The EU has launched an Excessive Debt Proceeding against France. It won’t stop there. 
Debt Proceedings
Please note the EU Rebukes France, Italy and Others Over Excessive Debt.
The assessments of the 27 EU states’ budgets and economies will be published by the European Commission on Wednesday, with France, Italy and Belgium among the member states to be reprimanded over their accumulated excessive new debt.
The Commission said it was satisfied that “the opening of a deficit-based excessive deficit procedure is warranted” in the case of seven countries. The group also included Hungary, Malta, Poland and Slovakia.
The EU suspended debt and deficit regulations to help countries cope with the economic fallout of the COVID-19 pandemic and Russia’s invasion of Ukraine.
The rules are now back in place and now any EU country going over debt and deficit limits run the risk of legal action.
EU’s Golden Rules
According to the reformed rules, an EU member state’s debt may not exceed 60% of gross domestic product (GDP).
Highly indebted EU countries with debt levels over 90% of GDP have to reduce their debt ratio by one percentage point annually, countries
Additionally, the general government deficit — the shortfall between government revenue and spending — must be kept below 3%.
According to the commission’s economic forecast, France is at -5.5%, Italy is at -4.4% and Belgium is at -4.4% and will breach this deficit limit in 2024.
Austria, Finland, Estonia, Hungary, Malta, Poland, Romania, and Slovakia also have deficits that are too high according to the rules. Spain is at exactly -3.0%.
Snap Elections
French President Emmanuel Macron was hammered in the European Parliamentary elections as expected in this corner, and generally elsewhere.
Winners: The Far Right
Losers: Renew Europe (Macron), and the Greens.
The response by Macron caught everyone off guard. He dissolved parliament and called for snap elections.
On June 9, I commented Marine Le Pen Set for Record Win, Macron Calls Snap French Election
Act of Trust or Act of Desperation?
Macron called for French parliament elections only, not presidential elections.
But if he gets blown out in the Parliamentary elections he will have zero chance of doing anything.
Hmm. Is this a desperate act to pin the blame on Parliament for whatever happens next? Macron himself cannot run again so why not?
Sudden Procedures
I fail to see how this does anything but aid Le Pen in the upcoming parliamentary election.
However, if Macron is clobbered, Jordan Bardella, the leader of Rassemblement National (RN, National Rally, Marine Le Pen’s party), may emerge as Prime Minister.
An Act of Trust?
Yeah right.
If Macron is blasted again, he is likely to transfer the problem to RN to fix. That is Macron’s real gambit, not this BS about trust.
Macron is ineligible to run again, so he is making a calculated move. It makes sense if you think about it in these terms.
How Does the Election Work?
Politico Explains: French members of parliament are not elected on the basis of proportional representation, but instead through a complicated two-round vote across 577 constituencies where local dynamics play a big role.
France will go to the polls on June 30, with runoffs planned for July 7. In each constituency, if no candidate wins 50 percent of the vote in the first round, the top two candidates advance to the second round, as does any other candidate who got the support of at least 12.5 percent of registered voters. The candidate with the most votes in the second round wins the seat as a member of parliament.
If the far right gets a majority in the parliament, the French president would have to enter into a “cohabitation” arrangement with the National Rally and appoint a far-right prime minister. Bardella, the president of the National Rally, has said he would not seek to lead a government unless he had a majority. That presumably means he will need coalition partners — or it’s an electoral strategy to bag a big turnout.
By lead a government Politico means become Prime Minister.
It may be in the best long term interest of Bardella to leave the fiscal issues to Macron for the near future.
No one wants to take the blame for the impending crash.
Another question is how much effort Le Pen will invest in coalition talks, given her desire to keep her political capital intact ahead of the 2027 presidential election. If her party leads a government that has a bumpy ride in office, it could reduce her chances of seizing the big prize.
See how complicated this political jockeying is? It sure as hell has nothing to do with trust.
And that’s not all.
