Revolt of the "Yellow Vests": Is France Going the Way of Greece?

The revolt of the “Gilets jaunes” (Yellow Vests) is not only about the recent taxes on fuel – it has been brewing for quite some time. It has been caused by a steady decline in purchasing power, which has progressively strangled low-income workers. It started, actually, at the beginning of the 2000s, when a rise in the prices of commodities and real estate put a serious dent in available income. This deterioration was missed by INSEE, with its bogus price index, as I’ve shown in my book, and it provoked the ire of households as well as the blindness of political leaders. On top of that, there has been an explosion of various taxes on households since 2008. The most recent ones – on fuel – have finally triggered a national revolt. 

The November 24 protests on Champs-Élysées, with their violent acts – mostly due to groups that have nothing to do with the Yellow Vests – and the thousands of check points all across the country show images of a country under siege, not unlike the 2010-2012 crisis in Greece. 

But the scenario, of course, is different. Greece was first confronted with the wall of public debt before having to implement austerity policies – mostly for households – whereas in France, the situation could go the other way: the impoverishment of the workforce leads to a reduction of fiscal revenue which, in turn, leads to the markets being wary of the French debt. 

It must be noted that in both cases the public sector has been spared. In France, public spending has never declined and the number of public servants is still increasing. The households are always the ones to foot the bill by paying more and more taxes so that the State can stay within its budget to reassure investors about the quality of its Treasury bonds. 

But this is all about to change. This crisis is serious: The State allows itself no leeway, no room to maneuver by not drastically curtailing public spending, so the revolt will roll on. Tax deductions will be withheld at the source starting in January, which will likely cause many bugs, not to mention the psychological effect of having your pay amputated of the tax one was used to pay later. And still to come is pension reform, a highly incendiary issue that will surely stir the workers’ unions! 

What is likely to be taken into account by the markets is the capacity to contain turmoil and maintain the level of fiscal revenue. At a time where Italy is coming back to a more reasonable budget, France is becoming the “sick man of Europe”... By the way, a study by Natixis shows that France can default on its debt because fiscal pressure is at a maximum and it cannot print any money, since this power is now into the hands of the European Central Bank since the creation of the euro. This study should be taken as a warning. 

Is France a future Greece? Will the Louvre Museum be sold to an investment fund, like Greek islands archeological sites? Maybe sooner than we think...