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It seems that the Asian AI bubble has burst. It all started in South Korea with the KOSPI stock market index plunging over 8% on 15 October. That just added to a huge fall in the Korean index of 41% from a peak of the Korean AI investment boom last June. The share prices of the two large Korean tech companies, SK Hynix and the mega Samsung Electronics, fell over 10% on that one day.
Now the bursting of the bubble has spread to China. The STAR50 stock index, tracking key AI and chip firms, has dropped 40% since its July high, while the broader CSI 300 entered bear market territory after a 20% fall from June. When placed alongside Seoul’s $900 billion seven-day wipeout on October 15, nearly $1.4 trillion in ‘fictitious capital’ has been vaporised across the East Asian hardware supply chain in October alone. By fictitious capital, Marx meant the market value of stocks and bonds, which are claims on the value of real assets like machinery, software and components etc that companies have. It’s fictitious because it can be way out of line with the real value of assets owned and employed by companies to make profits.
In Asia, it has been retail investors (that’s households) who have been pitching into the stock market. Household savings rates are high, especially in China, and the previous investor boom in Chinese real estate collapsed years ago. Buying AI stock is the latest craze to make a fortune. But now it seems that investors have decided that the price of investment in AI-driven Asian companies is well over the top.
SK Hynix and Samsung are key companies that supply the semi-conductor chips required to run advanced AI accelerators and data centres. For the past two years, Samsung and SK Hynix appeared to be making huge profits on chip sales exploiting extreme global demand for chips from cash-rich US tech monopolies badly needing more server memory for their AI projects. But these super profits now appear in jeopardy, especially after China’s CXMT unveiled a data centre server memory dramatically reducing the cost of chips. Korean stock market investors saw the writing on the wall – no more super profits.
CXMT’s break into the Korean share of the chip market doubled its global DRAM market share from 4% to 10% year-on-year in Q2 2026). But that had its own consequences for the Chinese stock market. Chinese and Asian AI labs have shifted towards so-called “open-weight” models (free to use). Falling chip costs has also meant falling prices for AI companies in China, where the competition has been intense. Capital had flooded so much into chip design, memory, and robotics that profit margins are disappearing.
So China’s speculative investors have got worried and CXMT itself has lost more than 25% of its stock market value. According to Goldman Sachs, AI-related stocks had swollen to 42% of China’s total equity market capitalisation and 57% of total trading turnover across China mainland A-shares and Hong Kong H-shares. Even after losing 40.4% of its value, the STAR 50 still trades at roughly 100 times trailing earnings (down from nearly 250x at its June/July peak), more than triple the US Nasdaq tech stock index.
As commentator Saad Zaidi explained, China’s rapid horizontal replication of AI hardware capacity has compressed profit margins across the entire East Asian supply chain, with loss of pricing power amid overcapacity. Caught in a pincer movement between faltering returns on downstream AI capital expenditure on one side, and China’s state-directed tech industry lowering profit margins on the other, the speculative bubble in East Asian hardware is visibly fracturing.
As Zaidi says, this follows Marx’s law of profitability, namely that any rapid rise in investment in technology will eventually weigh down profitability, unless it drastically raises the productivity of living labour across the wider economy. And so far, as I have shown before, total factor productivity (economic gains from AI innovation) have hardly risen. “The market is now waking up to the reality that upstream hardware valuations cannot stay detached from downstream profitability forever.” (Zaidi)
As I have shown before, this AI mania mirrors that of the 19th century investment in burgeoning railway technology. Then, railways were also seen as a powerful new technology that could transform transport and travel, and so boost productivity. This led to massive speculation in railway shares as company after company launched new rail lines across Britain during the 1840s and in the US in the 1870s. Eventually, investor concerns about overcapacity rail projects, along with increasing distrust of railroad securities, triggered crashes.
