Can we get infected from France?

Alexis de Tocqueville, describing riots in Paris during the revolution of 1848, said that the French Revolution was beginning again "because it is always the same". Certainly, the French like revolts: after the Paris Commune in 1871, came May 1968 and the yellow vests in 2018, among others, such as the disturbances originated in the peripheral banlieues by many who are disaffected with the Republic. I have lived in France and I was a witness to a permanent dissatisfaction among many sectors. This time, the triggers have been the students, and the yellow vests have joined in. The unions want to call a general strike in November so as not to lose their footing in the social movement. Here there is also one called for the right to housing for the same reason and to influence the elections at the end of November. A strike not against the government, but against the opposition. When we see that young people from the periphery of Barcelona vandalize and steal in the city's shops, the red lights flash. In France, Le Pen's campaign for the presidential elections is already done: "I will restore the order that the incapable Macron has not known how to impose for many years".

The problem with France is that it maintains the welfare state with deficit and debt, and not with a dynamic economy. In social protection, France dedicates a higher percentage of GDP to it than Germany, Italy or Spain; it also allocates more to health and education, with overall public spending at 57% of GDP, well above Spain's 45.5%. It is difficult to argue that France is practicing austerity. The issue is that public revenue is not sufficient and it generates public debt that is reaching nearly 120% of GDP. The public deficit is stuck above 5%, with a forecast of 5.4% for 2026. Governments that try to reduce it fail, just as Macron's reform to increase the retirement age by two years, from 62 to 64, in 2023 failed, which has subsequently been postponed. The result will depend on what happens in the 2027 elections, but both Le Pen and Mélenchon have indicated that they want to lower the retirement age to 60 (Le Pen, for people who started working young). Every reform proposal is blocked by interest groups. Macron responded to the yellow vests revolt of 2018-2019 with 11 billion euros in aid; now there is no room left. France's risk premium in relation to German debt is at a high, higher than that of Italy (which has a debt-to-GDP ratio of 140%) and well above that of Spain. To live on credit, you must be granted it, and the market is making France pay more and more, which represents a very significant burden for the future and limits spending.

The political prospects do not help, because the probability of Le Pen winning the presidential election is high, and if the winner were Mélenchon, it would not be any better. Today there is no moderate candidate who seems to have a chance (the former prime minister Édouard Philippe does not exceed 15% in voting intention, for now). Populism prevails. Mélenchon has proposed cancelling the French debt currently held by the Bank of France. This, to begin with, would mean that the French public sector would not enjoy the income from the interest that the debt pays to the Bank of France and would cause great nervousness among investors in French debt. Perhaps French politicians and some investors expect that the European Central Bank (ECB) will buy their debt if the risk premium rises too much. The question is how the “frugal countries” like Germany will react when they see that in France people retire at 60 at the expense of the ECB's subsidy, while in Germany it is proposed that the retirement age be 67 starting in 2031. The euro and the ECB are political constructions.

What consequences do these events have for Spain? Spain has expanded and maintained the welfare state with European aid, with ECB debt purchases, cohesion funds and, recently, with the important Next Generation funds. However, the economy has been more dynamic, although with an extensive growth model in which low value-added sectors and immigration have played an important role, and even though it has not generated significant increases in per capita income. State revenues have relied on inflationary periods by not deflating personal income tax rates. The factors that have allowed this development will not last forever, and we should not fall into the permanent blockade, as in France, of any reform that raises productivity and enables sound public finances that consolidate the welfare state in the long term without external aid.