France: The impossibility of a democratic compromise with capital

The failure of the Barnier government is above all the failure of an attempt to manage the internal contradictions of capital within a parliamentary framework. With the appointment of the former European commissioner as prime minister in the French cabinet, Emmanuel Macron tried to create a bloc capable of achieving a compromise within French capital. This compromise has failed.

Of course, the starting point of this whole affair is the disaster inherited from the management of Bruno Le Maire (former Minister of Economy, Finance and Industrial Sovereignty) in Bercy and, more generally, by the neoliberal policy implemented by Emmanuel Macron since 2017. By massively reducing taxes for companies and owners of capital, but also by heavily subsidizing a large part of the productive sector in France, this policy aimed to stimulate a new round of economic growth.

The opposite has happened. Growth has slowed considerably over five years. It is true that the figures were rosy for a while compared to those of some of our neighbors, but that was only because production was being massively subsidized. The underlying productive base was in ruins, and the collapse of French productivity after the crisis of Covid was a clear symptom of this. Logically, tax revenues were not keeping pace with growth because this growth had been propped up by policies to support capital.

Faced with such a situation, two camps formed within French capitalism. On the one hand, the productive sectors became highly dependent on tax cuts and subsidies, i.e., on the state budget. In the absence of productivity growth and the lack of drivers of export growth (French capitalism focuses mainly on domestic demand), this is the only way for them to make profits in the short term.

On the other hand, there are the financial circles which, deprived after the COVID-19 crisis of the unconditional support of the central banks, are once again seeking guarantees for their investments and are demanding a return to market discipline.  These interests are also under pressure from weak growth. Without it, yields are bound to be lower and governments more fragile. That is why the financial world is demanding rapid fiscal consolidation, even if it means raising some corporate taxes and cutting subsidies. Of course, they are not demanding a repeal of the 2018 capital tax reform, which directly benefits them.

This division within capital is not unique to France; it is spreading throughout global capitalism. The first symptom was the fall of Prime Minister Liz Truss in the UK during September of 2022, who was dragged down by a mini-debt crisis after wanting to cut corporate taxes again. Since then, however, the financial sector, which is extremely powerful and has great influence on public opinion given the financialization of economies, has organized around a libertarian movement that has won elections in Argentina and the United States.

Our low-growth capitalism thus produces internal tensions in capital. If growth is weak, one sector gains at the expense of another. It is a zero-sum game in which everyone tries to take advantage. In this context, it is very difficult to reach compromises, as no one is willing to give ground because there is little room for maneuver. The state thus becomes a battleground for these interests, to which we must add a third actor, the working class.

What policies are possible?

What are the options in such a scenario? In theory, there are three. The first is for the world of labor to oppose capital head-on by applying a policy of raising taxes on the two warring factions in the hope that this will bring about a recovery in public finances capable of calming the financial markets. In reality, this option implies going further insofar as, under capitalism, labor is dominated by capital.

The risk of a counter-offensive in the form of a double financial and economic crisis forces a policy of transformation, i.e. to build a society in which capital can be dispensed with. This position is not the order of the day.

The second option attempts to circumvent the difficulty of the first by organizing an alliance between the world of labor, or a majority part of it, and one of the factions of capital against the other faction. Broadly speaking, it would be a matter of preserving a part of social protection in exchange for an increase in taxes on companies or financial capital. The difficulty here is partly the same as in the previous one: the economic situation is so tense that a response from the faction of capital targeted by these measures could provoke a crisis.

The last option is to construct a compromise between the factions of capital to preserve the interests of both groups by making labor pay through the destruction of the welfare state and the introduction of new structural reforms. This is the ideal option for capital. Productive capital maintains its access to public money and, with austerity, sees the possibility of reducing the cost of labor and gaining access to new sectors ceded by the state to privatization. On the other hand, financial capital sees its investments guaranteed (due to the reduction of the deficit produced by the destruction of the welfare state) and its fiscal advantages preserved.

Naturally, this was the option that Emmanuel Macron tried to promote with the appointment of Michel Barnier. But his task has been complicated by the political situation. The problem with the internal compromise option for capital is that it is devastating for society. In a democratic context, and even more so in the French context, it is politically difficult to implement, despite the constant media hype in favor of austerity.

