France's Four Crises: How High School Protests Exposed the Limits of the Welfare State
TBS CROSS DIG with Bloomberg
Across France, there is a growing sense that something has to change. This Bloomberg report argues that the country is facing several overlapping crises at once. One commentator lists them as a political crisis, a fiscal crisis, a bond market crisis, and, on top of those, a social crisis driven by protests in high schools. The report asks why demands for more education spending have become so hard to meet, and what that says about France and the European welfare state model.
A Protest Movement That Started in One High School
More than 250,000 people have taken part in protests calling for more money for education. The unrest has spread across the country and has at times turned violent. The movement began at a high school southeast of Paris and grew into something much larger. One participant says most schools will be closed, and that the movement is not limited to Paris or the largest cities but also includes medium-sized cities such as Nantes and Bordeaux.
The report places this in the context of France's long history of protest. A commentator notes that some people cite May '68 as a possible blueprint, when student protests turned into a general strike. Over the past 15 to 20 years, the commentator says, many large French protests have focused on pension reform and changes to labor laws. This time, the starting point is education.
Not a Simple Story of Underfunding
The report says the grievances go well beyond worn-out textbooks. It also stresses that this is not simply a case of low spending. France already spends more than the OECD average on education, especially on high schools. Many French people complain, however, that the system remains deeply unequal, and that a child's background can matter more to educational success in France than in some peer countries.
One commentator sums up the core issue this way: despite heavy spending, people are worried about the future the education system can offer them. The report suggests the harder question is not what to fix but how to pay for it.
A Generational Dimension to the Budget Dilemma
According to the report, meeting the protesters' demands would put more pressure on a budget that already sends a large share of its spending to benefits for older people. That gives France's fiscal dilemma a generational edge. Money that might go to schools is already committed elsewhere, and the bond market is tightening the squeeze further.
A commentator cautions against drawing a direct causal link in either direction. In their view, the protests are not causing the bond crisis, and the bond crisis is not fuelling the protests. Instead, the protesters are "shining a lens" on France's problems and showing how difficult those problems are to solve.
A Minority Government With No Money to Offer
The protests have been an uncomfortable episode for the government, one commentator says, partly because it is a minority government struggling on many fronts. It has opened consultations and promised to bring forward proposals later. What it has not done, and perhaps cannot do right now, is offer money to address the problems. The commentator's frank explanation is that France currently lacks the budget capacity to do so.
The Bond Market Sell-Off and Rising Debt Costs
The report identifies the bond market as the second major source of pressure on the budget. A large sell-off is pushing up France's borrowing costs and making its fiscal position even harder to fix. Since the COVID pandemic, France's debt servicing costs have soared, and they are forecast to rise further. In the report's words, this means tens of billions of euros going to service "yesterday's borrowing rather than today's schools."
A commentator describes the situation as a fiscal reckoning. France spent its way through several crises in recent years and now has a very large deficit that it is struggling to contain. With inflation rising, central banks are raising rates, so new debt carries much higher interest. The commentator puts it this way: in the past France was replacing expensive debt with cheap debt, but now it is replacing cheap debt with expensive debt.
The Spread Over Germany Hits a Eurozone-Crisis High
Investors measure French debt against German debt, which serves as the euro area's benchmark. When investors grow nervous about French bonds, they demand a higher return and the gap between the two widens. The report says the gap between French and German borrowing costs is now at its widest since the Eurozone debt crisis in 2012.
A commentator attributes this to the convergence of political, financial, and social challenges. Together, they make it very hard for investors to see how France can deal with its public finances. Another speaker says France has reached its borrowing limit, which creates a bind: the country cannot keep adding debt, and whatever it borrows must be paid back.
Deepening Political Divisions Ahead of a Presidential Election
The financial squeeze is also widening France's political divide. According to a commentator, the left strongly supports the students, while the right is less supportive and more focused on violence and law and order. These divisions are feeding into tensions around the upcoming presidential election. The report concludes that France is trapped by a combination of fiscal red ink, economic stagnation, and social unrest, and that with an election approaching, the government faces only hard choices.
