Could France succeed where Detroit has failed?

posted at 8:41 pm on July 23, 2013 by Erika Johnsen

Hmm. Does any of this sound at all familiar?

President Francois Hollande may only manage a lightweight reform of France’s indebted pension system, with trade unions preparing street protests and his own Socialist Party warning it would oppose painful measures.

Fellow Europeans say France risks damaging its own standing and that of the euro zone among investors, and upsetting southern members struggling with harsh reforms, if it fails to address the deficit in its pension funding.

But left-wing lawmakers are determined to prevent any erosion in the old-age provision enjoyed by the French. …

Yet the fact that pensions are almost entirely borne by the state means public spending on pensions is 14.4 per cent of output versus 12.9 per cent in the EU.

The pension pot has been depleted by rising unemployment and without reform, the funding gap will balloon from 14 billion euros (HK$143 billion) currently to 20 billion euros by 2020.

Much like the recently and officially bankrupt city of Detroit, France and its explicitly Socialist leadership are struggling to find a way out from underneath the crushing fiscal burden of much too much government spending and extravagantly underfunded pensions, and their politics are largely dominated by ultra-liberals and big labor to the degree that putting the country on the long-term path to fiscal sustainability isn’t really on the radar. Hollande’s big goal at the moment is to push through just enough reform so that they won’t have to address the problem again until 2020… but what happens after that? And what about all of the additional debt they’ll be wracking up in the interval?

I’m not saying that France is on the immediate edge of financial disaster — they are the eurozone’s second-largest economy, and have a lot more resources at their disposal (although they did just have their credit rating downgraded) — but they do seem to be determinedly marching in that direction. In the meantime, however, it sounds like Detroit’s bankruptcy hit a little too close to home in France; within hour after Detroit declared bankruptcy, French TV and other media were offering reassurances that such a thing could never, never happen in France, via Reuters:

Under French law, municipalities are required to balance their budgets, and the national government can — and occasionally does — intervene to force them to comply.

But take a closer a look at what’s been happening since the 2007 financial crisis, and a rather more nuanced, and surprising, picture emerges. For more than a dozen sizable towns and districts across France have been caught in a vicious debt trap that has seriously imperiled their financial well-being. In turn, they have mounted a furious counterattack that involves suing the banks that financed their credits. At the same time, they have launched an intense lobbying of national government for substantive help to shore up their finances. …

The national government has thrown a lifeline to the troubled communities, unveiling an arsenal of new measures — including about $4 billion in extra cash — to help assuage the crisis. And, to their delight, the local authorities have won landmark judgments against the banks that call into question the very validity of the loans they took out.


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North Korea probably has a better chance at success than Detroit. I don’t think half it’s population is illiterate.

VorDaj on July 23, 2013 at 8:45 PM

Could France succeed where Detroit has failed?

Yes.

This article helps explain the difference between France and Detroit.

Hint: Detroit is a city and France is a nation.

locomotivebreath1901 on July 23, 2013 at 8:54 PM

Give Detroit to Canada…

OmahaConservative on July 23, 2013 at 8:54 PM

I’m not saying that France is on the immediate edge of financial disaster — they are the eurozone’s second-largest economy, and have a lot more resources at their disposal

They also don’t have the crime and/or abandoned property problems of Detroit. Detroit is a look at a third-world country in miniature.

Stoic Patriot on July 23, 2013 at 8:55 PM

And, to their delight, the local authorities have won landmark judgments against the banks that call into question the very validity of the loans they took out.

So now, loaning money to local French governments becomes an act of futility; if they can’t pay, they just sue you to cancel the loan, and if you refuse to loan to them, they just call in the national government and force you to do it.

So in essence, France has closed its economic system. Any external capital that comes into the banking system can be redirected into bad loans to local governments, and therefore nothing will come in.

northdallasthirty on July 23, 2013 at 8:55 PM

France is lost, all they’re doing now is shuffling the deck chairs.

Bishop on July 23, 2013 at 8:55 PM

27 comments or bust!

Bishop on July 23, 2013 at 9:05 PM

So Hussein will bail out France too ? with US taxpayer money ?

burrata on July 23, 2013 at 9:07 PM

27 comments or bust!

