Krugman's trilogy on (Non-crisis) France

Paul Krugman has recently published three blogposts on France (Ideological ratings, Non-Crisis France and More notes on French-bashing) which he has summarized in an Oped.

In these articles, Krugman looks at the recent downgrade of French public debt by S&P(*), and makes the following point:

" It can’t be overemphasized that the rating agencies have no, repeat no, special information about national solvency — especially for big countries like France. Does S&P have inside knowledge of the state of French finances? No. Does it have a better macroeconomic model than, say, the IMF — or for that matter just about any one of the men and women sitting in this IMF conference room with me? You have to be kidding."

Point well taken, and so obvious that rarely mentioned in the media...

Krugman then provides several figures showing that France has not performed too badly (in terms of GDP/capita or public debt) compared to its neighbors recently. 

"By just about any measure I can find, however, France looks not too bad by European standards. GDP has recovered roughly to pre-crisis levels; the budget deficit is fairly small and the medium-term debt outlook not at all scary; the long-term budget outlook is actually pretty good compared with its neighbors, thanks to a higher birth rate."

He then argues that France is being "punished" for having (more or less) balanced its long term budget by increasing taxes rather than by decreasing expenditures:

"Again, the point is not that France is problem-free; the question is why this only moderately troubled nation attracts rating downgrades and so much apocalyptic rhetoric.

And the answer just has to be politics. France’s sin isn’t excessive debt, especially poor growth, lousy productivity (it has more or less matched Germany since 2000), poor job growth (ditto), or anything like that. Its sin is that of balancing its budget by raising taxes instead of slashing benefits. There’s no evidence that this is a disastrous policy — and in fact bond markets don’t seem concerned — but who needs evidence?"

It seems that President Hollande still has at least one supporter ... overseas.

I actually believe that Krugman would be less sanguine if he were to delve into the microeconomics of the French policies of the last years. It may be OK to increase taxes rather than decreasing expenditures (I'll leave that to macroeconomists), but this falls far short of proving that the way taxes are increased currently is consistent with any n-best optimum... (n=2;3,...)

(*) A nice pun by Le Canard enchaîné: We use to be standard, now we are poor...