France just lost its 5th prime minister in three years. What the heck is going on over there? Today, I decided to find out…

Another Government Falls

Prime Minister Sébastien Lecornu resigned today after several parties threatened a no confidence vote. That vote would’ve required Lecornu to resign.

The major parties can’t agree on a budget. The left wants more generous pensions and a wealth tax. The center and right support less spending and lower taxes. 

A Nation Drowning in Debt

Behind all this political fighting is a country that’s deeply in debt. 

French government spending accounts for 57% of GDP. Its budget deficit and debt to GDP ratios are among the highest in the EU.

After Lecornu’s resignation, French stocks are down and bond yields are up. Markets are telling us that France looks like a shaky bet.  

How long can the government spend a majority of the country’s output?

A Deteriorating Economy

France’s economy is struggling, making it hard to pay all that debt. 

Its unemployment rate is over 7%. Youth unemployment is 18%. 

Those rates are much higher than in America. Our overall and youth unemployment rates are 4.3% and 10.5% respectively. 

France isn’t growing because it isn’t innovating.

Of the top companies in the world by market cap, France doesn’t appear until #37, with LVMH. And in AI, France is lagging. Mistral, its only significant AI company, is way behind OpenAI, Anthropic and xAI. 

Is America Next?

In America too, debt is leading to political upheaval. Right now, the government is shut down as Congress fights over health spending.

We don’t spend as much as France, but spending still hit 40% of GDP last year. Our debt to GDP ratio is even higher than that of France.

But America has huge advantages that make our debt more manageable.

It’s easier for our government to cut spending. The two party system means we don’t need to form coalition governments. We also don’t have no confidence votes.

Most importantly, we innovate. Innovation can help us grow out of our debt.

19 out of the top 25 largest companies in the world are American. So are almost all the top AI labs, along with SpaceX and Neuralink.

We need to reduce our spending, no question. But a strong economy makes handling this debt much easier. 

Wrap-Up

France is looking at a bleak future. It’s deeply in debt and isn’t innovating enough to grow its way out.

There’s only one way to fix France: cut spending. Stop letting the government suck up the entire economy. 

If France can’t do that, it will continue to cycle through governments. Nothing will really change.

And every year, it will get a little poorer. 

P.S. Thanks for bearing with me last week as I was on vacation. New Orleans was wonderful! Glad to be back. 

More on politics:

Why the EU Breaking Encryption Is a Threat to the World

Why Businesses Should Leave NYC Now

The Coming Robot War with China

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