Authored by Thomas Kolbe via American Thinker,
With massive state demand, Berlin and Paris hoped to escape the debt spiral. But economic data show that, in the end, not even statistical pseudo-growth remains. The pillars of the EU are crumbling amid structural failure.
Fateful weeks on the bond markets: The rise in French bond yields continues unabated. At the same time, German yields are falling – the first wave of capital flight within the eurozone has begun. Investors are steering toward the supposedly safe harbor of Germany.
France’s immense budget problem, the chaos on its streets, its fundamentally misguided economic policy, and the astonishing reform incapacity of the French classe politique are sinking ever deeper into the consciousness of the markets.
The femme fatale of the eurozone’s debt club is threatening the tectonics of the entire EU in these recent weeks. For now, Germany remains firmly embedded as the credit anchor of the common capital market, but France’s shockwaves bode ill: If the trend in French bonds does not reverse very soon, the ECB’s fire brigade will probably be called in to extinguish the blaze.
This is an important lesson for all those who still believe that government debt can solve social problems – or even generate prosperity: State consumption crowds out the private economy. France has made this dish its recurring daily menu.
France’s statism is legendary. With government spending at 57.2 percent of GDP and a tax-and-levy burden of 43.6 percent, the country has succumbed to the illusion that state control can secure prosperity permanently.
France’s economic situation in early autumn is dire, though hardly surprising. Construction is stuck deep in the valley of tears, with a Purchasing Managers’ Index of 39.8 points. In October, manufacturing slipped back into contraction territory, with a preliminary PMI of 49.3 points. Industrial production offers little reason for optimism either: In the third quarter, it was 1.9 percent below the previous quarter. France is being deindustrialized just like its eastern neighbor.
What is actually rising is new borrowing as well as prices: For 2026, the French government now expects a budget deficit of 5.4 percent of GDP; in September, the inflation rate stood at 3.1 percent. Anyone who still hopes that France can spend its way out of the crisis with its own debt hammer now stands as an economic-policy laughingstock. It would be the first time a socialist state transformed its own inefficiencies into an economic triumph.
This insight applies to Germany as well. Meanwhile, the widening divergence in bond markets makes clear that the interests of Berlin and France’s political leadership are drifting further apart.
This is visible in Ukraine policy, but also in joint defense policy, which is probably on ice for the time being. And this will likely remain the case even if Marine Le Pen is elected France’s next president. She has already announced that Germany would have to shoulder larger parts of the EU budget. Given France’s pressing budget problems, this is unlikely to meet with much enthusiasm in Berlin. So there will be no partnership-based overhaul of the EU.
What still binds the two pillars of the EU together, however, is their faith in the welfare state and interventionist economic policy.
The Bundesbank – something the German government will not like to hear – saw the German economy stagnate again in the third quarter after its brief recovery in the first half of the year. No matter how much debt money the central planners let rain down through their green pseudo-economics, the damage they have left in the engine room of the real economy can no longer be covered even statistically by the largest new borrowing in the history of the Federal Republic.
Friedrich Merz and his debt minister, Lars Klingbeil, let the credit pump run at full speed in the first half of the year: The deficits of public households totaled 98.8 billion euros. The political class is charging forward, taking children – and even grandchildren – into debt bondage for its own political failure.
Germany is giving the economically uninitiated a bitter lesson: Government debt does not create growth. It is an expression of an imbalance between the public and private sectors. It fosters a naive belief in technocratic feasibility and a dangerous political megalomania that ultimately makes political fraying into madness possible: We have seen the consequences in migration policy, in the green transformation madness, and in German energy policy. If necessary, monetary policy and its credit pump will fix it – or so the childish thinking goes.
Back on the ground of reality, away from the political cloud of illusion, things look bleak: Between 10,000 and 15,000 industrial jobs are being lost every month. The chemical industry is crumbling, with capacity utilization at a mere 73 percent. Overall, industry has lost more than 15 percent of its production volume since the pre-lockdown era. In this political mode, nothing will succeed anymore.
Hand in hand, Germany and France are steering toward the abyss – with different domestic political goals, perhaps, but with the same fatal outcome: People are fleeing into the superstition of collectivism. They trust the political class rather than summoning the courage to follow Argentina’s example and smash the bureaucracy. In Argentina, 50,000 public-administration employees were dismissed, and the budget was repaired with a primary surplus. And the economy, too, got back on its feet.
Europe – especially France and Germany – needs a free-market injection and, above all, the willingness to make an honest diagnosis of the situation. Only then can we discuss the therapy.