L’History, they say, never repeats itself. It is hardly debatable. On the other hand, it is not only the past, and its knowledge sometimes makes it possible to foresee storms coming, because the solutions to a given question are not as varied or new as one might think. It is therefore useful to know how the state once solved its deficit and debt problems, the big questions of the day and of the years to come.
Basically, there are not thirty-six solutions: reduction of expenses, increase in taxes, spoliation of creditors and sale of what can be. And never, oh never, will these solutions be painless for taxpayers and citizens.
We often cite the example of the bankruptcy of the end of the reign of Louis XVI, which led to the Revolution, or that of the Directory, where the capital of the debts was authoritatively reduced by two thirds, what remained was only reimbursed in an annuity at 5% – i.e. at least twenty years of patience for the creditors.
We have, however, forgotten the episode which saw the Minister of Finance of the first Restoration (1814-1815) administer a horse remedy to a France crippled by debts, following the events which marked the end of Napoleon’s reign. By replacing the words of yesterday with those of today, we can identify inescapable paths that today’s rulers will one day be obliged to follow – whether they like it or not.
The first lesson understood by the government of Louis XVIII is that the longer we wait to tackle the issues of debt and deficit, the more the potion becomes bitter. In short, it is better to make a little effort when there is still time than to be forced to make the most cruel sacrifices when it is too late.
Assignats, “magic money”
France and its public debt is an old story. The poor performance of the finances brought down the Old Regime, without the question being resolved. To wipe the slate clean, the revolutionaries created “magic money” – the assignats –, confiscated and resold the properties of the “hyperrich” – clergy and nobility –, multiplied loans and unpaid bills.
At the same time, suffocated by the interest on its debt, the state was no longer doing its job, except in military matters, because war was at our doorstep. The debt was increased in four years to the staggering sum of more than 3 billion francs at the time, or five to six years of tax revenue. The Directory (1795-1799) only got away with it by purely and simply despoiling its creditors, as has been said. Nevertheless, this painful solution – often the only one, to tell the truth – allowed the State to regain its budgetary colors. Napoleon benefited from this and, until the turning point of his reign, around 1811, knew how to manage public finances like a good father.
READ ALSOBruno Le Maire sounds the tocsin on public spendingEverything went wrong in the following years. Deficits and debts were back under the blows of an economic crisis that no one had seen coming – bursting of a housing bubble, falling production, unemployment and, to make matters worse, bad harvests – and the Russian countryside (1812) who ate men and credits.
When Napoleon fell in May 1814, the state coffers were empty, the arrears amounted to around 670 million francs and future expenditure to nearly 500 million. The total, short-term need was more than two years of revenue. The GDP of the time is estimated at 10 to 15 billion – with a large margin of error. The debt was therefore equivalent to something like 10 to 15% of the GDP, which, at the time, was properly scandalous.
Sale of 300,000 hectares of wood
For Louis XVIII, restored in May, it was out of the question not to honor the word of the State, had it been given by a “usurper”, and even less to increase taxes – we did not yet say levies mandatory, around 15% too. His government decreed a veritable purge designed and implemented by the Minister of Finance, the State Councilor and Baron of the Empire Joseph-Dominique Louis (1755-1837).
They began with a few expedients – confiscation of Napoleon’s personal money, stopping work on the fortifications or the purchase of military supplies. They made it possible to hold on for the first few weeks. For the medium term, all that remained was to increase revenue and reduce expenditure.
These crucial choices were made without tact and… by renouncing to keep the promises constantly repeated by the royalists in exile, the main one of which was the total abolition of indirect contributions. As they represented more than 20% of revenue, it would have been suicidal to do without them. The promise was therefore not kept. Note, however, that Baron Louis did not create new taxes and did not increase the rate of those that existed.
Then the merry minister decided to sell 300,000 hectares of wood confiscated from the clergy and not sold since the Revolution. This measure made it possible to repay creditors without waiting for actual sales, by giving them paper based on a value – wood, land – which was not at risk of depreciating. Louis was able to rub his hands: 562 million were entered in the state revenue column following the sale of the “family jewels.”
READ ALSOWaiting for the…debt crisisThe minister quickly prepared a “savings package” to bring expenditure into revenue. In this field, his offices achieved a remarkable but terribly awkward work. For the first time, technocracy imposed decisions on politicians. The budget for 1814 was sharply cut by almost 25% of its expenditure. The army and the navy were the first victims: military expenditure rose from 816 to 516 million francs in 1814; the draft budget of 1815 fixed them at 251 millions.
Tens of thousands of jobs were cut and, if that wasn’t enough, balances weren’t paid. The logic was implacable: a peaceful regime, the monarchy no longer needed to keep hundreds of thousands of men under arms or to pursue, on the same scale, plans to reconstitute the fleet.
Big clouds of discontent
Even alerted by the king’s most far-sighted advisers, the minister remained “straight in his boots”, if one dares to say. He maintained his decision to eliminate a little more than one out of two military posts, a formula that reminds us of something… under the presidency of Nicolas Sarkozy. As of May 12, 1814, an ordinance ordered the return to their homes of approximately 200,000 soldiers, including 10,000 to 12,000 officers placed on half pay. The measure was subsequently amplified.
Other victims, more consenting, the communes were invited to hand over to the State the debts which it had contracted with them “during the last military events”, in particular for advances in cash or in kind to the troops stationed there. The arrears passed from the national budget to that of the municipalities, which reminds us something of the current situation. Air known: the transfer of the loads was not accompanied by that of the resources, even if one must underline that in the case which interests us, the State consented to make, for its part, real and palpable economies.
READ ALSOThe debt of the selfishWith this plan, the government hoped to reach a balanced budget – and even a slight surplus – by the end of 1815, the greater part of the public debt still being neutralized by annuity securities. Technically, Baron Louis’ work was perfect. Yet it carried big clouds by the discontent it caused and spread throughout the territory and all layers of the population: “war of the innkeepers against the government” – the word is from Minister Beugnot, that government solidarity did not stifle hardly –; grumbles against indirect contributions; addition of individual despair with the elimination of tens of thousands of public jobs; vexation of the army; fantasies fanned by the press about court expenses; propaganda of the oppositions on the unfair distribution of the efforts and on the idea that the budgetary restrictions did not apply to the wealthy ones of the clergy and the nobility supposedly advantaged by the Bourbons.
By giving free rein to a technocratic Minister of Finance to whom, according to the politician Prosper de Barante, “good and evil only appeared in their relationship with the useful”, the king took the risk of dissatisfying all the world. The accounting and financial decisions set in motion the process that was to discredit the regime in public opinion and favor, a year later, Napoleon’s return from the island of Elba.
After Waterloo, the public debt suddenly increased by nearly two billion. But this time, the Restoration gave itself time to repay it and Baron Louis was invited to resume his place on the Council of State.