In the wake of significant unrest in Paris, which began as protests against deficiencies in the public school system and subsequently morphed into wider discontent over the cost of living and employment prospects, the economic landscape of France has drawn the attention of U.S. markets. The turmoil in the French capital has led to introspection among U.S. policymakers, who seem determined to avoid a similar fate at home.
The economic indicators in France paint a worrying picture: as of the second quarter, the unemployment rate stood at 8.3%, real GDP growth was a paltry 0.4%, and wage growth barely kept pace at 1.7%. Compounding these issues is a staggering public debt, which reached 116% of GDP, with long-term bonds yielding above 5.4%. In contrast, the U.S. bond market has shown signs of stabilization, with Treasury yields for both 10- and 30-year bonds experiencing a decline.
Heather Long, chief economist at Navy Federal Credit Union, highlighted critical differences between the U.S. and France during a recent event at the Bipartisan Policy Center (BPC). She noted that while the U.S. debt-to-GDP ratio hovers around 100%, France’s is significantly higher at approximately 120%. Moreover, Long pointed out that the U.S. economy is experiencing a growth rate just above 2%, a notable contrast to France’s stagnant growth of about 0.5%. This divergent trajectory suggests that the U.S. retains more flexibility to engage in fiscal debate without immediate repercussions.
Long further elaborated that France has effectively exhausted much of its revenue-generating potential through high taxation. The Organization for Economic Cooperation and Development (OECD) reports the “tax wedge” for French workers at 47.2%, considerably higher than the U.S. figure of 30%. Although raising taxes in the U.S. poses its own challenges, this disparity indicates a greater scope for economic experimentation and growth in the U.S. compared to France, where the fiscal room appears constrained.
Compounding these economic challenges is the generational aspect of the protests in France, primarily led by younger citizens expressing frustrations rooted in economic disparity. Long warned that the generational divide could serve as a significant warning sign for the U.S. as it approaches a debt-to-GDP ratio similar to that of France.
The question of who will bear the burden of debt repayment looms large for both nations. Phil Swagel, director of the Congressional Budget Office, emphasized the tough choices ahead for U.S. policymakers regarding fiscal management and generational equity in addressing the deficit. He urged consideration of how delayed action could disproportionately impact certain generations, creating a scenario in which the burden of adjustment might fall more heavily on those with higher lifetime incomes.
Swagel’s observations point to a growing concern regarding the long-term implications of current fiscal policies and the urgent need for a societal consensus on the path forward. As the debate continues, the potential for similar unrest in the U.S. is a stark reminder of the interconnectedness of economic health, generational equity, and social stability.
