You may have noticed that since the Slogpost earlier in the week about sovereign debt forgiveness, the subject seems to have gained a higher profile. Ben Brogan, Martin Wolf, and Muhammed El-Arian have glided around the edges of the issue. Wolf in particular wrote a long oped in the FT, referring openly to the need to write debt off, but without using the explosive F-word.
Much as I’d love to present myself as the opinion-leader here, the F solution is one increasingly held up as the only way out by those in influential wealth and credit management positions throughout the world. My original piece merely reflected a number of opinions I respect having been made known to me.
As I hinted some weeks back – and have been posting about since early 2010 – one nation which caught on early to this inevitability was France. In case you haven’t visited the country during the last year, I should point out that French road, town and administrative infrastructure has been the subject of an unparalleled spending splurge for the last eighteen months. At city, departement, town and commune level, almost every sign, road marking and street plaque is new. Installation of everything from sewers to IT cabling has seen roads dug up, renewed and widened. The scruffy Mairie is a thing of the past, and the signage pointing to post offices, stations or restaurants sparkles new in the clear weather of the driest summer for decades.
I mentioned this to a couple of Mayors last year, both of whom shrugged and said things must be renewed, and anyway the money wouldn’t always be there. It seemed a case of ‘make hay while the sun shines’ – that is, before the EU money-rapids dry up.
But there is a lot more to this than fleecing the EU – with which idea, by the way, I have no problem at all: the sooner it’s bankrupt the better from my perspective. The truth is, however, that a lot of this interior spending is French taxpayers’ money; or – to be more exact – private credit-providers’ money.
I have been monitoring French deficit data over the last ten months or so, and it bears examination. The French have – in the light of unfolding PIIG disasters – managed to stay even further off the radar than Italy. There’s no ill intent in that: they have plenty of gold reserves, and much of their debt is long-term. They are in better shape than the UK, and their economy is far better balanced. Above all, the strength of French agriculture and the land available for it in France make it one of the best potential ‘survival’ economies in the world.
None of this can excuse the rate at which the French national debt is increasing. Its monthly deficit is now the fastest growing – and one of the biggest – in the EU. The person nominally in charge of this situation is none other than our old friend Christine Lagarde, but her general level of innumeracy isn’t the reason behind this spending. And anyway, thanks to her global coronation tour in readiness for being crowned Queen of the IMF, she doesn’t have an eye on the rate at which France is spending: her financial incompetence is, nevertheless, being matched by the Sarkozy Government’s fiscal incontinence.
That Sarkozy of all people should preside over this seems at first sight odder still. He came to power as a spend-cutting anglo-saxoniste, but he lost his way and remembered his nationality within a year. Now he is all over the place, and badly in need of political allies.
Nevertheless, with two leaders well to the monetarist end of economics, one is left pondering why there has been this poolswinner approach to the French spending budget. It is less than two years, for instance, since Nicolas Sarkozy told an EU Summit that France was “ready to bear the pain” of austerity. But of austerity in France, there is no sign at all. In the corridors of the EU, there is no talk of this; but there wouldn’t be really, because as we know, the Sprouts’ idea of austerity is a 5% budget increase. And anyway, the French spending is still within target, n’est-ce pas?
Well no actually, it isn’t. In fact, since the launch of the euro ten years ago, the French have never hit their EU fiscal targets. This year it’s going to be even more out of whack than ever. And remember , the Gallic line drawn between private sector growth and public spending is hazy, eccentric, and movable – depending on the circumstances.
However, what’s happening has little or nothing to do with either Sarkozy or Lagarde.
EUs may come and Sarkozies go, but for the top-level mandarins who really plan France’s future, France comes first – and always will. There is no difference at all between the French and all the other 26 EU members in this respect; but the uniqueness of the French State is that there is a level of intelligence, focus and organisation behind it that is way ahead of even the Germans. Certainly, it is light years ahead of our Whitehall shower – whose main achievement over the last decade has been to embezzle a set of massive pension entitlements to which they are not, as it were, entitled at all.
The senior, Paris-based elite of the French civil service is far better informed and prepared than ours. More significantly still, its relationship with the political class is entirely different. The thinly-disguised display of arrogant flunkiness displayed by UK mandarins in the presence of Ministers simply doesn’t exist in French politics. It exists in abundance at the prefecture level towards departemental political stars – and the other way round between the Mairie and the prefecture – but when le planification de l’Etat is at stake, the Sorbonne-trained suits are very much in control.
Since his first days in the Elysee Palace, Sarkozy has bristled about this, but not too far below the surface he knows perfectly well that this is France’s secret weapon: in a nutshell, the longer-term strategic decisions are approved by politicians, but they neither frame the ideas, nor scope them out.
This explains, for example, why the French electrical supply industry has the least dependent on non-nuclear fuel, and the highest efficiency of nuclear generation in the Union. Other EU nations’ politicos took the popularity road of being seen to be Green. France’s polite planners simply said, “Don’t be silly”. It also explains why compulsory purchase of land to build autoroutes and the high-speed TGV rail service for SNCF has never been in the political remit, why French farming’s health is given priority over any other consideration, and why France ‘works’ when, really, it shouldn’t. France has a terrific infrastructure because people who don’t care a fig about votes – but do love la France – are planning and building it with meticulous care, and zero tolerance of opposition.
This is a salutary lesson, albeit one with a dark side. Float the word ‘principles’ under the Sorbonnista’s discerning nose, and it will wrinkle. There is only one principle – France. In 1940, this meant an inordinately rapid capitulation, because the decision to sue for Peace was taken on an entirely rational basis: the British have lost, and they have gone. We will cooperate with the Nazis until all this has blown over. It is the long view, and whether one likes it or not, it is very rarely wrong: all things must pass, and everything is in transition – nothing is forever, except la France.
All this may seem like a deviation from the point, but it is an important cultural background to understand. France’s decision to spend like mad on its infrastructure over the last three years is a conscious civil service decision based on insight and foresight. The EU has screwed up and the bankers have screwed up. Even worse, there has been no deleveraging since 2008’s near-miss. That would’ve been the first thing to be forced upon French banks, were we not now living in a globalist world beyond even the powers of their administrative elite to control.
I’ve discussed this with one or two well-connected French businessmen and friends – and with a couple of expats: long-time French residents who understand the workings of most things there. We all agreed months ago – in some cases two years ago – that winding the debtometer back close to nought was always going to be the long-term solution. Our feeling is also that if we realised this, the Parisian elite must have done too…probably a long time before we did.
As time goes on, the simple genius (and likely success) of the spendaholic strategy is beginning to look more and more certain – especially as the spending represents investment, not waste. The reason is that it is based on a commonsense social anthropology that runs like this: ‘The knuckledraggers will take a while to work out that debt forgiveness is the only answer, and then the banks will spend a year or two blackmailing the politicos to turn a blind eye to the truth. So if it’s going to happen anyway, why go bust for a billion, when you can go bust for a trillion?’
Anyone who has ever worked in a corporate environment where ultimate disaster is only a matter of three decisions away will have experienced the reality of this attitude. For a mercifully brief time, I worked in an ad agency where the deranged gangster at the top was up to every fiddle known to Man and – having stripped out all the wealth in the company – was about to go bang. It was obvious to a few people lower down the pecking order that, as Gotterdammerung was imminent anyway, they might as well live a little – while preparing for life after the collapse.
It’s immoral of course: just as the Sorbonne elite’s behaviour is immoral. But the employees in that agency had families to protect, and the French civil service’s job is to protect the State – come what may. Such behaviour is reprehensible, but normal.