Firstly, this is an opportunity to shed some light on the reasons behind the recent successes in curbing inflation, which has already come down to 2.4% in March, both in France and the euro area. The reversal of the initial supply shocks, affecting energy and food prices, has naturally helped a great deal. But monetary policy has also played a significant part, by limiting the spread to core inflation, excluding energy and food, which has fallen to 2.9% in the euro area and 2.2% in France, half the peak reached a year ago. By keeping the inflation expectations of households and businesses sufficiently well anchored, the credible action of central banks has prevented the formation of price-wage-margin spirals: this explains why this inflationary episode looks set to be much shorter than that of the 1970s, and its resolution less costly in terms of activity. The last few quarters have seen a real slowdown, but not a recession, and the chances of a soft landing are even greater now that the ECB is expected to rapidly begin cutting interest rates. Barring any new geopolitical shocks, 2025 should see inflation come back to 2% and a recovery in growth, both in France and in Europe. Moreover, Europe has got through the pandemic and then the sharp rate rise without experiencing a financial crisis this time, or a banking crisis such as the one that threatened the United States and Switzerland in March 2023: this is the positive effect of the strong tightening of regulation and supervision over the past ten years.
From a longer-term perspective, public support for the euro has grown steadily over the last 25 years, from 68% to 79% today. The euro has been particularly beneficial for the French, with inflation kept under a tighter rein, purchasing power rising significantly more than the European average (cumulative increase of 26% compared with 17% for Europe), and the cost of borrowing falling particularly sharply – for households and businesses as well as the state. But the euro is no substitute for tackling the pre-existing structural weaknesses in the French economy that explain our relative lag in growth: among these, we have made good progress over the last ten years on employment, but not on public finances.
Taking an even broader perspective, we can compare the euro area with the United States: the cumulative growth differential since 1999 is significant, even when adjusted for demographic changes (GDP per capita): 25% compared with 38%. It has a primary, “Schumpeterian” cause: innovation. The European economy has almost the same mass as the United States, but nowhere near the same speed. This means that we need to achieve three transformations for the future: the transformation of work, to complete the progress towards full employment but also to prepare for the decline in the working population in the future; the digital transformation and that of artificial intelligence; and of course the climate transition.
While there is consensus among Europeans on these common challenges and on our social and environmental model, there is often a feeling of powerlessness when it comes to finding solutions. This does not have to be the case. In a more fragmented, tougher world, European economic sovereignty requires a combination of three shared levers: size, multiplied by financial strength, multiplied by public efficiency.
Size means deepening the single market, with the aim of making it as attractive as the US market. There is still too much friction and too many internal borders, particularly in digital technology and services, and too much national state aid. Great Britain has lost 3 to 5 percentage points of GDP growth due to its departure from the existing single market; conversely, Europe could gain several percentage points of growth, particularly by following the recommendations of the report just submitted by Enrico Letta.
Financial strength means mobilising Europe’s private savings surplus – more than EUR 300 billion a year – to finance a large share of green and digital investment. To do this, we need to beef up the Capital Markets Union to create a genuine “Savings and Investments Union”, based notably on green securitisation and European venture capital.
Lastly, public efficiency naturally means keeping deficits and public debt under control, and, to this end, fostering greater efficiency in all central, local and social spending. Fiscal consolidation is first and foremost an imperative for France: hoping that the upward drift in spending can be resolved merely with a future acceleration in growth is an illusion that has been entertained for too long. But all of Europe needs to recreate the headroom to finance the necessary additional spending (climate, defence, population ageing), and spending on the future to generate potential growth (innovation and education). On this condition, the creation of a common fiscal capacity would be an additional asset for Europeans.
France and Europe today have doubts about their economic future. But self-flagellation and “every man for himself” do nothing to promote economic growth. Europe has great assets, first and foremost manpower and intelligence. And, as in the case of the euro, the potential to act as one. To paraphrase Raymond Aron, we can believe in the success of the European economy, but on one condition: that we have the will to be successful.1
1 In 1939, Raymond Aron wrote: “I also believe in the final victory of democracies, but on one condition, that they want to be victorious”.