In the UK, the mania reached its zenith in the 1840s. Marx noted then that, “in the railway swindle from summer 1844, railway investors apparently expected much higher than the average profit rate.” Marx called it the ‘great railway swindle’ to emphasise that the claims made by the railway companies for huge profits to be made were deliberately overstated (shades of US AI companies now). Investors naïvely poured capital into schemes that were significantly less profitable than they expected and and rail company directors had promised.
The question now is whether investor fears about overinvestment and declining prospects for profits from AI will spread to the heart of the AI mania: the US. Competition from China’s free or very cheap to use and every improving AI models is eating into the potential profits of the US AI labs, OpenAI and Anthropic. All top five most popular models are now Chinese and, according to a WSJ report published last week, “approximately 45% of all tracked tokens now flow through Chinese models.”
As Torsten Slok at Apollo Capital has pointed out, despite massive investments and widespread hype around artificial intelligence, the technology has delivered zero financial payoff to corporate America outside of tech. “The bottom line is that the AI story will be decided in the S&P 493, not the Mag 7, and so far, there is no evidence that revenue growth or margins are improving outside the tech sector.”
And the profitability of the mega hyperscalers that are driving AI investment has been falling: in return for over a trillion dollars of capital expenditures they have seen their return on invested capital drop on a quarterly basis.
And there are signs that the US AI investor bubble may be leaking. Yesterday, the Alphabet (Google) share price fell 10% after it boosted its AI spending to more than $50bn in the third quarter, leading to a record ‘cash burn’ that spooked investors. Free cash flow (ie money available to invest) fell to minus $9.1bn in September compared to minus $5.9bn in the prior quarter. To back its spending spree, Alphabet has taken on tens of billions in debt and in June announced plans to raise about $85bn in its first share sale in more than two decades — a sharp reversal after years of buying back its own shares.
But the big test is coming: Anthropic is about to release shares to the public in order to raise $150bn, making the company’s market value equivalent to $1.5trn – a truly staggering market value for a company that makes no profit yet. As Anthropic put it in the prospectus to potential share holders:“We are at an early stage of our revenue growth, we have experienced rapid growth in recent periods, and our historical growth rates are not indicative of future performance or our ability to sustain or forecast future revenue growth. We do not expect our revenue will continue to grow at comparable rates, and we cannot assure you that it will continue to grow at all.”!It’s one big bet.
So, House Judiciary Democrats dropped a new 52-page staff report on the Epstein files this week - and I finally got through it.
The report lays out what they call "the case against Donald Trump emerging in the Epstein files and DOJ's desperate efforts to cover it up."
They're calling for an independent special counsel to dig into Epstein's co-conspirators and the DOJ's cover-up. They also say Trump's attorney general may have committed "criminal obstruction of justice."
The report accuses Trump of being "an active participant" in Jeffrey Epstein's abuse of young women and girls in the '90s. It also accuses the DOJ of covering it up.
It details new claims from Beatrice Keul, a former Swiss pageant contestant. She told committee staff that Trump raped her at New York's Plaza Hotel in 1993, and she called the assault "brutal."
The report also cites an FBI search that tied Trump and Epstein to a 2007 "exploitation of minors" case number. A whistleblower says documents linked to that case are being withheld.
It also points to a 2009 document that the DOJ blacked out. In it, Trump reportedly said Epstein was "never asked to leave" Mar-a-Lago. That contradicts his long-running claim that he kicked Epstein out.
There's a lot of other stuff in the report - and it also sheds new light on a rumor that won't die about how Donald Trump met his third wife.
Every love story has a "how we met" moment, and the Trumps' story starts in a model apartment on Varick Street in NYC.
I've written about Paolo Zampolli before - but if you're new here, he was an Italian modeling agent in the '90s. He put the young women he brought to New York in that apartment, and he's been in the Epstein and Trump orbit for decades.
The new report says one of those women was a Slovenian model named Melania Knauss.