Jews for Le Pen
Please note France’s Jews Consider the Unthinkable: Voting for a Party With an Antisemitic Past
Serge Klarsfeld is a world-renowned Nazi hunter, a historian of the Holocaust and a moral authority in France who has pushed the country to reckon with its dark history of antisemitism.
That is why many in France were shocked this week when Klarsfeld defended the far-right party of Marine Le Pen, which counts among its founders a former Nazi paramilitary soldier. Klarsfeld, an 88-year-old Holocaust survivor, said that the main threat to France’s Jews now comes from the far left and that he wouldn’t hesitate to vote for Le Pen’s party, the National Rally, in the coming parliamentary elections if the alternative were a coalition of leftist parties, the New Popular Front.
“The National Rally supports Jews, supports the state of Israel,” Klarsfeld said on national television. “When there is an anti-Jewish party and a pro-Jewish party, I will vote for the pro-Jewish party.”
“I never would have imagined voting in favor of the National Rally to blockade against antisemitism,” the writer Alain Finkielkraut told French magazine Le Point this month. “The current situation is heartbreaking for the Jews of France.”
Long Term Fiscal Issues
In addition to the Excessive Debt Proceedings against many countries, every EU county has defense spending issues, climate spending issues, and demographic issues as shown in the lead chart.
The lead chart is from the ECB report Longer-Term Challenges for Fiscal Policy in the Euro Area
In the future, various longer-term challenges are likely to exert pressure on public finances in the euro area. On top of the existing fiscal burdens – as reflected in the high debt ratios in a number of euro area countries, which were exacerbated by the pandemic and the subsequent energy crisis – there are several important longer-term challenges for fiscal dynamics. This article starts by reviewing some of the most important challenges and discussing their fiscal relevance, with a focus on demographic ageing (Section 2), the end of the “peace dividend” (Section 3), digitalisation (Section 4) and climate change (Section 5). Acknowledging the uncertainties surrounding any quantification of these challenges, Section 6 then presents some tentative – purely indicative – estimates of the additional fiscal effort that could be required to ensure the long-term sustainability of public finances in the presence of such developments. The implications of digitalisation are excluded from that exercise, given the particular uncertainty that surrounds their quantification. Section 7 then provides some concluding remarks.
As you can see, it’s a mess in may areas. Here are a few of them.
Fiscal Costs of Ageing Societies
The euro area is experiencing demographic ageing. The region is witnessing a significant decline in fertility rates, coupled with steady increases in life expectancy, resulting in an ageing population. At the level of the European Union as a whole, average remaining life expectancy at the age of 65 has increased over the last two decades, rising from 17.8 years in 2002 to 19.5 years in 2022
This demographic ageing presents challenges for government finances. With the number of elderly citizens increasing relative to the working-age population, pay‑as-you-go pension systems face mounting financial pressures. Furthermore, ageing populations typically require more extensive healthcare services and long‑term care.
Fiscal Costs of the End of the “Peace Dividend”
Macron wants an EU army and more support for Ukraine. How’s that supposed to happen?
Fiscal Effects of Climate Change
Transitioning to a low-carbon economy entails significant upfront costs and policy challenges. Mitigation measures (such as investment in renewable energy infrastructure, energy efficiency improvements and other emission reduction strategies) require substantial financial resources and long-term planning. Green investment, both public and private, will be essential in order to facilitate the transition to a sustainable economy.
Cumulative Impact – Lead Chart
Achieving a government debt-to-GDP ratio of 60% by 2070 from today’s debt levels would require euro area governments to immediately and permanently increase their primary balances by 2% of GDP on average.
Moreover, additional fiscal burdens may well emerge in the medium term. For instance, the model-based simulations used in this article exclude the digitalisation gap, the long-term implications of which are still hard to grasp. Furthermore, one does not need to go back very far in time to find a large fiscal shock appearing out of the blue: the euro area’s government debt-to-GDP ratio increased by a total of 13 percentage points in 2020 in response to the COVID-19 pandemic. At the same time, the simulation of climate change is based on simplified assumptions and on the unlikely premise that limiting global warming to 1.5°C is still feasible. It also does not capture the impact of societal repercussions (such as conflict), tipping points or macroeconomic effects (such as changes to prices and productivity). This suggests that there could be substantial additional fiscal costs associated with climate change.
