Before the crisis the deficits were 3 of GDP

A revolution looks in France for the next decade. The magnitude of the debt due to the current crisis will force "nolens volens" France to radically reverse its budgetary policy (finished the decades of large recurrent deficits) and to massively reduce its expenditures as since 1945.

Severe recessions typically push public debt into the stratosphere in five or six years. Carmen Reinhart (University of Maryland) and Ken Rogoff (Harvard University) in "the aftermath of Financial Crises", come to measure the impact on the public debt in fifteen similar historical crises: on average, the amount of the debt, in constant currency, increases 86! For us, given the growth and inflation, this implies that the public debt to GDP ratio would be multiplied by 1.6 after the crisis. Exactly what happened in France with the recession of 1993, which catapulted the French debt of 36 (in 1991) to 59 of GDP (in 1997). Today, this would imply a public debt to 100 of GDP to 2013, whereas the Ministry of Finance provides 78 in 2012 and the IMF 90 in 2014.

From such public debt, the France will have to engage in a credible and sustainable debt path. This is what I call the revolution (in the astronomical sense) of debt. We will not be able to return to the "business as usual", which in this case meant an average deficit of 3 of GDP (you are watching over the last thirty or ten years), otherwise the French debt investors ask more and more high risk premiums. Above all, there is risk of serious crisis with the Germans. Very attached to the stability of prices, our neighbours want to absolutely avoid monetization of debt and want to bring the very public debt below 60. Without revolution, they think that explosive trajectory of the French debt would threaten the very existence of the euro area, the France likely to ask for inflation to erase its debt. Some calculations indicate that, to return to pre-crisis public debt (60 of GDP), should be a close budget balance, say an average deficit of 0.5 of GDP for ten to fifteen years. Before the crisis, the deficits were 3 of GDP. After that, they will be 0.5 of GDP.

How to perform this revolution The answer is suggested by the behavioral economics. Richard Thaler (University of Chicago) and Shlomo Benartzi (Ucla), in "save More tomorrow, using behavioral Economics to Increase Employee Saving", the "Journal of Political Economy" 2004, show that American workers have suboptimal (for them) decisions in their effort to retirement savings: they are not saving enough. Experiments in support, they show that an effective and robust rule is to commit in advance to allocate part of its future increase in wealth for retirement savings. The behavioral economics tells us a good one: engage today, credibly and irreversible, to make the effort of saving (i. e. of reducing deficits) in the future. Everyone has had time to integrate this future constraint, it will appear normal and acceptable when it will happen. The Germans come to opt for such a strategy: Socialists (SPD) and right (CDU) fell by agreement, from 2011, the deficit of the Federal State (excluding the effect of the economic cycle) is more than not (excluding exceptional circumstances) 0.35 of GDP (the SPD wanted to 0.75 and the CDU 0). This rule will be enshrined in the Constitution after the elections in September.

In France, we cannot avoid the revolution of the debt. Even if the tax increase, the bulk of the deficit reduction will come from spending cuts. As of 2009, the Government should commit to drastically reduce public deficits to the out of the crisis. It is much easier politically to commit now to drastically reduce some expenses in five years to reduce a little the next year. An announcement of an increase to 65 years in the retirement age to 2015 (by population) would already reduce the deficits of 0.5 of GDP.

In the Netherlands, at the same time as the Government presented a recovery plan of 4.5 of GDP in 2009, he announced a postponement of the retirement age to 67 years by 2020. In addition, the Government should as early as 2009 identify the 2 points of GDP to public spending (i.e. 10 of the budget) participant less than economic efficiency or social justice, then announce that these expenditures will be eliminated, credibly and verifiable, in five years. For democratic debate, trade unions and opposition parties should offer their list of the 10 of the expenditure to delete in five years. We can be strong disagreement on spending to reduce, but consensus would be desirable on the magnitude of the reductions. The revolution of the debt is running.