France and Greece: spot the variations

Welcome again. Commenting on the nervous response of bond markets to France’s political disaster, finance minister Antoine Armand felt it needed final month to state: “France isn’t Greece.”

I believe many Greeks greeted his remarks with a combination of amusement and indignation. For in contrast to France, Greece lately receives a lot reward for its fiscal rectitude and political stability, having navigated its method out of the debt emergency that gripped it within the early 2010s.

If, nonetheless, we examine France and Greece, what are the similarities and the place do the variations lie? I’m at tony.barber@ft.com.  

Converging bond yields, excessive public debt

Significant comparisons between France and Greece should transcend headline financial and monetary information, and take account of political tendencies in addition to the power of state and personal establishments.

All the identical, let’s begin with some details and figures that shed some gentle on the query.

Because the chart beneath exhibits, French and Greek 10-year authorities bond yields have converged in latest weeks. That largely displays the sharp fall in Greek yields for the reason that debt disaster, but additionally a gradual, smaller enhance in French yields for the reason that Covid pandemic.

The unfold between French and benchmark German yields is now nearly precisely the identical as that between Greek and German yields. Nonetheless, France is nowhere close to the precipice in the direction of which Greece was shifting a decade in the past, when it got here near falling out of the Eurozone.

Relating to public debt, France’s debt-to-GDP ratio now stands at simply over 110 per cent, having risen from about 60 per cent on the euro’s beginning in 1999. Though France manages its debt with nice talent — the common maturity of its long- and medium-term bonds is simply over 9 years — the rise within the public debt inventory is a deeply entrenched pattern that wants halting or reversing.

Against this, when Greece joined the Eurozone in 2001, its debt-to-GDP ratio was already over 100 per cent — some extent that raised doubts on the time over Greece’s health for membership of Europe’s financial union.

Based on a European Fee report on the Greek economic system, revealed in June, the debt-to-GDP ratio hit a peak of 207 per cent in 2020, earlier than declining to nearly 162 per cent final yr.

Nonetheless, because the fee noticed, a big chunk of Greek debt remains to be owned by its official collectors. Coupled with Greece’s rigorous fiscal insurance policies over latest years, this makes the danger of one other nationwide debt disaster as distant as in France.

Public spending and tax revenues

One hanging parallel between France and Greece considerations public expenditure. In this doc, issued by Eurostat, the EU’s statistical company, we see that France had the EU’s highest degree of presidency expenditure in 2022 at 58.3 per cent of GDP.

Greece had the sixth highest within the 27-nation bloc at 52.9 per cent.

Preserving public spending beneath management is subsequently a problem for each nations. Nonetheless, France beneath the proficient technocrats of the Fifth Republic has at all times been higher than trendy Greece at amassing (and paying) taxes.

So whereas the French drawback considerations persistently excessive state spending, the Greek drawback is extra about tax evasion and inefficiencies within the tax system, as highlighted in this text by Thanos Tsiros for the Greek newspaper Kathimerini.

Present account deficits, competitiveness

In a speech this week in New York, Yannis Stournaras, Greece’s central financial institution governor, described the nation’s economic system as “past any doubt a global success story over the previous few years”, however appropriately recognized some vulnerabilities.

Stournaras stated a very powerful problem was Greece’s present account deficit, which at 6.2 per cent of GDP in 2023 was far above the French degree of 1 per cent.

He went on to say that the primary cause for the deficit was lagging financial competitiveness, and famous that Greece was positioned forty seventh within the Swiss-based Worldwide Administration Institute International Competitiveness Index for 2024.

Studying this prompted me to search out out the place France ranked — and, reasonably to my shock, I found that it was in thirty first place.

This appears low for a rustic that boasts many first-class private-sector firms and has a traditionally sturdy report on labour productiveness — which, nonetheless, has slipped for the reason that pandemic, because the Banque de France famous in June.

‘A mediocre political class’

Maybe a clue is to be discovered within the turbulent state of French politics? On this FT report, an unnamed Paris-based lawyer is quoted as saying:

On one aspect you will have the sturdy efficiency of French firms, banks and personal fairness, and throughout from you is this sort of incompetence from a mediocre French political class with no imaginative and prescient of the frequent good.