The French have flatly rejected Emmanuel Macron’s policies and are demanding stronger public services and more decent wages. True, they do not agree on how to achieve this, but violent austerity in favor of capital has no support in society.

Logically, opposition parties wishing to come to power could not accept this internal compromise with capital without losing all credibility with the electorate. Thus, attempts to add the Socialists or the extreme right (Rassemblement National) to this option were doomed to failure. Michel Barnier quickly realized this and tried to build a fourth way: the one that would consist in buying the right to austerity by granting some fiscal reforms.

This strategy was halfway between an internal compromise within capital and a compromise between a faction of capital, in this case finance capital, and the world of labor. Tax hikes affecting the productive sector were reduced, and major cuts in public spending were justified. The aim was to build a political majority in favor of austerity. The Finance Act 2025, which did not have a parliamentary majority as of this publication, is the product of this attempt.

But it meant underestimating the real predicament of French capitalism. As has been said, in a zero-sum game, compromise is impossible. The opposition could not accept austerity in exchange for temporary tax hikes that would preserve most of the gains made by capital since 2017. But, for its part, capital could not accept any concessions, given its situation, as we have seen.

For the past two months, the French employers’ association, the Medef, has been crying foul over the few tax hikes being proposed, while finance capital has been pressing on the interest rate market for a drastic reduction in the deficit. Politically, this was reflected in the bad mood of the Macronist camp and its lack of enthusiasm to support the executive.

Budgeting then became an impossible puzzle to solve: any concession on one side led to an imbalance that made the government lose its majority or the confidence of the markets. Michel Barnier’s announced fall from grace is a clear sign of the impossibility of resolving this situation in a parliamentary and democratic framework.

The impossible democratic outcome

The conclusion to be drawn from this affair is obvious. First of all, in the current economic situation, capital is not prepared to accept any concession to the world of labor and the welfare state. Its demand is violent austerity, the only way to maintain the flow of money from the state to productive capital while preserving the interests of finance capital.

Secondly, there is no political majority in favor of such a policy in the current context. This is an important point: no opposition party has an interest in keeping Michel Barnier in Matignon (the Prime Minister’s headquarters) at the cost of losing credibility before the next presidential elections. This has nothing to do with future policies. There is no doubt that the Rassemblement National (or a part of the center-left) is willing to carry out the policies demanded by capital. But what is at stake for capital is to guarantee the possibility of regaining power. To support such an austerity policy before the presidential elections would be suicidal.

From the point of view of capital, things are becoming clearer and clearer. Since social austerity is the only acceptable option for them and society does not want it, it must be imposed in spite of society. In other words, the only possible policy is an authoritarian policy.

The current political crisis in France reflects this fact: democracy and parliamentarism are becoming obstacles for French capitalism. Of course, this phenomenon is not new; it is the product of a long process in which, during Emmanuel Macron’s two five-year terms in power, authoritarianism in the service of capital has not ceased to grow. But as 2024 draws to a close, there can be no more doubts.

There are two possible outcomes. Either a de facto suspension of democratic institutions, as happened during the Eurozone debt crisis in several countries between 2010 and 2015. In this case, the outcome of the elections is irrelevant; the pressure of the financial markets drives the political forces to align around the policy desired by capital. A technical government or a government of national unity could assume this option. But the Left can also play this role if necessary, as in Greece in 2015 or in Sri Lanka today.

The second option is that of the extreme right. In this case, austerity hides behind a policy of repression against minorities. In the current zero-sum game, a part of the world of labor can join the option favored by capital with the only advantage of seeing a part of society treated worse than itself.

The current cultural and political context makes this option a possibility for France, and a part of capital can join it. Let us recall that during the legislative campaign in June, the president of the NR, Jordan Bardella, prepared the ground with his “audit of public finances” prior to any severe austerity policy, which he now intends to reject.

The French context is not isolated. It confirms that the current situation is putting an end to the illusion that capitalism and democracy are inseparable. On the contrary, the challenge is now to become aware of the impasse to which the interests of capital are leading and to understand that the defense of the rule of law and freedoms requires fighting for a far-reaching economic and social transformation.

Translated from Spanish by Thomas Hummel.

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Featured Image Credits: Photo byToufik de Planaise