Hoot of the Day
To achieve a government debt-to-GDP ratio of 60 percent, EU countries will have to reduce spending or raise taxes by 2 percent of GDP, on average, every year for 46 years.
That also presumes no recessions or other emergencies in that timeframe. And this is supposed to be a serious proposal.
Let’s just say it’s not going to happen. But these clowns are likely to try, if for no other reason than punish Le Pen.
Meanwhile, Back in the States
In case you missed it, please consider Why Angry Renters Will Decide the Election, Take II
Economists say wages are now rising faster than the CPI. That’s not true for those who rent or wish to buy a house.
We won’t make the nut unless we have unlimited credit
Nice one https://ourfiniteworld.com/2024/06/22/the-advanced-economies-are-headed-for-a-downfall/
Good article, but lots of things to consider.
First, Oil is still a bargain. A barrel of oil is equivalent to 25000 man hours of physical labor. At $20/hr that equals $500,000. So even though oil costs more today in inflation adjusted dollars,
compared to the 1950-70 period, it’s still cheap at $80.
Second, natural gas is cheaper today than in the 1950-70 time period. Using a common 6:1 ratio, natural gas at $3 is the same as oil at $18. There will be some substitution of gas for oil where possible.
Third, I believe the biggest reason for the decrease in economic growth will continue to be growing debt. This was mentioned on the article, but was considered secondary to the cost of oil.
I cannot recommend this highly enough …. do read p 59 … but then if you truly want to understand the nature of what is happening… read the entire paper….
And btw — we always extract the easiest to obtain resources first… so it is not possible for the energy return ratio to improve over the long term.
SEE PAGE 59 – THE PERFECTSTORM : The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel https://ftalphaville-cdn.ft.com/wp-content/uploads/2013/01/Perfect-Storm-LR.pdf
Yes and no.
Yes. Energy is life itself. The economy cannot grow without more energy. Standards of living cannot go up without more energy. I have stated this a hundred times on this site.
No. The cost of producing oil is not going up. In fact it has been going down. In the US the cost to produce a barrel of oil has dropped 35% in the last 10 years, from $65 to $50.
One of my largest holdings is Canadian Natural Resources. They have lowered their cost of production from $40 to $30 in the last 10 years.
So I call bs on rising costs.
As another example, the US is producing a record 13.2 mbpd of oil, even though the number of drilled wells keeps dropping. This speaks to greater efficiency every year.
The EU has sunk into a neoliberal caste system similar to the US due to unproductive debt. Both the EU and the US have also devolved into governments that are up for auction to the highest bidder.
– the US have also devolved into governments that are up for auction to the highest bidder.
The U.S. devolved into that scenario, a longtime ago! I would say the Bush/Clinton Era was the vast showcase for the “Pay to Play” scenarios in abundance today, and around the Globe actually.
That way of Governing has leached out into a full blown way of new leadership. Agendas with Cash on “Top of Mind” are “The Thing” New worthless ideas that are meaningless, but make those in Power rich beyond their dreams…
Why do you think we are we dealing with agendas like “Climate Change & EV’s? No real benefit can be proven by even a scant piece of actual evidence. In fact, just the opposite is true in most cases (think DEI). The damage done to the Environment, under the guise of saving it, is grotesque IMO! Windmill, Solar, EV materials are all extremely bad for the environment, and we don’t even have a system in place to deal with it, other than landfills, where most will end up. A further environmental nightmare down the road. Clean up cost are way more expensive as well!
What’s up with giving Countries like Ukraine, Other Countries hard earned Tax dollars, to spend on a useless, stupid, unnecessary war to hide illicit Government Experiments?
What’s up with harping on Israel for protected there borders from invaders that wish to harm them?
What’s up with “Open Borders” and why are they still wide open?
What happened to the “Rule of Law” in Our Country?
