“Germany will pay! “This was the slogan on which the National Bloc based its campaign for the November 1919 legislative elections.
After its convincing electoral victory, this coalition, believing in its own propaganda, and counting on Germany’s forthcoming payment of its war reparations, began to multiply public spending, financed more by borrowing rather than through taxation.
But, out of the 85 billion gold francs it owed France, Germany, diplomatically supported by the United States, would only pay 5 billion. In France, the increase in public debt and currency in circulation led to considerable inflation. The Poincaré franc would settle this affair: on 25 June 1928, the French government devalued the Germinal franc by four fifths of its value.
Today, our public finances are once again in shambles. But Germany is absolutely no longer responsible for it. She did not attack us militarily as she did in August 1914; she did not force us to make a gigantic human sacrifice, nor to make an unprecedented industrial armament effort.
In the early 1990s we begged the Germans to form common currency with us. They were reluctant, because they were attached to a simple economic principle: state expenditure must be financed by its revenue. They were (and still are) allergic to public deficits. Taking advantage of the fact that they had to absorb the half-ruined territories of the former East Germany, we made them admit that, in order to finance infrastructure, some public deficits could be temporarily tolerated.
But we promised that, in any event, they should never exceed a limit of 3 per cent of annual GDP and that public debt should never exceed 60 per cent. These are the criteria of the Maastricht Treaty (7 February 1992).
Before the coronavirus crisis, Germany and France were already recording a large financing gap. The latter still could not manage to return below the 3 per cent budget deficit for the year 2019, while the former had a surplus of 1.5 per cent. Germany’s debt had fallen below 60 per cent, while France’s was over 100 per cent.
Over the past two decades, Germany has spent its debt on transforming its eastern Länder and investing in its public infrastructure. Its health system is clearly far superior to ours – Germans have had a quarter of the deaths in the pandemic than we have had. In our country, public debt has mainly been used by successive governments to finance “social peace”.
Having dreamt of a France without factories where leisure time would prevail over working hours, we found ourselves with less wealth produced, more unemployment, a nanny-state that was spending more and more (and badly managed, moreover). All it took was for a few thugs to vandalize the Arc de Triomphe in December 2018 for more than ten billion euros to be distributed to the “yellow vests”, unfortunate victims of the country’s deindustrialisation, as if money could be thrown from a helicopter.
Since Milton Friedman coined the expression in 1969, the monetary helicopter has been a magical economic concept, where the Central Bank systematically buys treasury bills issued by the state, even if it means writing off the debt from its accounts. The problem is that Germans still believe in magic in music, but not in economics. They have accepted that the European Central Bank in Frankfurt should make an exceptional effort in the face of this exceptional pandemic from China.
The ECB has a programme designed to buy back public and private debt to the tune of EUR 750 billion. But they will never accept that the southern states of the euro zone – which they describe by the pretty French name of “Club Méditerranée” – continue to finance the deficits of their welfare state through debt or monetary creation.
In the United States, the rich in California agree to pay for the poor in Pennsylvania. Europe is different. It is confederal, not federal. The northern states believe that the southern states must take responsibility for themselves and ensure that they do not live beyond their means.
This article was first published in Le Figaro.