Another was a 19-year-old Polish model who later went to work for Jeffrey Epstein. A third was an 18-year-old who told the FBI that Epstein raped her when she went to his house to give a massage.
All three women had the same agent, and they all lived at the same address.
The report also covers five women who say Trump raped or sexually assaulted them while Epstein was around - and that's what the press has focused on, as it should.
But there's a part on pages 11 to 14 that almost nobody is talking about. The story of how the President met his wife now has two possible matchmakers, and both of them show up in a congressional report about sex trafficking.
You've probably heard the first version.
Zampolli says he introduced Donald and Melania at a party he threw at the Kit Kat Club in September 1998. Melania tells the same story in her 2024 book. In April, she told reporters that Epstein didn't introduce her to her husband and that they met by chance at a party. Zampolli backed her up and said he'd tell Congress the same thing under oath.
The FBI has a different version.
In 2019, a woman who used to work for Epstein told the FBI that Epstein introduced Melania to Donald. That same FBI file says Zampolli was trying to buy a big modeling agency called Elite with Epstein. That part's true, by the way. In 2004, the two men teamed up to try to buy Elite's New York office, but the deal fell through.
Anyway - my biggest takeaway about Epstein introducing Melania to Trump is - if true - there’s a very good chance that he was gifting her to him. Extrapolate what you will from that.
The report says Epstein used to stop by Zampolli's agency when models were trying out for jobs. He'd flip through their photo books and look at pictures of girls in swimsuit bottoms. Which sounds like he was flipping through a to-go menu.
The report also says Zampolli had an affair with the 19-year-old model he'd signed before she went to work for Epstein. The DOJ blacked out that line before it released the file.
You might recall that Zampolli worked for the Trump administration at the time, so the DOJ was hiding a detail about one of its own guys. Democrats now say Zampolli and Trump "may have been co-conspirators," which means they may have helped Epstein commit his crimes.
Zampolli's name also comes up five years before the Kit Kat Club party.
Remember Beatrice Keul? She told congressional staff that at that 1993 pageant, Trump promised her a visa and said his friend "Paolo" would handle it.
A few minutes later, she says, Epstein walked up and called himself "Don's best friend." That's the same day she says Trump raped her in a suite at the Plaza.
Then there's Amanda Ungaro.
She was Zampolli's partner for almost 20 years, and they have a son together. She also says Epstein was the one who introduced the Trumps.
You might remember her name - cause she doesn't live in the U.S. anymore. The NYT reported that Ungaro was arrested in Miami on fraud charges last year, and then Zampolli contacted a top ICE official about her case. ICE picked her up before she could post bail, and the government sent her back to Brazil. Zampolli says he never asked ICE to do that. DHS says she was deported because her visa had run out.
The Trumps have kept Zampolli close for 30 years. The report says Trump put him on the Kennedy Center board because Melania asked him to.
Then last year, Trump gave him a job as a special envoy, which is kind of like a traveling ambassador. Zampolli flew all over the world on the taxpayers' dime, and he even went to Hungary with VP JD Vance.
Last month, a young Republican model sued him and said he drugged and raped her in 2023. On Oct. 15, after a nasty email fight with a top State Department official, he got fired.
That happened just 11 days before this report came out. Zampolli didn't seem too upset about it. "President Trump changed my life once," he said. "He just did it again."
But who knows how this will all play out now. If Dems win the midterms - I expect they will call Zampolli in for a little chat.
When Trump ran in 2024, he told people he'd release the Epstein files. Instead, he made his old defense lawyer, Todd Blanche, the AG. Blanche interviewed Ghislaine Maxwell, Epstein's partner in crime, and he stopped her three times when she started talking about a girl who had connected Trump to Epstein. And Blanche's DOJ blacked out an FBI file to protect a guy the White House fired anyway.
I'm hoping more people will finally have the same "aha" moment I had right after I graduated high school. That's when I walked into a bar and saw my high school crush making out with another guy.