Bishop on July 23, 2013 at 9:05 PM

+100

Oh…
Make that 28 or bust…
:(

Electrongod on July 23, 2013 at 9:12 PM

France — for now — would be more akin to the situation the U.S. would be in if (or when) California hits the wall. You’d have people on the left, and even a lot of those in the financial community, arguing that California is “Too big to fail,” and therefore has to be propped up by Washington and the taxpayers from the other 49 states.

Only the most gung-ho statist would use that justification for bailing out Detroit. But across the pond, given the freak-out the EU had over the thought of Greece going under, the idea of France defaulting would create End of the World pronouncements from big government backers and their financiers. But we’re not even at the point yet when the other EU nations are pushing France to cut its spending or even play nicer with banking and business interests to begin with, so we’re still a ways off from France turning into Ville des Moteurs

jon1979 on July 23, 2013 at 9:13 PM

So Hussein will bail out France too ? with US taxpayer money ?

burrata on July 23, 2013 at 9:07 PM

If you call Chinese Continentals real money.

BL@KBIRD on July 23, 2013 at 9:15 PM

If you call Chinese Continentals real money.

BL@KBIRD on July 23, 2013 at 9:15 PM

For Hussein, it’s all for fidyah
on a grrrrraaaaad scale . Ofcourse , as always, he doesn’t use his own money to reap the benefits !

burrata on July 23, 2013 at 9:23 PM

Could France succeed where Detroit has failed?

…can they read cursive?

KOOLAID2 on July 23, 2013 at 9:26 PM

14

RickB on July 23, 2013 at 9:31 PM

No. Their labor rules and debt problems are just as bad as ours if not worse.

JimK on July 23, 2013 at 9:33 PM

No. Their government already consumes more than 50% of the GDP.

JimK on July 23, 2013 at 9:34 PM

Taiwanese cartoon :
http://www.youtube.com/watch?v=IIjKA6J2eFY&feature=player_embedded
chooooooooooommmm :O

burrata on July 23, 2013 at 9:40 PM

…EU nations are pushing France to cut its spending or even play nicer with banking and business interests to begin with, so we’re still a ways off from France turning into Ville des Moteurs

jon1979 on July 23, 2013 at 9:13 PM

I was forced to read the article after the quote mentioned that “local authorities have won landmark judgments against the banks that call into question the very validity of the loans they took out.”

It turns out:

“The Nanterre court ruled that the bank had provided insufficient information to the district authorities about three particularly risky loans totaling $260 million”

So in France they’re just going to nullify all debt under the premise that banks didn’t give them enough information. Sounds like France was a victim of “predatory lending”.

And what are the banks going to do? Take it. That’s what. Take it like men and grovel to their betters in hopes of getting a second chance to prove their worth.

this is disgusting.

hisfrogness on July 23, 2013 at 9:40 PM

Unfortunately for most French they can’t abandon their country so easily. And this is another perfect example of why we need to make federalism much stronger. When the federal government is the only game in town our options for fleeing the oppressive state become almost nil.

NotCoach on July 23, 2013 at 9:42 PM

What’s the French for “famous last words”?

In November 2005 there were 8 days of rioting in Paris sparked by 2 “youths” getting electrocuted while trying to avoid supposed police pursuit.

http://en.wikipedia.org/wiki/2005_civil_unrest_in_France

13 years earlier, after the Rodney King riots in 1992, the French said that could never happen there.

“Effects of L.A. Riots Reach Across the Ocean”, San Francisco Chronicle, Jun 21, 1992:

… the consensus of French pundits is that something on the scale of the Los Angeles riots could not happen here, mainly because France is a more humane, less racist place with a much stronger commitment to social welfare programs.

Jean Daniel, editor of the weekly Le Nouvel Observateur magazine, bible of the intellectual left, wrote an essay on the Los Angeles events titled “Is It Possible in France?” …

But, Daniel concluded that France’s biggest advantage in avoiding racial and class tensions is its extensive social programs, which essentially guarantee free education and health care for life as well as generous allowances for the unemployed. “France can take comfort in the major, incontestable fact that its social laws are a thousand times more protective than in New York or Los Angeles,” commented Daniel.

“The French Ask: Can L.A. Happen Here?; Alienated Immigrant Population, Class Differences Stir Worries of Urban Strife”, The Washington Post, May 12, 1992:

In the aftermath of the Los Angeles riots, President Francois Mitterrand said in a radio interview … that the violent turmoil set off by the court verdict was actually the result of a “conservative society” governed by Presidents Reagan and Bush for the last 12 years. “There can be no comparison between us and what may happen elsewhere,” Mitterrand said, “for France is the country where the level of social protection is the highest in the world.”

