France, Italy, and Spain offer Europe's finest wine regions, from Bordeaux's red blends to Sicily's diverse grape varieties. Photo / 123rf
Across Europe, and especially in France, the bill is coming due.
The cost of a signature brand of humanist economics - the so-called European way of life, offering healthcare, affordable education and a dignified retirement to all, through high social spending - is becoming unbearably high.
In France, as the nation’s debt soars, its credit rating slips, incomes stagnate, prime ministers fall and the country stumbles into ungovernability, the public is grappling with two questions.
Will millennials and younger generations lead worse-off lives than their parents and grandparents? And if not, who will pay for the continued comforts?
These questions became even more pressing with the stunning resignation yesterday of Prime Minister Sebastien Lecornu after just four weeks, plunging the country further into political crisis.
He was then given two days by President Emmanuel Macron to come up with a plan for “the stability of the country”.
“This is the last stop before the cliff,” Lecornu’s predecessor, Prime Minister Francois Bayrou had said before he was ousted last month by lawmakers after presenting a budget that would have required deep cuts, including eliminating two national holidays.
Related challenges loom in neighbouring Germany, where the economy is flat after two consecutive years of decline, companies are shedding jobs, infrastructure has crumbled, and the Government is bracing the populace for tumultuous cuts - even as borrowing costs remain low and most Germans still enjoy a high standard of living.
As in the United States, a ballooning number of retirees is raising pension and healthcare costs just as low birth rates and a backlash against immigration threaten to shrink the workforce and erode the tax base.
For France and Germany, long the pillars of the European Union, it is unclear that they can still afford to be the West’s guiding lights of economic justice.
Like millions of French citizens, Anastasia Blay, 31, a camera assistant in Paris, does not believe her generation should pay for the mistakes of the past or sacrifice benefits.
For years, Blay survived with the help of a government subsidy for entertainment workers, part of the state’s support for the arts, which she and others view as an unbreakable social contract in the nation of “liberty, equality, fraternity”.
A monthly social welfare payment for low-income workers now supports her during periods of unemployment in an unstable industry that she nevertheless loves.
She has joined a string of street protests aimed at paralysing the country. Even with government aid and a family apartment that allows her to live rent-free, she says it’s hard to make ends meet.
“For me, the problem is injustice, the gap between the poor and the rich, and the rich who, in reality, are barely taxed compared to what they earn,” she said.
While she said she feels “a bit ashamed” to rely on welfare and fears people’s judgment, the payments help her “keep my dignity and … live decently”.
“It’s a right and not a privilege, in my opinion,” she said.
More than 200km away in central France, a crypto entrepreneur, Eric Larcheveque, 52, sees a country clinging to a benefits system it can no longer afford, one stubbornly resistant to change.
Larcheveque left France in his late 20s, “fed up” with high taxes and red tape, and looking for better opportunity for his tech start-ups. Nostalgic, he returned. His hopes rose with the 2017 election of Macron, a business-friendly president.
But Macron’s tax cuts were minimal and did not generate promised investment or reform. Larcheveque now feels unwelcome, even unsafe, in a France clamouring for more resources from the rich, in a country that has one of the highest tax rates in the industrialised world.
At the same time, France spends relatively more on public expenditures including goods, services and social protections than any other wealthy country.
Larcheveque said the Government needs to further reduce taxes and impose “a lot of cuts” in pensions, welfare and other public spending.
He acknowledges the impact would be “very dramatic,” but also said it’s “the only way to restart” France’s economy.
Larcheveque says he is contemplating leaving again - this time for good.
The “French way of seeing things,” he said, is: “If you are successful, if you are rich, if you make companies, then you are a thief.”
Larcheveque and Blay, in their fundamental disagreement about solutions and blame, illustrate the tension between those who want the country to change and those who insist it cannot.
But there is growing consensus that France’s economy is stuck in a spiral of low growth and high spending, and that its budget woes are at the crux of its most unstable political period in decades.
The hard maths indicates that France’s uniquely generous social welfare system is part of the problem.
The EU is no stranger to economic and political trouble, but until recently, the problem countries were on the periphery.
Profligate Greece. A revolving door of leaders in Italy. Crippling unemployment in Spain. Through it all, the centre held. France and Germany were beacons of relative stability and strength.
Now, Italy is enjoying its most stable government in decades. It saw its credit rating upgraded last month even as France suffered an embarrassing downgrade, with the investment house Fitch citing a “high and rising debt ratio” and “political fragmentation”.
France must now borrow at rates slightly higher than Greece, a once unthinkable proposition.
Spain, where the government spends relatively less than Germany or France, is humming, its unemployment rate cut in half.
France, meanwhile, has had four prime ministers in 15 months. Support for nationalist, anti-immigrant parties - National Rally, in France, and Alternative for Germany - has soared.
The malaise at Europe’s core is unfolding at the perilous point in modern history, as the continent is sandwiched between an aggressive Russian threat and a mercurial US president who is squeezing traditional allies on tariffs and who seems to shift security commitments from one day to the next.
Those threats are ramping up pressure on Europeans to spend more on defence, potentially cutting social benefits or forcing higher taxes, which could drive away or kill businesses in a globalised world. Some say Europe is already taxing its citizens and businesses too heavily.
At the same time, France and Germany both face a rising economic challenge from China, which is competing with European manufacturing on big-ticket goods such as German-made electric vehicles and French-made nuclear power plants.