I’d heard a rumor or two while we were still in school - but I dismissed them because it wasn’t the reality I wanted.
When I saw it with my own eyes - I felt so dumb - not because he turned out to be gay - because I had failed to see something so obvious.
Why you’re not allowed to vote for the Michigan populist
Ken Klippenstein Oct 27 2026
Abdul-El Sayed campaigning for Michigan’s U.S. Senate seat
For daily coverage of next week’s elections and access to my private chat discussing them, please become a paid subscriber (you can also chip in via my GoFundMe here) — Ken
“Jihadist,” “Muslim Brotherhood guy,” “on the side of the terrorists” — these are the kinds of smears Donald Trump is deploying against Abdul El-Sayed.
There’s the naked racism, of course, but also the insinuation that El-Sayed’s candidacy represents a national security crisis. “He would be the only senator that will have to go through a metal detector before he’s allowed to go into the Senate,” Trump said Sunday at a rally for El-Sayed’s opponent.
A quarter century after 9/11 and we still have to pass through metal detectors to get on a plane. Now the government wants your vote to pass through the same security theater, too.
Like Trump, Washington’s case against the 41-year-old populist candidate for Michigan’s U.S. Senate seat doesn’t bother with policy or positions. It just says how dangerous he is to “national security” — and by extension, how unqualified you are to understand the dangers.
“Abdul El-Sayed’s radical ideology is a threat to our national security,” El-Sayed’s opponent, former Congressman Mike Rogers, said. Rogers is a former FBI agent and served as the Republican chair of the House Intelligence Committee.
The casual racism isn’t new, but the attempt to dignify it with security-speak is. It’s absurd on two levels. First, the rhetoric I’ve quoted isn’t saying any of El-Sayed’s policies or positions are dangerous; they’re saying he himself is, as if he’s going to take to the floor of Congress wearing a suicide vest. Second, it takes what is supposed to be an exercise of popular will and turns it into a “national security” matter that is technical in nature.
Imagine applying literally any other type of technical standard to a politician is and the absurdity becomes apparent. ‘Abdul El-Sayed’ — not his policies but the man himself — ‘is a threat to municipal wastewater management.’ ‘He’s a destabilizing influence on air traffic control.’ ‘He’s an existential threat to the nation’s bridge integrity.’
Saying a political candidate is a threat to national security is just as silly; but because it’s language we’re so used to hearing from Washington, the insanity of it barely registers. Washington loves the national security frame because it doesn’t stir up much interest among ordinary people, unlike issues like affordability and healthcare — the centerpiece of El-Sayed’s campaign. It’s a ploy to shift the debate from concerns that the public has to that of think tank “experts” and the professional commentators.
In one of the funnier demonstrations of this, the Washington Times recently published a letter to the editor from a former Defense Intelligence Agency officer raising the question surely on the mind of Michigan voters: can El-Sayed pass a background investigation for a security clearance?
Per the letter:
“I question whether he could pass even a basic security clearance review, let alone get within a mile of the kind of classified material to which Mike Rogers had accessed in the U.S. House.”
Set aside for a moment the creepiness of the idea that elected officials should need approval from the national security bureaucracy to know things, which isn’t a thing (yet). Imagine any other type of certification or credential being applied to an election. For example: ‘I question whether Abdul El-Sayed could pass a forklift operator certification, let alone get within a mile of the heavy machinery to which Mike Rogers had access.’
It’s laughable. And yet, it’s the go-to attack from not only El-Sayed’s opponent, but the President and other top officials, including sitting senators.
“Chuck Schumer could place Abdul El-Sayed on the Senate Intelligence Committee,” Senator Ted Cruz said recently, going on to warn of the grave danger to our beloved troops:
“He would have access to the very highest level of classified materials. And I believe, if that were to happen, there would be an unacceptably high risk that American servicemen and women, their lives would be endangered, and that our covert intelligence assets, their lives would be in danger because [there’s] every reason to believe Abdul El-Sayed would share that classified information with Muslim Brotherhood terrorists.”
