The French crisis, which is currently erupting in violent protests, has deep roots. However, one need not go back as far as the time of the Great Revolution to understand why the country is so angry and agitated. France’s peculiar role in Europe – within the European community of nations and the monetary union of the last 50 years – is more than enough to explain the frustration.

No one wanted Europe and the EMU more than France – or rather, the leading figures in French politics. Anyone old enough will still remember the passionate debates that took place ahead of the French referendum on monetary union in 1992 – with valid arguments on both sides. Back then, as has almost always been the case since the Second World War, the position that ultimately prevailed was the one insisting that, if France was to be successful in the long term, it had to integrate its great rival across the Rhine and also keep it in check institutionally.

That was, and remains, the crucial mistake: achieving economic and social success would not have been easy without Germany. With Germany, however, it was impossible.

François Mitterrand’s failed coup

But first, there was a French attempt at independence. The first time a left-wing politician had won the French presidency, in 1981, seemed the golden opportunity to show the Germans that there were indeed alternatives to their policies. Mitterrand and his supporters were determined to tackle head-on the unemployment that had gripped the major European powers in the 1970s and 1980s for the first time since the Second World War. Whilst, at the same time, Helmut Kohl, Margaret Thatcher and Ronald Reagan were calling for a counter-revolution, the French drew on the teachings of John Maynard Keynes and attempted to stimulate their economy through higher public deficits.

What Mitterrand and his team had failed to take into account was that France already had a large current account deficit at the time, and the markets grew nervous as soon as the expansionary policy threatened to widen the deficit even further. The franc was overvalued because, despite relatively high inflation, France repeatedly attempted to align itself with the Deutschmark as the leading European currency.

The Keynesian experiment ended in speculation on a devaluation of the franc and a complete U-turn in economic policy, which now sought to secure a firm place alongside the Deutschmark through wage discipline – a goal it achieved towards the end of the decade.

Monetary union, the unknown entity

Having weathered the 1992 currency crisis more successfully than other major countries and maintained a fixed exchange rate against the Deutschmark, all French efforts were directed towards firmly anchoring European integration in the field of monetary and financial policy as quickly as possible. The European Monetary Union (EMU) became the major – and virtually the only – French objective of the 1990s. German reunification had once again shifted the balance of power in Germany’s favour, and in the view of many French people and French politicians, this could only be counterbalanced by a new institutional framework that would shift power from Berlin, at least in part, to Brussels and Frankfurt.

What, I am quite sure, none of those in charge in France understood was this: monetary union could only have achieved this if, at the same time, they had managed to rid the Germans of their phobia of inflation and their completely irrational approach to public debt. They would have had to discuss the crucial question, namely on the basis of which theory of inflation the European monetary system should be built. But how could one have discussed that with Theo Waigel?

Hans Tietmeyer, too – the leading figure on the German side – would have rejected such a proposal out of hand and said that they were working on the tried-and-tested theoretical basis that had been continuously developed and improved at the Deutsche Bundesbank since the end of the Bretton Woods system. Everyone would have had to fall in line with this, as there was no other widely recognised theoretical basis. After all, it was the Bundesbank that had ensured price stability and a strong currency in such a way that many European countries had decided to follow precisely this path.

It is difficult to contradict this, and indeed no French civil servant or politician has attempted to do so. Accepting this, however, spells the end of any hope for a monetary union that not only creates a single currency but also opens up the opportunity to pursue a different and better monetary policy. Without a mandate like that of the US Federal Reserve, where employment and inflation are equally important objectives, it is impossible to successfully manage a monetary union committed to a large, largely closed economy. It should have been clear to all parties involved from the outset that the models of small, open economies were no longer suitable within the EMU. Yet precisely this was never seriously discussed.

If one adds to this the fact that, at the eleventh hour of the negotiations, the German side also managed to push through the Stability and Growth Pact – because it blamed public debt for inflation – one can only conclude that the Maastricht negotiations ended in a complete victory for the German -Dutch side, and that France and the southern countries were forced to adapt to an economic and fiscal policy regime that had never been successful in the past.

And then there was German mercantilism

So it came to pass as it was bound to. There was no talk of European economic and monetary policy in the early years of the monetary union. Consequently, at the first opportunity, the largest Member State resorted to the tried-and-tested concept of small open economies, which holds that you must improve your competitiveness if you find yourself in economic difficulties.

Gerhard Schröder put into practice the ideas of German business, which knows full well that the only way to recover from a crisis is by improving competitiveness. So, in the newly launched monetary union, this business-friendly Social Democrat ensured that the most important principle governing a monetary union and a single market was thoroughly trampled underfoot. It would go beyond the scope of this article for me to attempt to explain this here; I have done it many times, see for example this piece.

France put up virtually no resistance. Christine Lagarde, as French Finance Minister, once made a critical remark; Jean-Claude Jucker, as Commission President, grumbled a little, but there was no real opposition. The Commission, as guardian of the Treaties, failed in a historically unprecedented manner. The German press stood united against any attempt to criticise the Agenda policy for what it was: the greatest conceivable disaster in the fledgling monetary union and a relapse into mercantilism, which also turned the European single market into a farce. And German politicians were firmly united in the belief that they had finally achieved a genuine breakthrough in terms of economic growth.

At that moment, France gave up on itself. France capitulated unconditionally.

What could France have done? France should have recalled its revolutionary past and taken to the barricades. It should have denounced Germany in the European public arena. It should have threatened to withdraw from the EMU and the EU. It should have forged coalitions with the southern countries, all with the aim of branding Germany as the greatest ‘non-European’. There is no question that this would have been a strategy fraught with considerable risks. But those who shy away from risk have lost from the outset. All French presidents preferred to produce glossy images of Franco-German friendship rituals rather than step into the ring against the great adversary.

The fiscal consequences remain enormous to this day

As has often been explained here, a country with a current account surplus can exercise restraint in terms of government borrowing. Because foreign countries shoulder a large part of the unavoidable debt (as explained in principle in this article), the state can afford to consolidate its budget. This is precisely what Germany did in the 2010s (Schäuble’s ‘black zero’) and thereby ‘showed’ the other Europeans how to manage the economy successfully whilst keeping public debt within limits – even if this was at the expense of its neighbours.

France was unable to do anything of the sort. Ever since the start of Germany’s real devaluation and wage dumping, it has run current account deficits that necessitated additional government borrowing if it was not to let economic development spiral out of control. France lost massive market share in Europe and the rest of the world to Germany. Consequently, for the past 20 years, German mercantilism has prevented France from taking the state measures necessary to satisfy the country and its people. Instead, there have been a succession of new austerity measures and reforms, which have fuelled growing general discontent.

Overall, one must conclude that France has suffered a colossal intellectual and political failure over the past 50 years. The French economists who accompanied this process were all in over their heads. The bureaucracy was riddled with the famous ‘Enarques’, who knew everything but understood nothing. The politicians were at least as naïve as their German counterparts and utterly incapable of understanding the challenges that Germany posed for their country. Macron, the most recent president, did have a few moments of clarity, but did not really know why he had become president.

It is therefore not surprising that a great deal of anger and frustration has built up. I fear, however, that there will continue to be no figures on either the right or the left of the political spectrum capable of leading the country out of this predicament.