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So Standard & Poor’s has downgraded France’s credit rating. What does this tell us? The answer is: not much about France. It can’t be overemphasized that the ratings agencies have no special information about national solvency — especially for big countries like France. Does S.&P. have inside knowledge of the state of French finances? No. Does it have a better macroeconomic model than, say, the International Monetary Fund? You have to be kidding. So what’s this about?
I think it’s useful to compare I.M.F. projections for France with those for another country that has been getting nice words from the raters lately: Britain. The charts on this page show data from the World Economic Outlook Database — real numbers through 2012, I.M.F. projections up to 2018. First, real gross domestic product per capita: France has done better than Britain so far, and the I.M.F. expects that advantage to persist.
Next, debt relative to G.D.P.: France is slightly less indebted, and the I.M.F. expects this difference to widen a bit. So why is France getting downgraded? Because, S.&P. says, it hasn’t carried out the reforms that will enhance its medium-term growth prospects. What does that mean? O.K., another dirty little secret. What do we know — really know — about which economic reforms will generate growth, and how much growth they’ll generate? The answer is: not much!
People at places like the European Commission talk with great confidence about structural reform and the wonderful things it does, but there’s very little clear evidence to support that confidence. Does anyone really know that French President Francois Hollande’s policies will result in growth that is X.X percent — or more likely, 0.X percent — slower than it would be if European Commissioner Olli Rehn were put in control? No. So, again, where is this coming from? I’m sorry, but I think that when S.&P. complains about lack of reform, it’s actually complaining that Mr. Hollande is raising, not cutting taxes on the wealthy, and in general isn’t free-market enough.
Remember that a couple of months ago Mr. Rehn dismissed France’s fiscal restraint — which has actually been exemplary — because the French, unacceptably, are raising taxes rather than slashing the safety net. So just as the austerity drive isn’t really about fiscal responsibility, the push for “structural reform” isn’t really about growth; in both cases, it’s mainly about dismantling the welfare state.
S.&P. may not be participating in this game in a fully conscious way; when you move in those circles, things that in fact nobody knows become part of what everyone knows. But don’t take this downgrade as a demonstration that something is really rotten in the state of France. It’s much more about ideology than about defensible economic analysis.
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