Covert intelligence assets. Access to the very highest level. Classified information. Is this an election or a Tom Clancy novel?
In other words, you can’t vote for this guy not because of his policy positions or how he might vote in Congress but because he might divulge state secrets to an organization that he has consistently denounced. Oh, the horror (just in time for Halloween)!
Senator Tim Sheehy of Montana, who sits on the Armed Services Committee, says much the same, warning of the “serious national security questions” raised by El-Sayed’s character:
“Abdul El-Sayed’s ties to this group raise serious national security questions. As senators, we have access to some of our nation’s most sensitive, classified information, and I have serious concerns about the security risks posed by anyone associated with such a group serving in the Senate.”
I could go on and on like this but you get the idea. It’s spitting in the face of not just El-Sayed but anyone who thinks they’re capable of choosing who to vote for without the help of mommy and daddy in D.C.
For daily coverage of next week’s elections and access to my private chat discussing them, please become a paid subscriber (you can also chip in via my GoFundMehere) — Ken
In 2018 global trade union federations and their affiliates in the care sectors came together to discuss on strategies to highlight the plight of care workers and the need for decent work in the sectors where care is delivered (from child care to social care, long-term care to elderly care, etc).
One of the highlight of our resolutions was to set aside a day of solidarity with care workers. The momentum of moblisation around that day, and how COVID-19 foregrounded issues of care, informed the United Nations General Assembly’s declaration of 29 October as the International Day of Care and Support.
Nonetheless, the struggle for decent work, respect and dignity for those who as workers care for all remains of crucial importance in the face of austerity measures and attacks on public services and the very ethos of the commons which public services carries.
It is in the light of this and also within the context of the newly launched report of the World Health Organization (WHO) on policy options for integrating the health and care workforce (find attached) that we invite you to register and join the PSI webinar (see equally attached) taking place tomorrow 28 October (i.e., a day ahead of the 2026 International Day of Care and Support, where we will be engaging physically in several parts of the world as well).
We will also present the WHO policy options, which is a report of the 3-year Technical Advisory Group of the WHO on integrating the health and care workforce, with PSI involved as the global voice of the organised health and care workers.
For the concept note and to join the meeting which takes place at 12:00-14:30 CET tomorrow, register now
The recent high school and student protests in France have a simple objective: to get more resources for education. France’s education crisis is defined by severe teacher shortages, deteriorating student outcomes, and massive funding deficits spanning primary schools to public universities. State education in France is among the most unequal in the developed world: schools in poorer areas are so under-resourced that the education system is cementing inequality. Students from the poorest neighbourhoods are disproportionately hard hit by staff shortages.
French students have experienced a catastrophic and unprecedented 20% drop in the education budget per student since 2017. As French leftist economist Thomas Piketty put it: “The government, in bad faith, sometimes boasts that the nominal budget for higher education rose from €13.3 billion to €15.5 billion between 2017 and 2026 (+17%). That is true, except that inflation over the same period was 22%, meaning the budget actually fell by 5% in real terms. Add to this that the number of students rose from 2.6 million to over 3 million, an increase of 15%. The result is that the budget per student dropped by about 20%”.https://lucaschancel.com/etudiants/.
Research by the economist Asma Benhenda, based on payroll data from the French national education system, shows that the proportion of contract or beginning teachers in privileged areas like Paris or Hauts-de-Seine is just 10%. That figure rises to 50% in poorer departments, like Seine-Saint-Denis and Val-de-Marne, around the capital. The average salary per secondary school teacher is about 20% lower in the poorest areas than in the wealthiest, even after taking into account the (meager) bonuses awarded for priority education.
