Looking at Austerity in France

Let’s continue with a look at austerity policies in Europe. Yesterday I wrote that in Britain, austerity so far has meant only tax hikes, since government spending, both in nominal and real terms, continues to grow despite the announcement of deep cuts from 10 Downing Sreet. What about France? The country chose a socialist president on Sunday who, according to Paul Krugman and some media outlets, was elected precisely to fight against austerity.

My colleague Dan Mitchell already showed how there haven’t been any spending cuts in France in the last decade. I’d like to dwell on this issue with another graph:


Source: Source: European Commission, Economic and Financial Affairs.

Once again, it’s pretty evident that there hasn’t been any cut in spending in recent years, neither in nominal or real terms. If we look at total government spending as a share of the economy, it went up from 51.6% in 2000 to 56.8% in 2009, and then it came down a bit to 55.9% in 2011—still the highest in the European Union. I doubt that anyone, other than perhaps Paul Krugman, can seriously claim that a decline of 0.9 percentage points in government spending as a share of GDP represents savage austerity.

However, taxes have indeed gone up, and all the presidential candidates, from the far left to the far right, promised to increase them even further. That’s why The Economist reported that, regardless of who won the election, “big companies and rich families are looking at ways to leave France.”

There is more: France hasn’t had a balanced budget since 1973. Its public debt went up from 20.7% of GDP in 1980 to an expected 87% this year. Its budget deficit in 2011, at 5.8%, stands much closer to that of Spain (6.5%) than that of Germany (1%).

So, what austerity is François Hollande pledging to fight?