Lots of questions, but no real answers, nor do they even try to give one, make one up, or even pretend to have one.
Just do what your told, when you are told, and understand that we are always right and you are always wrong… New Motto?
The EU will get a shakeup soon coming from Britain as well. The Tories are set to lose in an historic manner. Labor could take 5/6 of the seats.
They will of course kill Brexit. They will rejoin the EU. And not far off either.
Does this strengthen the hand of the evil Eurocrats?
Brexit has been a disaster for the UK; so far. Though I do not know if they will rejoin the EU.
“Let’s just say it’s not going to happen. But these clowns are likely to try, if for no other reason than punish Le Pen.”
It’s about punishing democracy. People are not to be allowed to “vote the wrong way.”
“An Act of Trust?”
How are corrupt governments trustworthy?
Global central banks plan to increase dollar reserves, survey suggests
Elevated interest rates spur demand, despite calls from some countries to move away from US currency
The number of central banks seeking to increase their exposure to the US dollar has increased sharply this year, according to a closely watched annual survey, confounding calls from some developing countries to use rival currencies as reserves.
A net 18 per cent of global central banks plan to increase their allocation to the dollar over the next one to two years in response to US interest rates remaining high, according to the Official Monetary and Financial Institutions Forum, a UK think-tank, which surveyed 73 such institutions managing a total of $5.4tn of international reserves. The move marks a sharp rise from a net 6 per cent a year ago.
At the same time, demand for the renminbi has stalled among central banks, halting a trend of recent years when more central banks had aimed to add exposure to the Chinese currency.
https://www-ft-com.ezproxy.depaul.edu/content/1be234f2-c680-4ce9-beb7-d0d9a2793330
You have Countries in the EU that are outright broke, over budget, under performing , and delusional on top of it, if that’s even believable or even educationally possible to be so stupid!
So when your broke as a Country, and your Citizens NEED Food, Energy, Peace, and any “Positive Path“ forward will do, and Your Country comes up with:
– Climate Change, to throw the much needed money at, instead of helping out the Citizens. Take their tax dollars and give it away to Politicians and their Friends. Well they could decide to try and change the Climate by 1 Degree TOTAL over the next 50 years, but still be behind nature doing the same at the correct pace. Gotta play God with everything! Let me guess, that “Blocking The Sun” will be the next Futile, Delusional, and incoherent attempt at “ Climate Change” Idiots…
P.S.
– LOWER 2023 Government Debt Levels
– Cut ALL BUDGETS by 50% Immediately
– Stop Giving Away your Citizens Tax Dollars
Just for starters…
Stu,
I agree with all that you said. And maybe not pushing war against Russia would be helpful too.
I agree as well, but NATO has a very strong hold on many Countries aligned with them. I found it very interesting, to learn how many were not even paying, but came to realize that’s part of the con.
Get the ones to pay that you can, but cover all cost no matter what, or lose momentum. It’s all a mirage about group power for freedom, but it’s really group think, and group power for Power & Control imo…
How it is being paid for is OUR problem. A wider war in the EU is THE problem. The impact of a Ground and Air and Sea war in the near future will finish off the Mess Known as the EU.
You beat me to it, Mish.
Grear article. The first graphic about fiscal challenges says it all.
Left, right, far right politicians are the same. Each one defends a different group of people that want public money: from farmers on the right to public teachers on the left. But is the same policy, big taxes and big spending.
Milei in Argentina is the only outlier.
Good article. Thanks.
Jeff Green … are you considering logic?
https://www.zerohedge.com/energy/nearly-half-us-ev-drivers-consider-switching-back-gas-vehicles-mckinsey-study
I predict that the majority of EV owners that switch from straight EV, will switch to PHEV rather then straight ICE.