Bernard Tapie, a self-made Marseilles millionaire who recently was named minister for urban affairs, also emphasized French welfare benefits as a prescription against riots, “contrary to the United States, where virtually no minimal assistance is given to people who live in the ghettos.”

Tapie said on French radio that social turmoil here was implausible because “nobody in France can be called totally impoverished” and the country was “practically free of crack, that drug that makes you crazy.”

But Jean Poperen, a former Socialist minister, warned that France “was on the same slippery slope” as the United States in terms of racial and class disparities and should not discount “a phenomenon of the same magnitude” as the Los Angeles riots.

JimC on July 23, 2013 at 10:12 PM

Hollande is just like every other fat-assed pol. He just wants to get through his term of office.

Screw the next guy, it’s now HIS problem.

GarandFan on July 23, 2013 at 10:18 PM

6 more to go ..

burrata on July 23, 2013 at 10:26 PM

If Coleman Young had been President of France for 20 years would France still exist?

bw222 on July 23, 2013 at 10:36 PM

So now, loaning money to local French governments becomes an act of futility; if they can’t pay, they just sue you to cancel the loan, and if you refuse to loan to them, they just call in the national government and force you to do it.

So in essence, France has closed its economic system. Any external capital that comes into the banking system can be redirected into bad loans to local governments, and therefore nothing will come in.

northdallasthirty on July 23, 2013 at 8:55 PM

Exactly. It is time for all banks and most businesses to get the hell out of France.

Theophile on July 24, 2013 at 12:53 AM

Fiscal reform to a politician simply means tinkering at the edges just enough to push the problem onto the next guy in line. Detroit’s basic problem is that there is no mechanism in the liberal play book for shrinking the size of government, no matter what the external situation. Detroit could lose 95 percent of its population and there would still be people fighting any cuts in its government’s size. They’d see nothing wrong with jacking up the tax rate to 100 percent on the last private business still in the city. Better that then cutting one administrator from the public school system.

Fred 2 on July 24, 2013 at 1:30 AM

And what about all of the additional debt they’ll be wracking up in the interval?

Should that be “racking” not “wracking”?

Piddly concern I know, but it bugs me for some reason… I want to say “rack” is correct, but I’m not 100% sure, which is why I ask.

gekkobear on July 24, 2013 at 2:54 AM

They refuse to grow potatoes so,
“Let them eat cake.”

Wealth is created only by mining the earth and manufacturing products.

Do they do either?

esblowfeld on July 24, 2013 at 7:52 AM

“Socialist governments traditionally do make a financial mess. They always run out of other people’s money. It’s quite a characteristic of them” – The Iron Lady, Feb. 5, 1976.

Chris of Rights on July 24, 2013 at 8:46 AM

So now, loaning money to local French governments becomes an act of futility; if they can’t pay, they just sue you to cancel the loan, and if you refuse to loan to them, they just call in the national government and force you to do it.

So in essence, France has closed its economic system. Any external capital that comes into the banking system can be redirected into bad loans to local governments, and therefore nothing will come in.

northdallasthirty on July 23, 2013 at 8:55 PM

Exactly. It is time for all banks and most businesses to get the hell out of France.

Theophile on July 24, 2013 at 12:53 AM

This is pretty much what Lenin’s Russia did in the early 20′s. After doing this, a state has the choice of either facing complete collapse (Weimar Germany) or pushing for ever more totaliitarian rules to keep the populace in line as conditions continue to deteriorate. (Stalin’s Russia) And a nation always has the choice of promising to get back all the wealth that has been lost by raiding its neighbors and taking it from them. (Hitler, Napoleon)

I actually give the French credit, I think they’ll simply choose collapse, which is actually the least noxious of the options they face now. Well, I suppose they could face the truth and try some honest economic reform – HA! I made myself laugh there!

Tom Servo on July 24, 2013 at 9:45 AM

> Should that be “racking” not “wracking”?

> Piddly concern I know, but it bugs me for some reason… I want to say “rack” is correct, but I’m not 100% sure, which is why I ask.

In this case, “Wrack” is correct. And you don’t need to ask, because Google is your friend.

Cipherprime on July 24, 2013 at 11:40 AM