[FR] Fiscal policy in France and Germany: insurmountable differences?

There is often a tendency to contrast the state of public finances in France and Germany. The latter is considered a model of rigour, thanks to its ability to contain its deficits and generate surpluses, particularly between 2012 and 2019, thanks to the introduction of a debt brake mechanism in its constitution. In contrast, France is seen as a poor performer, with a budget that has been in deficit since 1975. However, it was in the mid-2000s that the budgetary trajectories of the two countries began to diverge significantly, as measured by the budget balance and the level of public debt.

However, in the context of the multiple crises that Europe has been experiencing since the eurozone crisis in 2010, through the Covid-19 pandemic, to the war in Ukraine in 2022, the consequences of public debt management are reflected differently in each country. The reality is more nuanced in terms of the effects produced by the policies pursued: on the German side, insufficient public investment is now weighing on the quality of infrastructure, particularly in energy and transport, but also on the operational level of the armed forces. Surpluses based on a growth model that is now highly exposed to international risks, and a reluctance to strengthen economic policy coordination at European level. On the French side, budgetary vulnerability has increased in the current period, marked by weak growth and a sharp rise in interest rates after a long period of zero or even negative rates.

Given that both countries, like the rest of Europe, have considerable financing needs in order to complete the energy transition, relocate certain production activities and strengthen defence, what fiscal policy measures should Germany and France take and where might they find common ground? Compromises are essential to ensure the reform of the Stability and Growth Pact and, beyond that, to ensure better governance of European economic policy.