When a Lexus dealer tried to sell me a Hybrid…. I asked how much the batter pack would cost to replace…. he dismissed me with ‘a few thousand dollars’
I knew that was bs and that he was a lying pc of shit…
I had looked into it and it was more like 6-8000 $$$$. He said he’d have to check on that…
He said the warranty was for 8 yrs…
So I says… we all know what happens to phone batteries after a couple of years… don’t worry he says .. we test the charge capacity and if it falls below a threshold before 8 yrs… you get a freebie… (of course we can trust them to test the battery and not lie…)
So then I says… what impact is this going to have on the resale value of the car if I try to sell it as the warranty use by date approaches.. or after that date…
He hesitated… then said – I see your point… that’s going to kill the resale value….
But don’t worry… we’ve got this awesome customer who buys loads of older model EVs … doesn’t ask questions like yours … he just pays top dollar…
Oh ya… what’s his name…
Jeff Green
baddum tsss….
Replacement batteries for PHEVs come in a very wide range of capacities. As a result, prices currently range from $1k to $8k, with the average price under $3000. I expect capacities to keep increasing as the price/kwh keeps decreasing. Prices this year have dropped to $120/kwh from last years $150. It is expected to drop again next year to $90/kwh. And to keep dropping to $70 in a few more years. So the $8000 battery might cost less than $4000 to replace after 8 years.
Declining battery costs and increased capacity will help spur sales of PHEVs.
I was quoted NZD7000-8000 to replace a battery on a Lexus NX hybrid… including labour and the battery.
Yes. One of the largest capacity and most expensive PHEV batteries you can find. I was merely pointing out that the average PHEV battery costs less than half of that. And that battery costs have been dropping every year. That lexus battery has a 10 year, 150,000 mile warranty. By the time you need to replace it in 10 years, the replacement battery will likely cost less than $3000.Assuming you want to keep it after 10 years.
I’ll stick with my petrol vehicle thanks… I actually don’t see the point of any vehicle that involves battery power.. the batteries are all charged with fossil fuels… I prefer to Keep It Simple
Yes. You are still part of the majority. iCE vehicles are not going away anytime soon. But being pro-ICE doesn’t mean you should be anti-EV or PHEV. Different vehicles meet different needs.
And more EVs and PHEVs on the road, will reduce demand for gasoline and help keep gas prices lower.
That list of countries will just scoff at the EU’s mandate.
I have a relative that is a well respected doctor in the UK who visited me recently. She was blown away by how well me and my wife live. Over there we would be considered uncommonly wealthy. After a few days she started really considering moving to my neighborhood and I mean serious consideration.
Before she left she wanted to go to CVS. Apparently they don’t sell large packs of Q tips and no stick deodorant. Only roll on so she cleaned them out.
She told us a bunch of stories of how things are over there. Blew me away. I don’t think people in the US really understand how good we got it.
Well said. People here constantly bitch, whine, and complain about how bad things are, while living in the land of plenty. When did Americans become such childish crybabies? Probably when they started following cult conspiracy garbage websites.
It’s like how NATO is trying to Trump-proof (front load) the funding of their project in the Ukraine. Democracy-proof is more like it.
There is another deficit in the EU: deficit of independent thinking and common sense.
All economic policies are borrowed from the US based economic gurus. Debt based economic development being one.
The 3% deficit is actually a demand by more fiscally prudent to rein in free spenders who clutch at every straw to spend beyond their means.
And the 3% ceiling has as much merit as the 2% inflation equals price stability.
The climate spending commitment is a self-inflicted wound. It would be nice to think it’s just virtue signaling, but they actually believe in saving the planet by example.
The dwindling population of Europe as compared to exploding population in the global south, makes it a losing proposition, but they are incapable of grasping this seemingly simple concept.
I could go on with the idiocy.
Well said … except do we really have to use “global south” instead of third-world?
Maybe you’re a Gen X/Millennial? (as I’ve been told by an HR that I respect … my vocab reflects my age…dang-nab-it!).
notaname,
I concur. “Third World” suggests those nations that are predominantly pre-industrial, subsistence-farming based economies, and severely lacking in effective infrastructures, such as ports, road systems, power grids, etc. “Global South” is less precise, as it would include nations such as Brazil, Argentina, etc., which are not third-world.
