And God only knows whether the French need a tax cut. With the government's tax take equivalent to 53.5 percent of GDP, France is 7 percentage points above the euro-area average and a whopping 16 percentage points above the developed nations' average. In Europe, only the Scandinavian welfare heavens of Denmark, Finland and Norway levy higher tax revenues.
So is it move over the "soak-the-rich" Thomas Piketty to make room for Art Laffer's back-of-the-diner napkin "proof" of optimum tax (the less the better) theory? It looks that way.
And if you are caught off guard, like the fractious French center-right opposition, think of the magic ace that will trump (no pun intended) anything the competitors have to offer to an overtaxed citizenry come next elections in May 2017.
Howls across the Rhine
But can the French afford a tax cut next year? Hell no, if you ask the Germans. During the first quarter of this year (the latest data available), French public debt rose by 51.6 billion euros to a total of 2.1 trillion euros, or 97.5 percent of GDP. That is higher than the 96.3 percent objective in the government's latest public finance projections for this year.
The budget deficit outlook is equally tenuous. The government is putting out forecasts of this year's budget gap a little below 4 percent of GDP (virtually no progress from last year), with a curiously precipitous decline to 3.3 percent of GDP in 2016 and 2.7 percent in 2017.
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For a sharp contrast, here is how German public finances look like. In the first quarter of this year, the German public debt was down to 74.4 percent of GDP from 76 percent a year earlier. Germany's public sector accounts have been balanced since 2012; the budget surplus last year came in at an estimated 0.6 percent of GDP, and it is currently expected that the surplus will be somewhere between 1 and 2 percent of GDP by the end of 2017. Briefly put, Germany is delivering on its euro-area commitment to balance the books, and to nudge its public debt down toward 60 percent of GDP by 2017.
France is nowhere close to such a fiscal consolidation. Only to stop the growth of its huge public debt, France would have to convert its present primary budget deficit (i.e. deficit before interest service on public debt) of about 1 percent of GDP to a long string of surpluses. Germany, for example, began running primary budget surpluses in 2005 before it could stop the growth of public debt in 2013.
Will Germany, and its followers at the E.U. Commission, turn a blind eye to France's unexpected embrace of supply side tax policies?
I don't think so. France is already on probation. Berlin and Brussels raised a big fuss when France got extra time last year to bring its deficit down to 3 percent of GDP – with a firm commitment to stay on the path to budget balance. Credit rating agencies are watching too; S&P has France on an AA rating – with a negative outlook.
Frexit and more?
But who knows; maybe Berlin will change the subject. They did that in the case of Greece. German leaders are now saying that pushing Greece out of the euro area was never their intent. That takes some chutzpah, bearing in mind that the German finance ministry unveiled in late July a detailed plan for the Greek exit. To forget all that, Chancellor Merkel said last week that the migrant crisis was now a bigger challenge for Europe than the Greek debt problem.
So, never underestimate the German "pragmatism." After all, France is Germany's third-largest customer (after U.S. and U.K.). The German trade surplus with France was running at an annual rate of 37.5 billion euros in the first quarter of this year, about 7 percent above the surplus in 2014. It would, therefore, be in Germany's interest to have that tax cut in France next year so that the French could buy more German cars and capital goods.
But I do suspect that the inside story here is more complicated than that. It is highly unlikely, I believe, that the French have not talked to Germans about their fiscal easing. The Germans were probably aghast to hear that, but, just like in previous cases of fiscal mismanagement and banking follies, they decided to let it go expecting, correctly, that, at some point, financial markets and rating agencies would come down on the French like a ton of bricks. And here is a hint: Over the last thirty days, there was an accelerated widening of the yield differential between German and French government benchmark ten-year bonds.
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The economic and political fallout from the diverging German and French economic policies is, however, unsettling. The governing French Socialist Party is not just undermined by bad opinion polls; it is also under pressure from its own people to stop rising unemployment and economic stagnation. Most of the party faithful, especially those on the far left, believe that such policies are impossible under the constraints of the monetary union – and Germany is blamed, incorrectly, as a dark dictator of economic discipline that France, and all other euro area members, had signed on to.
The logic of such thinking is simple: Get out of the euro. Luckily, there is no popular support for that - not yet, although that still remains the guiding idea of extreme right - and left-wing parties in France, Germany, Italy and Greece. And the Greek case is taken as acid test to show that a successful euro-area management is impossible under the current half-way house monetary union without the common fiscal policy.
Can the French and German leaders come together and forge ahead with the fiscal union? Sadly, the omens are not good, but there is a chance they could spring a pleasant surprise. If they don't, the fiscal union will be put "ad kalendas graecas" (You guessed it: Never. Again, no pun intended), and the euro area will continue to drift around until...
The French Socialist Hollande has begun his re-election campaign. Following the country's tradition, this is the time of the year when big decisions are announced, in order to serve as the main themes of the gatherings to mark the beginning of the new political season. The festivities kicked off Sunday with La Fête de la Rose, the annual Socialist rally, this year starring Greece's former Finance Minister Varoufakis. That will be followed by the summer camp (Université d'été) in a beautiful resort town of La Rochelle in south-west France, from August 28-30.
Nothing at the moment is publicly known about the form and the magnitude of the proposed tax cut. One thing is certain, though: It is unlikely to be symbolic, because that would be a political suicide.
Barring a show of warmth and togetherness in a strained French-German relationship, a destabilizing euro-area confrontation cannot be ruled out.
The European Central Bank will defend the euro as long as its political mandate to do so remains in place. Its monetary easing is set to continue. That's the only safe bet I see.
Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.