A Question for All of Europe
The report argues that the stakes go beyond the election itself. France is the European Union's second-largest economy. A commentator notes that people usually look to France for stability, for political leadership, and as an example of how a modern welfare state can work. If these protests are revealing the limits of that model, the commentator says, it becomes a bigger question for the whole of Europe, not just for France.
Across France, there's been a growing sense that something has to change.
Firstly, there is a political crisis. Secondly, a fiscal crisis. And then there's the bond market crisis. And then on top of that, we have a social crisis with the protests that are happening in high schools.
We've all seen the pictures of what's happening on the streets in France. More than 250,000 people took part in protest calling for more money for education, with unrest spreading across the country and at times turning violent.
Meeting the protesters' demands would increase pressure on the budget, a large part of which goes to benefits for older people, adding a generational spin to France's fiscal dilemma. And bond markets are only tightening the squeeze.
It's not the protests that are creating the bond crisis or the bond crisis that's fueling the protests. What the protesters are doing is really shining a lens on France's problems. And it shows how difficult it is to resolve some of these problems.
That leaves France trapped by a combination of fiscal red ink, economic stagnation, and now social unrest. Throw in a looming presidential election and the government faces only hard choices in finding a way to wriggle free.
In France, there's a rich history of protests. Perhaps the blueprint that some people talk about is May '68, when student protests transformed into a general strike. We've seen in the last 15 to 20 years, a lot of those protests have been about pension reform and changes to labor laws.
The current protest started at a high school southeast of Paris and sparked a much bigger movement.
Most of the schools will be closed. It's not only in Paris or only in the big cities. You have medium cities like Nantes, Bordeaux, et cetera.
And the grievances go well beyond worn-out textbooks.
But this isn't simply a story of low spending. France already spends more than the OECD average on education, especially on high schools. But many French complain that the system remains deeply unequal, and that the child's background can matter more to educational success than in some peer countries.
The fundamental problem seems to be that despite a lot of spending, people are worried about the future that the education system can bring them.
The bigger problem isn't what to fix, but how to pay for it.
So these protests have been an uncomfortable episode for the government, not least because it's a minority government that's struggling on many different fronts. They've opened consultations, they've promised to come up with some proposals further down the line. One thing that they haven't, and perhaps can't do at the moment, is say, "Right, okay, here's some money to try and sort out some of these problems." Because frankly, France doesn't have the fiscal, the budget capacity to be able to do that right now.
Schools are only one source of pressure on France's budget.
The other is a big sell-off on the bond markets that's driving up the country's borrowing costs and making its fiscal situation even more difficult to resolve.
Since the COVID pandemic, France's debt servicing costs have soared and are forecast to rise further. This means tens of billions of euros being spent servicing yesterday's borrowing rather than today's schools.
France is facing a fiscal reckoning in that it's spent its way through multiple crises in the last few years and has a very large deficit now that it's struggling to contain. With inflation going up, central banks are raising rates, and so the new debt that France is acquiring has a much higher interest rate. So, instead of replacing expensive debt with cheap debt,
That's what was happening here.
France is replacing cheap debt with expensive debt.
Investors measure French debt against Germany, the euro area's benchmark. When they get nervous about French bonds, they demand a higher return, and the gap widens. The gap between French and German borrowing costs is now the widest since the eurozone debt crisis in 2012.
And that reflects the fact that France has really got this coming together of political, financial, and social challenges that make it very hard for investors to see how the country can deal with its public finances challenges.
When you reach your borrowing limit, as France has done, then there is a bind because then you cannot continue to add to that. If you borrow, you have to pay back.
The financial squeeze is also deepening France's political divide.
The left is very supportive of the students, and the right is less supportive and more concerned about the violence and law and order questions. And so this really feeding into the tensions of the presidential election.
But the stakes go beyond the ballot box.
France is the European Union's second largest economy. And usually you'd look to France for stability, political leadership, and as sort of example of how the modern welfare state can function. If these protests are showing the limits of that modern welfare state, that's a bigger question for the whole of Europe, not just France.
Macron.
Woo!
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