My thoughts anyway.
Got your back, you old geezer.
Actually, the term third world is an obsolete term, a relic from the Cold War, and thus should be in the dustbin of history. It simply meant any country not aligned with either the US or the USSR. It’s a term that will continue to lose meaning. Just use “developing” or “underdeveloped”.
By undeveloped, you are meaning Infrastructure is not good. OH, I know neighborhoods where my folks live, lined with old Mansions and the STREETS are pot-holed. There are sections of MAIN HWYS here in Oregon that have terrible DIPS and CRACKS AND HOLES and I am talking about HWY 101, north of Newport, Or. Instead of fixing those flaws, the erect big “BUMP” signage. We are a mess with our CRUMBLING INFRASTRUCTURE because we are spending money on GREEN and WARS and THEFT by Government officials. WE ARE SUNK.
The definition is when you breed beyond capacity to feed the population, that cannot help themselves but multiply.
Malthus will eventually be fully proven right.
Unless, Darwin will be right, and the unfit to rule EUcrazy will invite them all.
What’s the bigger worry: Russia/China/ME-Iran or the “Earth”?
Based on spending, about equal (to nearest % at 2%) … here’s another chart for ya-all:
https://ec.europa.eu/eurostat/cache/egd-statistics/
Forgetting the inconvenient truth that Russia/China GHGs are unabated. PS – Russia likely benefits from a warmer Earth (whether anthropological or not). And not all “environmental spending” mitigating GHGs…some is to process poop I hope.
Dang, when did “the West” get so stupid!
Watch out, notaname. Those graphs at the link are inherently misleading.
Misleading? How?
Notice they are each scaled and cropped to fit their lowest and highest numbers.
Imagine you graphed the stock prices in a rising market of 100 companies this way. Most, if not all, would show a line from the bottom left to the top right. A company whose stock went smoothly from $1000 to $1001 would have a graph that would, at a glance, be identical to a company whose stock went smoothly from $10 to $1,000,000.
If a graph has a bottom clipped to the lowest number graphed, I assume the graph maker is fooled by their own graph rather than knowingly lying.
”
What’s the bigger worry: Russia/China/ME-Iran or the “Earth”?
”
America.
Russia has a lot of warheads, sure. But their stuff is all in Russia. It would be much more worrisome if they instead had it floating around in giant carrier groups in The Gulf of Mexico and off of Baja.
Russia does NOT benefit from a warmer earth. The land area of Russia is 65% permafrost. As it melts, and the land heaves, existing infrastructure gets destroyed (roads, rail lines, pipelines, electricity grids, buildings etc. This is already happening a lot.
In addition, extreme weather events are a serious problem already for Russia, and it’s going to cost them a lot more as time goes on.
And another possibility will be ancient pathogens released from melting permafrost in Russia which ”could” cause future pandemics. Though I consider this a “low” probability.
This and the ‘A Severe Eurozone Recession and Debt Crisis is On the Way’ raises an interesting question to compute numbers for:
What if the USA was subject to EU EDP tests and remedies? How would it rate and what would be imposed on the USA?
These ratings are artificial and created by politicians. Soon enough the actual economic realities will be apparent to all.
Time for Frexit?
France is dead center EU. In or out, has little effect on them.
Germany is who REALLY, REALLY needs to get the eff out. They’ve sunk halfway down to Anglo levels of backwardness already, over the past two decades,as a result of exposure to the Euro and ECB redistibutions. In another two decades; there’ll be nothing at all left. Then, they’ll be no more industrially relevant than the UK and Argentina are.
Unless they get out, get the Mark back, start trading freely with all, and stay clear of any childish “politicians-and-leaders-making-deals-are-some-sorts-of-useful-activity” nonsense.
“Buy cheap gas, build great stuff, trade and interact freely with the world’s far and away biggest market.” That WILL work, for a competent economy. And competent economies are the only interesting ones. The rest can look, learn from them and reform. Or,alternatively, just sit there and stew in their own lack of abilities, while their betters leave them ever further behind.