German government borrowing rates remain enviously favourable. Even in France, few fear an imminent debt crisis, which could destabilise global markets and be magnitudes worse than that of Greece more than a decade ago. More likely, elevated borrowing costs could worsen the country’s debt burden, making it ever harder to maintain social spending.
“Currently, really, a problem is there,” said Andreas Eisl, senior research fellow at the Jacques Delors Institute, a Paris-based think-tank. “Can France no longer afford its welfare state? I would consider it mainly a political choice and a societal choice. How strong a role do you want the state to have?”
Europe may not be on the verge of imposing a less generous, American-style system of unsubsidised healthcare, limited holiday time, and reduced social benefits but corrections of some sort seem inevitable.
The budget that brought down Bayrou envisioned a radical €44 billion in cuts - including holding the line on pension payments and eliminating two holidays. The public was outraged, and the proposal went nowhere. Bayrou, paralysed, called a confidence vote and was tossed out.
Caught between the far-right and far-left, Bayrou’s successor, Lecornu, had ruled out one proposed “wealth tax”, but insisted that warring factions in parliament find a way to trim the ballooning budget deficit before it is too late. His abrupt resignation came as he had sought and failed to find a compromise with warring political parties.
Others say the problems are overblown.
Michel Sapin, who served as France’s finance minister from 1992 to 1993 and again from 2014 to 2017, criticised Macron’s Government for overspending to support people after the Covid pandemic and the energy price shock that followed Russia’s invasion of Ukraine. But he said France’s budget problem is manageable.
“I think we have the means - even now - to find solutions, and that in France and in Europe we have the resources to prevent things from tipping in the wrong direction,” he said.
In Germany, however, Chancellor Friedrich Merz has called for a politically risky overhaul of the country’s generous social welfare programmes.
“We simply can no longer afford the system we have today,” Merz said in a speech in August at a conference of his centre-right party, the Christian Democratic Union, in Bonn. He added, “This will mean painful decisions. This will mean cuts.”
Today, between basic welfare and housing assistance, a German family-of-four on welfare can receive as much as €5000 ($10,000) a month.
Yet the horse-trading of parliamentary politics makes any reform challenging. Deals will have to be reached with the junior partner in Merz’s governing coalition, the centre-left Social Democratic Party, which has long opposed welfare cuts.
Days after Merz’s speech, Labour Minister and co-SPD chief Barbel Bas responded curtly to Merz’s claim that Germany can’t afford its social programmes.
“That is bulls***,” Bas said.
Like other countries in the West, France suffered blows to domestic manufacturing from globalisation, turning parts of the country into disenfranchised rust belts.
Unable to replace those jobs, to the same extent that the US did with new engines of growth in services and tech, and facing a rapidly ageing population with huge pension demands, France spent 31.5% of its GDP on social protection in 2023, the highest in Europe, according to the French Department of Research, Studies, Evaluation and Statistics.
Experts say this kind of spending is incompatible with decreasing state revenue.
“There is a growing realisation that the system has to become less generous, and a lot of people are not very happy about that,” said Willem Adema, a senior economist in the social policy division at the Organisation for Economic Co-operation and Development.
On the question of who pays, battles are brewing among the young and the old, the rich and the poor, the rural and the urban.
Christine Boucau-Podorski, 75, a retired textile worker in Roubaix, a former industrial town 230km north of Paris, is upset about the growing focus in France on freezing pensions to reduce public spending.
She says young people don’t appreciate how hard her generation worked in exchange for state support in their old age.
Boucau-Podorski was 14 when she started work, in 1964, as a trainee for a textile factory in Roubaix, and she stayed until the factory closed, in 2000. She worked 47-hour weeks along the wool yarn production line.
Now, she receives a €1100 pension from the state each month, in addition to about €300 from her husband’s medical pension, after he died in 2019. That’s enough to cover her modest expenses.
“I live without excess,” Boucau-Podorski said. “But I’m content with what I have and I don’t complain.”
Still, she said she would be willing to pay more tax on her pension if it could help “people who really need it”.
She said there is too much poverty in France and believes the Government should help the most vulnerable but reduce benefits for people who never worked.
In 2023, Macron’s Government enacted a reform, using a constitutional mechanism to bypass a parliamentary vote, that will gradually raise the retirement age from 62 to 64.
Blay, the camera assistant, said she feels “like everyone is trying to save their own skin”.
She took part in a protest against the Bayrou budget called “Block Everything”.
She opposes cuts to pensions for many retirees such as her grandmother, whom she says would have “not much left to meet her needs”. Blay said the state should instead better manage its spending and blames rich people for hoarding wealth.
Though the outlook is gloomy, entrepreneurs and local politicians are working to come up with new engines for economic growth and employment.
In Roubaix the population stagnated then declined, and the poverty rate is among the highest in the country.
In the past decade, authorities have transformed former manufacturing sites into museums and even a co-working space for local entrepreneurs, with a focus on “zero waste” and the circular economy.
They have opened new schools to train people for in-demand jobs, including in engineering and digital animation.
“That’s the culture of this city: it has always been able to reinvent itself,” Roubaix Mayor Guillaume Delbar said.
Delbar acknowledged that many of these initiatives have had a modest impact on employment, creating tens or hundreds of jobs and not the tens of thousands that are needed. But he said Roubaix must adapt to survive.
Like France as a whole, the city hopes to find new ways to support its way of life in an increasingly competitive world.
“What’s certain,” Delbar said, “is that we will not come back to the old models.”
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