Can’t Pay? Won’t Pay!, the translated title of Dario Fo’s 1974 play, is one of the great works of Italian postwar literature. Exploring the struggles between moderates and hardliners in the country’s Communist Party, Fo drags his audience into the heady, violent atmosphere of the Years of Lead. In Italy, of course, that world is dead and buried, yet Fo’s story could just as well apply to the modern French Left. It, too, is riven by factionalism — even if, unlike Italy in the Seventies, France’s radicals now seem to be winning.
More than his story, though, it’s Fo’s title that feels most relevant to contemporary France. For it’s quite possible that the country will, at some point, stop paying its debts. If debtors can’t pay, they won’t. But a debtor who can theoretically pay might still choose not to. As one of the richest countries on Earth, France has no excuse on that score. But when politics intrudes, all bets are off, with ominous consequences far beyond bank balance sheets.
The economics here aren’t hard to grasp. Surpass a certain threshold of debt, and France risks ending up in a debt trap. Borrow too much — and public debt is already at €3.6 trillion, accounting for 119% of GDP — and creditors will get so nervous that they start selling. With more sellers than buyers, interest rates go up. This, in turn, raises the cost of servicing future debt. Countries tend not to notice this process at first — but then, from Sri Lanka to Argentina, it just happens.
When nations fall into a debt trap, there are four potential escape routes. Perhaps the starkest option is simply defaulting on their debt. Then there are two forms of belt-tightening: either enforcing austerity via higher taxes and lower spending, or selling state-owned land or companies. Finally, central banks can bankroll their governments and print more money, which in practice means buying government debt. That last strategy helps push interest rates down, much like what has been happening lately in Japan.
Politics determines which combination of those four options are chosen. The French electorate has for quite some time not voted for candidates who prioritise balancing the budget, something considered distinctly uncool within the country’s political culture. Indeed, the two candidates which polls now predict most likely to enter the second round of the next presidential elections also happen to be the least fiscally responsible: Marine Le Pen, leader of the Right-wing National Rally, and Jean-Luc Mélenchon, head of La France Insoumise, which translates as “France Unbowed”.
In the case of Mélenchon’s party, we might well ask: unbowed to what exactly? The bond markets? Mélenchon favours the cancellation of French debt held by the European Central Bank. To achieve this, he suggests an old financial wheeze: keeping all the money France has borrowed, never paying it back, and never paying interest on it either.
Mélenchon’s “perpetual zero-coupon” trick — as this scheme is officially known — is a technical way of saying that he wants to default on his country’s debt. The idea is that this would give him scope to raise more debt to fund his electoral spending promises. Yet there is no way Mélenchon could get the rest of the EU, especially Germany, to agree to this. If he were to be elected, and really did proceed with his plan, France would likely crash out of the eurozone and even the EU itself.
To be fair, the polling numbers will probably change between now and the first round of the presidential election next April — but it’s not clear how. An air of insurrection has descended on the hexagon, and that may well play into Mélenchon’s hands. After all, a protest by high-school students, sick of their overcrowded and dilapidated classrooms, has now spread from Paris to the rest of France. Last week saw 250,000 students take to the streets, forcing the closure of some 500 schools.
The protests also saw eruptions of spontaneous violence, with demonstrators throwing projectiles at police, and setting cars and buildings on fire. By the end of the week, officers had arrested almost 7,000 mostly young people, of whom a third will face prosecution. Not that this is merely an insurrection of the poor: even students from elite schools, like the Lycée Henri-IV in Paris, have joined their fellow teenagers, frustrated by crumbling schools and rising state violence. Mélenchon taps into this febrile atmosphere like no other politician.
Marine Le Pen represents the other end of the political spectrum: the France of the angry rural middle classes. She has been leading in the polls for a long time, and her conviction in a trial about the abuse of EU funds has had no impact whatsoever on her popularity. Just as lawfare did not work against Donald Trump, it didn’t work in France either, even as there have been rumours that the gilet jaunes, who paralysed the country back in 2018, could yet turn out to join the students.
Unlike Mélenchon, to be fair, Le Pen doesn’t want to default on French debt. But if she follows through with the tax and spending programme she outlined last week, she might end up in a similar place. One of the biggest sources of new income would come from a unilateral two-thirds cut to French contributions to the EU budget, a policy with history. Before it was called the National Rally, Le Pen’s party was called the National Front — and under its leader, Marine’s father Jean-Marie, leaving the EU was a core policy.
Marine, too, supported France’s withdrawal from the EU until 2019. She no longer talks about “Frexit” in explicit terms, but her policies are as inconsistent with EU membership as Mélenchon’s. The EU would cease to function if France were to default on its membership contributions — just as it would collapse by defaulting on French debt, with Germany and the Netherlands left as the only countries bankrolling the operation.
Of course, six months to go until the first round of voting, and it’s still possible that a centrist politician might emerge as a viable candidate. But to win, such a person would still have to default in one form or another. Perhaps bondholders would still get what they were promised — but pensioners or students or farmers would need to be sacrificed to maintain France’s fiscal position.
What I struggle to see, though, is any scenario where a radical centrist like Macron could emerge as a surprise winner and return the country towards a path of liberal centrist reforms. Macron, after all, was elected back in 2017: and his political experiment has failed both politically and economically. As France is approaching the end of his decade in power, French cities are burning, and financial markets are wondering whether France will default on its debt. This was not the way Macron’s centrist revolution was supposed to end.
France falls into the category of countries that are too big to fail — and too big to save. If it refuses austerity for political reasons, it will also refuse the sale of assets. They are not going to auction off the Mona Lisa or the Bayeux Tapestry. This leaves us with exactly two ways out of the crisis: some combination of a default, and a bailout by the central bank.
Certainly, the European Central Bank (ECB) could simply buy French debt. This would lead to lower interest rates on French bonds, but wouldn’t resolve the country’s underlying debt problem. Indeed, the ECB could take its support to such extreme levels that the eurozone itself ends up with higher debt and inflation, with other countries lining up to demand support. Italy’s public finances are much better managed than France’s, for instance, but Italy also has higher levels of debt relative to the size of the economy.
The ECB could therefore find itself in a position where it’s damned if it helps France — and damned if it doesn’t. This is the fundamental problem with the eurozone: once the big countries diverge in their politics and economics, the end is nigh. The only thing that can help you then is a political union that enforces convergence. The eurozone crisis was the last moment when such a union could have been established. But instead of solving the bloc’s underlying financial problems, EU leaders did the bare minimum needed to prevent the emergency from spinning out of control, for instance by granting cheap loans to already over-indebted countries.
We used to say back then that Brussels was kicking the can down the road. Well, we are now at the end of the road, with a skip full of cans piling up around us. Certainly, with far-Right parties in the ascendance everywhere in Europe, union is too late today, even as high inflation means the ECB has far less room for manoeuvre than it did a decade ago. No one can predict how things will play out from here: but some form of financial crisis is probable.
This returns us to Fo’s play: and the basic difference between Italy then and France today. Can’t Pay? Won’t Pay! was about a dispute within the Italian Communist Party, which at the time had abandoned its radicalism, accepted austerity, and moved closer to the political centre. Fo himself was a hardliner. As he once said about capitalists: “the only way to get that mob thinking straight is to stuff them down the bog and pull the chain!” That’s Mélenchon’s language too — except that unlike Fo, his dramatics aren’t limited to the theatre.
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