The traditional view is that President Emmanuel Macron should take a lot of the blame for the current disaster, having referred to as unnecessarily early legislative elections that produced a parliament so divided that the autumn of Michel Barnier’s authorities was solely a matter of time. (Macron yesterday named centrist François Bayrou to switch Barnier.)

Nonetheless, some commentators contend that it’s untimely to pronounce that France is on the street to political perdition. Sylvie Kauffmann, writing for the FT, says:

Few specialists suppose the time has come to bury the Fifth Republic. The structure, they argue, affords flexibility.

In this text for Carnegie Europe, Rym Momtaz says that Macron, regardless of his home woes, remains to be sturdy on the worldwide stage in issues such because the Ukraine conflict, European defence and the Center East:

That is the paradox the French Fifth Republic presents for its residents and Europe: the nation is reeling from a historic fiscal disaster and political instability not seen since earlier than the second world conflict, whereas Macron, the politician most answerable for the scenario, is scoring worldwide successes.

Political polarisation

If one compares France with Greece, there are some similarities — and a few necessary variations — between the French political scene now and the Greek scene on the top of the debt disaster.

In France, the exhausting proper and radical left have been gaining power on the expense of the reasonable, technocratic centre.

(Within the left’s case, who will purchase as a Christmas current “Now, the Folks!”, the English translation of Jean-Luc Mélenchon’s newest e-book? Based on the blurb, it requires “everlasting insubordination towards an unjust and harmful world order” and denounces Macron because the “consultant of the bourgeois political bloc”.)

Likewise, in 2015 the Greek debt disaster propelled to energy Syriza, a radical leftist social gathering. Nonetheless, the far proper didn’t obtain a significant electoral breakthrough in Greece — certainly, it has by no means loved the affect over nationwide politics that Marine Le Pen’s Rassemblement Nationwide has acquired this yr in France.

Furthermore, Syriza immediately is a shadow of its former self — divided, unpopular and now not even the primary opposition in Greece’s parliament.

Social discontent and France’s moustache strike

This isn’t to say that each one is calm and going effectively in Greece.

A wiretapping scandal mirrored poorly on the federal government and state establishments. One Greek commentator calls it “one of many greatest scandals for the reason that restoration of democracy” in 1974.

One other observes that Greece’s political system remains to be “earthquake-prone” and that “anti-systemic sentiment and a penchant for conspiracy theories stay sturdy”.

Nonetheless, Greece in recent times has skilled nothing like France’s gilets jaunes (yellow vests) motion or the mass protests towards Macron’s pension reforms.

Some would say these occasions type a part of a wealthy French custom of social protest. My private favorite — dropped at my consideration many years in the past by historian Ross McKibbin — is the Nice Moustache Strike of 1907, when waiters in Paris stopped work to demand higher pay, extra time without work and the correct to develop moustaches, denied on the time to lower-class employees.

A worthy trigger, little question.

Folks’s belief in politics

To spherical issues off, let me point out an OECD survey, revealed in July, on folks’s belief in authorities and politicians. This confirmed very related ranges in France and Greece: in 2023, 34 per cent of French respondents reported excessive or reasonably excessive belief within the authorities, in contrast with 32 per cent in Greece.

Each had been barely beneath the OECD overage of 39 per cent.

This can be a pattern that wants watching — although undoubtedly most consideration in coming weeks and months will probably be much less on Greece than on how France tackles its political deadlock.

Extra on this subject

The influence of commerce on anti-globalisation voting: proof from France — a paper by Antoine Bouet, Anthony Edo and Charlotte Emlinger for the Centre for Financial Coverage Analysis

Tony’s picks of the week

• A yr into his tenure, President Javier Milei of Argentina has proven himself to be at simpler at getting issues carried out than his many critics forecast earlier than his election, the FT’s Ciara Nugent and Michael Stott report

• Somewhat than making Europe much less reliant on US safety ensures, the incoming Trump administration dangers leaving the continent extra susceptible to Russian aggression and Chinese language financial dominance, Daniel Hegedüs writes for Washington-based The Hill