France in turmoil. On one side civic riots and on
the other side fiscal trouble put France to face a dual crisis unseen since May
1968. Can Germany let France fall or repeat once again Greek style salvaging
done in 2015? Here is my geoeconomics review:
French riots today has morphed into a neo-liberal uprising neither
left no right but a centrist one that demands once again Liberty,
Equality and Fraternity. Then and now the French establishment is clueless how
to respond to, in the meantime French economy is biting the dust
Fiscal and social highlights
1. Public debt has ballooned to € 3.6 Trillion
equal to almost 120% of GDP servicing which would cost the treasury a whopping
€ 91 Billion annually. Ten Year Bond yields shot up to 4.9%. Most rating agencies downgrade
French credibility in servicing this enormous debt. Still, France seeks
more debt where borrowing from private sector being the only alternative the
cost pf borrowing would be unimaginably high such that public expenditure on
social welfare need to be axed drastically fuelling further unrest in the
streets.
2. On the social side issues such as increasing
retirement age in order to avoid large lump sum payment to be made for the
retirees is causing further strain in the French productivity which is already
one of the lowest in the Union. But the one that debilitates more is the aging population.
Past German response to Greek Crisis
During the Greek crisis, the Iron Lady Chancellor
Angela Merkel and her able assistant Finance Minister Wolfgang Schauble did lot of persuading to get
the Greeks on board in cutting domestic spending, increasing tax
threshold as well as embarking on privatization that stripped off quite some of
the public assets. At one point Wolfgang Schauble arm-twisted the Greeks
threatening the banishing of Greeks from the Eurozone. But the surprising fact is although Germany
put up almost €90 Billion as rescue funding Germany recovered more than €100
Billion in borrowing cost of her public debt as investors began to flee from
Greece and other weak countries in the Union to the German bond market. In effect, the Greek crisis was a
blessing in disguise.
Geoeconomics
is stupid
This time it is different. France has the second
largest economy after Germany in geoeconomics profile and also possesses triad
in nuclear power. Germany has been receiving invisible benefits from France in the form of military-security
profile. In fact if it is not for France, Wehrmacht need to be upgraded
to be an independent security provider with immense cost!
My
submission
Germany has to save France whether she likes it or
not. Even though Germany herself is reeling under the far-right and far-left
ascendancy her economy is still going strong. Hence, the need to put this issue
in geoeconomics perspective is essential. Therefore, Germany faces somewhat of a Hobson’s choice.
Let me go back to history. During Nazi Era the
occupied Europe was asked to pay occultation cost, wherein France has to pocket
out 300 million francs daily. In fact nearly 42% of the total occupation cost thus
extracted came from France alone. Conscience stricken, Germany has to go through the pay-back window now.
Despite her domestic financial woes it is moral duty for Germany to bail-out
France.
Navigating strategy amid geoeconomics advises German administration to treat French crisis as a domestic one.
Cheers!
Muthu Ashraff
Strategy Adviser
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Strategy Adviser
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