French teachers’ salaries consistently fall below the average for advanced economies (OECD). A French teacher with 15 years’ experience earns less than €40,000, 20% below average. Early-career teachers in Germany earn twice as much as their French counterparts. Yet French teachers have to cope with longer hours of teaching and some of the worst pupil-teacher ratios in Europe. As a result, record numbers are leaving the profession.
To plug staffing gaps, the government launched a scheme in 2022 to recruit “contract” teachers (as opposed to the standard tenure system, under which they count as fonctionnaires or civil servants). They were given four days’ training, despite often having no previous teaching experience. Predictably many quit within six months, owing to lack of adequate training or supervision.
It is not just teachers who are leaving. With a dearth of supervisors, careers advisers, school doctors and nurses, among others, it is virtually impossible to deliver the school support services pupils need. The independent defender of rights for France, Claire Hédon, warned last year that the shortage of qualified staff and suitable facilities meant that almost a quarter of all disabled children never go to school at all.
No wonder then that, as state schools slowly disintegrate, more prosperous families are turning to private education. Few government ministers have any direct experience of the state school system as many go to posh private schools. Yet these fee-paying schools also receive public funding. Meanwhile French public universities are grappling with with an estimated €8 billion shortfall, which has pushed nearly all 75 public institutions into deficit budgets.
Christine Renon, the head of an infant school in Seine-Saint-Denis, died by suicide at her workplace in 2019. According to a letter she had sent to the school management board, she was “exhausted”. She went on to detail the deficiencies and inadequate resources of an organisation that had been left to rot. This tragedy should have shocked the authorities into a profound reappraisal. Macron pledged to make education a priority for his second presidential term. But nothing has changed for the better, only for the worse.
It’s education that primarily worries students and teachers (and parents) in France, But education is just one aspect of the deterioration of basic public services in France. France used to have a healthcare system that was the envy of the world, let alone Europe. Spending was high at 11.5% of annual GDP. As a result, life expectancy was much higher than the EU average. But over the last few decades, government healthcare spending has been cut back well below the increased demand for health service as French people get older and subsuequently need health support. Before 2008, health spending was rising at 0.3% of GDP a year. Since 2009, the rate of health spending growth has halved to just 0.17% of GDP a year. And yet the share of over 65s in France has risen 40% over the same period, or more than ten times the rise in health spending. As a result, life expectancy has virtually stopped rising. (at the bottom in figure below).
Annual growth in health expenditure per capita (real terms), 2014‑2019 and 2019‑2024 – source OECD
Just as in all the major capitalist economies, The cost of living for the average French household has risen sharply, especially since the end of the pandemic slump that saw a significant inflation spike, and now more recently compounded by the energy shortages from the ongoing Iran war. Price levels for average French households are now some 18-20% higher than just four years ago and are beginning to rise again from the Iran war. Real wages (after inflation) are up only 2.4% from five years ago and wage levels are still below where they were after the pandemic. Pouvoir d’achat is continually falling.
After taking into account tax and benefits, the growth in average disposable income (GDI) for French households has been on downward trend in the first three decades of this century, slowing to under 1% a year under the Macron presidency.
In 2024, 9.8 million people living in ordinary housing in metropolitan France were living below the monetary poverty threshold (1,337 euros per month). The poverty rate is at its highest level (15.4%) since 1996, the year the series began. The unemployed and single-parent families remained the groups most affected by poverty.
Although inequalities of income and wealth in France are not nearly so extreme as in the United States, they are still grotesque. Indeed, inequality has worsened in the last 40 years. In 1983, the top 1% of income earners took 7.5% of all personal income, 10% took 30%, and the bottom 50% received just 21.4%. By 2022, the top 1% took 12.7% (an over 60% increase), while the top 10% share rose to 34.8% and the bottom 50% share fell to 20.3%. Inequality of wealth (net personal wealth) is, as usual in all major economies, much worse. In 1983, the top 1% of wealth holders owned 15.9% of all personal wealth in France, the top 10% had 50%, and the bottom 50% held just 8.9%. By 2022, those inequalities got even worse. The top 1% of wealth holders now had 24% (over a 60% increase), the top 10% now owned 57.7%, and the bottom 50% saw their share of personal wealth fall to just 5.1% (a 48% decline).
