nearly 6.2 million more or less partially unoccupied active people (categories A to E) who make up what is called the "halo of unemployment." It is with a discourse of truth and more transparency on official figures that we can convince the French to make the necessary efforts to turn the country around. Not with miracle recipes and the small reforms of "at the same time."

The agricultural world is in turmoil all over Europe. Is Emmanuel Macron's announcement of floor prices for agricultural sectors the solution?

On the sidelines of his tumultuous visit to the Salon de l'agriculture, E. Macron announced his intention to establish "floor prices": these are prices below which the agri-food industry will not be able to negotiate with farmers, defined according to the IPAMPA, the index of purchase prices of agricultural production means. As always in economics, one must not only look at what is seen, that is, the potential, punctual, and misleading increase in agricultural income; one must also detect what is not seen, that is, the well-known perverse effects of any such state intervention in a market, namely, to begin with, a shortage of demand, that is, of industrialists who will find the floor price too high, which will eventually lead European distribution centers, by ricochet, to turn away from French products, already very expensive, made even less competitive by this measure. French farmers will be rationed and will lose export markets... unless a floor price is imposed throughout the EU! There is also the opposite temptation for industrialists to pull a purchase price that would be higher than the floor price towards the latter... to the detriment, once again, of agricultural producers. This socialist measure - which even reminded Olivia Grégoire, then Minister Delegate for Consumption, of "Cuba or the Soviet Union with the successes we know them for" - is generally followed by the establishment of a price ceiling, just as vicious, to try to ward off the damage of the floor price, and thus, step by step, of a regulated takeover of the entire concerned sector... This was the case with the minimum wage, a floor price that creates unemployment, or the Duflot law on rent control, a price ceiling that creates housing shortages in the rental market. This is what can be expected.