Jackson Jambalaya

France has been especially hard hit by the recent global rise in bond yields. The rate on the benchmark 10-year government bond last week exceeded 5% for the first time since 2002. The spread between French OATs and German bunds (the eurozone’s safest asset) is now wider than 140 basis points, the most since the eurozone crisis of 2010-12. 

Politicians in Paris are in denial. The government last ran a fiscal surplus in 1974, and an annual deficit above 5% of GDP is normal. Debt stands at 120% of GDP. Revenue is inadequate to Paris’s spending urges, despite or rather because of high tax rates that extract 51% of French GDP each year. Revenue from taxes on personal and corporate incomes and consumption is flat. Special levies such as a windfall-profits tax on energy companies generate less revenue than predicted. 

All of this taxation alongside endemic overregulation is suffocating economic growth. GDP grew 0.8% last year, is expected to do the same this year, and if they’re lucky it’ll hit 1.1% in 2027. Perhaps this explains why French yields remain below the rates on U.S. Treasurys. In America, investors are betting on growth in addition to Washington’s fiscal dysfunctions. 

Paris formed these spending habits in an era when the European Central Bank was aggressively buying bonds under its quantitative-easing program. In some years central-bank purchases of French debt exceeded net issuance. No longer. Current quantitative tightening leaves it to private investors to absorb French bonds and many of those investors, especially insurers and pension funds, are less willing. 

If Paris won’t grow, can’t tax its way out of the fiscal hole, and can’t borrow, spending will have to be cut. This is turning French politics into a violent game of musical chairs in which no one wants to be the last special-interest group caught without a seat. The riots are the latest example. Previous instances include nation-wide strikes against increasing the retirement age, and the 2018 yellow-vest protests about taxes on diesel fuel. 

Yet you’d never know this is the most pressing challenge facing France to judge by the incipient presidential campaign. Mr. Mélenchon says the central bank should simply forgive the French bonds it currently owns. He also accused the head of the French central bank of treason on Tuesday for suggesting spending cuts. “Off with their heads” has a long, if not glorious, history in France. 

The riots are probably helping the chances of Marine Le Pen of the insurgent-right National Rally. But she offers no more than token reform. One of her signature issues is a pledge to reduce the retirement age to 60—after President Emmanuel Macron’s effort to raise it to 64 from 62 has hit political obstacles. 

France’s main problem isn’t math. It’s slow growth. The right fiscal reforms, such as tax cuts and welfare and pension reforms that encourage work and investment, would create new opportunities for prosperity. Young people would be the biggest beneficiaries. The alternative is what’s happening in the streets.