Retirement and pensions are key issues for working people. Pensions are not ‘welfare’ benefits, but ‘deferred’ wages deducted in contributions from current wages in order to provide a decent life in old age. French workers have fought over many decades to achieve pensions at a reasonable retirement age. France allocates around 14% of its GDP to pensions, one of the highest rates in Europe and significantly higher than countries like the UK, which spends around 5% of its GDP and so delivers the lowest state pension in the advanced capital world. But contribution rates (deferred wages), from workers and their employers, are correspondingly high at 28 per cent.
French businesses and successive governments have spent much energy over the last few decades trying to reverse these pension rights by a combination of increased contributions, reduced pensions in real terms and by extending the retirement age. The argument of governments including the Macron administration is that an ageing society can no longer afford these ‘generous’ pensions. They argue that the pension system faces ‘structural deficits’ ie the payouts are now regularly exceeding the contributions.
When Emmanuel Macron ran for re-election in 2022, he told voters that the retirement age would have to rise to ensure the continued viability of the country’s pensions system. He forced through a change in the retirement age from 62 to 64 years. But raising the retirement age and cutting pensions in real terms will significantly hit French people’s living standards when they retire.
Again, as in many other countries in Europe, France is experiencing a deepening housing crisis. There are 2 million requests for social housing pending; they will never see their needs met. Rising rent prices, inflation, and economic pressure are pushing families to the edge like never before. From overcrowded cities to skyrocketing living costs, the situation is becoming impossible for millions. Millions of French citizens are now being forced to live in their cars as the housing crisis across France continues to spiral out of control.
In sum, France’s public services: social care, roads, transport, youth facilities, garbage collections, sewage and water supply etc have been deterorating for decades. Government after government responds by saying that these services are no longer ‘affordable’. And their mainstream economist apologists argue that the huge rise in public sector debt and continual annual budget deficits must be ended. Over the past 15 years, the public debt ratio (debt to GDP) has risen significantly. French public debt reached 119% of GDP in mid-2026 and is expected to increase to 121.7% in 2027.
Austerity is the message of the Macron government: there is no alternative, the public is told. The draft budget aims to reduce the public deficit to 5% of GDP in 2027, after 5.4% in 2026 and 5.1% in 2025. This requires €43bn of new measures. Without them, the government estimates that the deficit would reach around 6.5% next year. The ‘new measures’ would be the elimination of 3,000 civil service jobs by 2027 without replacement; a cap on government healthcare spending at €5 billion; reductions in unemployment insurance and pension schemes; the elimination of two national holidays (Victory Day and Easter Monday) to increase productivity; and yet again further reductions in regional and local expenditures.
Of course, there is one part of public spending that will not be cut: defence. At Bastille Day 2025, Macron announced that France’s military budget will reach €64 billion by 2027, three years ahead of schedule. Specifically, €3.5 billion will be added this year, and another €3 billion in 2027; all to meet the NATO pledge to increase national member defence spending to 5% of GDP by 2035 (3.5% for military expenses and 1.5% for infrastructure). As a key NATO member perceiving the ‘Russian threat’ as acute, Macron has committed to meeting this target.
Le Monde, the French mainstream news source, reckons that France’s “top priority must be to reassure investors of its ability to repair its finances.” So the financial markets rule. But all this talk of profligate public spending and debt is a false flag by French governments and the ‘bond vigilantes’ in financial markets who are selling French government bonds and increasing the cost of borrowing for governments and households alike.
What is always ignored is that France’s non-financial private-sector debt is actually much larger than public sector debt. The former reached 134.2% of GDP in 2026, more than 30% higher than the average in the euro area It is the private sector (with real estate and financial speculative borrowing) that is most vulnerable, And when a financial crash occurs in the capitalist system, it is the public sector that must bail out the private banks or major lenders. And in capitalist slumps, the government must spend more on unemployment benefits and take in less in taxes, so government deficits spiral.
The history of France’s public debt shows that it is in periods of capitalist slumps and financial crises, that public debt rises the most and then afterwards bond holders demand that the rest of us reduce this debt by cutting services and pensions and raising taxes. After the 1980-82 slump, faster economic growth and austerity measures stopped the debt ratio rising by 1987. Then the next slump of 1991-3 accelerated the rise in debt again before economic recovery (and more austerity measures) eventually led to a fall in the debt ratio. Then the global financial crash and the ensuing Great Recession led to a 20% rise in the debt ratio. Severe austerity measures during the slow growth Long Depression of the 2010s eventually stopped any further rise in the debt ratio before the pandemic slump drove it up again. What this shows is that without the impact of several crises in capitalism, the government debt to GDP ratio would have hardly risen. Each batch of austerity measures aims to reduce the public debt ratio originally caused by busts in the private sector, where the debt goes on rising.
Source: IMF, author
The real cause of France’s affordability crisis is its signficant economic slowdown. In the 21st century, France has experienced low real GDP growth: steadily falling over the last forty years. And now in the 2020s, it has virtually ground to a halt.
France: average annual real GDP growth (percent). Source: IMF
Take pensions, If France’s economic growth was only 1% pt a year higher than the current average of 1.5%, that would raise E30bn a year in government revenues, rising to E40bn by 2035. At current contribution rates, that would raise an extra E10bn a year from pension contributions, easily reversing the projected deficits. “The basic problem is that the economy hasn’t grown fast enough,” says Rupert Watson, global head of economics at Mercer. “It’s not what pensioners get that is causing the problem — it’s the lack of economic growth.”
As in the other G7 economies, this slowdown arises from weak investment growth. Falling productive investment growth generally leads to stagnating labour productivity, and France is no exception. Indeed, total factor productivity (a measure of the impact of “innovation”) is now falling absolutely.
France: average annual growth in fixed investment (percent). Source: AMECO; author’s calculations
Behind any relative stagnation in investment and productivity growth lies falling profitability of French capital. French capital’s profitability started to decline sharply at the beginning of the 21st century (on the advent of the euro) and gathered pace after the Great Recession. Average profitability is now near an all-time low after a fall during the pandemic slump.
France: rate of profit on net fixed assets (percent). Source: EPWT 7.0 series, AMECO; author’s calculations
What is to be done? In April-May 2027 France holds elections for the presidency and parliament. Current opinion polls suggest that the anti-immigrant, racist National Rally led by the veteran Marine Le Pen is well ahead and will win the first round for the presidency. But what is the main plank of Marine Le Pen’s economic programme if she wins the presidency next April? Fiscal austerity! She is promising €136bn cuts in public spending as well as the privatisation and closure of various state assets in order to bring government expenditure below 50% of GDP by 2032. National Rally claims that reducing immigration and stopping payments to the European Union will solve the debt crisis.
The leftist La France Insoumise (LFI) party and its candidate, Jean-Luc Mélenchon, could well finish second In the first round of the presidential election and thus enter a straight fight with Le Pen. Melenchon’s answer to the so-called government debt crisis is to cancel that part of the debt held by the central bank ( as the central bank is part of the government) to allow for more public spending. But that would still leave the bulk of the government debt (82%) at the mercy of the bond vigilantes and they would sell French government paper at the first opportunity if Melenchon were to win. Melenchon proposes to increase taxes on capital and on the wealthiest households so that spending on public services can rise. Naturally, this is anathema to big business, the bond vigilantes and the European Central Bank.
In a future post closer to next year’s election I shall discuss what the socialist alternative to France’s affordability crisis should be.
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