France and Serbia

0:00Adam Tooze: To get insights on the latest global events, we recommend the GZERO World podcast. Renowned political scientist Ian Bremmer interviews the world leaders, experts, and newsmakers shaping today's international politics. The days of coalitions like the G7 or G20 dictating the global agenda are behind us. We're living in the GZERO world, where geopolitical power is dispersed and dynamic. Between shifting alliances, sudden tariffs, AI deployed in warfare, and dozens of conflicts raging simultaneously across the globe, GZERO provides the context you'll need to understand a world in flux. Find some new perspective on today's biggest headlines, or learn more about the underreported issues you don't see anywhere else.

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1:02Adam Tooze: Hi, and welcome to Ones and Twos, F.P.'s economics podcast. Every week we take a couple of data points, use them to try to explain the world. I'm Cameron Abadi, F.P.'s deputy editor, with you from the suburbs of Washington, D.C. this week. Joining us, as always, is F.P.'s economics columnist and Columbia University professor Adam Tews in New York. Hi, Adam.

1:20Cameron Abadi: Hi, Kevin.

1:21Adam Tooze: So, two data points for you all. Today, in the second half of the show, we're going to be talking about Serbia, checking in on that country and its economy after a recent election. First, we're going to be talking about France, another European country that is going through some interesting experiences of its own with protests. But first, a quick announcement. And that is that on November 10th, Adam and I are having another live show in Berlin. Now, we've done these live shows before, but this is a new one for us. It's actually a new venue, slightly bigger, more space for listeners, more time perhaps also to spend with you all after the show.

2:04Adam Tooze: It is Festsaal Kreuzberg in Berlin. So if you are in Berlin, near Berlin, interested in coming to Berlin, November 10th is the date. It'll be that evening. Tickets are already being sold. And you know, these shows have tended to sell out in the past. So click on that link in the show notes to get the tickets. We will see you on November 10th in Berlin. So back to that first data point I mentioned, it is 119. That is France's national public debt as a share of GDP. That's about an all time high and public spending in France at the moment is 58 % of the entire economy. Those are balance sheet figures, pretty dry stuff on the face of it.

2:55Adam Tooze: But those numbers are sort of spilling out into the streets in recent weeks. As listeners have probably seen, university students have been blockading streets in cities across the country. And those marches have widened into a much broader cross section of the country. People taking to the streets to protest the amount of spending, the desire for more public spending. Perfuse in cities across France tonight as the government tries to bring calm. Clashes outside the Louvre Museum today, closed because of protests.

3:31Cameron Abadi: France is praising for more protests despite government efforts to ease public anger. Protesters say the new measures do not go far enough, raising the prospect of further turmoil six months before a presidential election.

3:43Adam Tooze: And this is all happening against a backdrop of anxieties about the extent of existing public spending as it is in France. With, you know, those famous Bond vigilantes we've mentioned before on this show, some suggesting they've returned with an eye on French debt levels. And yeah, this is now becoming an intensely political topic with Marine Le Pen, the far right politician, trying to use the disorder on the streets of France to pave her own way to power and others opposing her. So yeah, Adam, I guess to start off with the protests that we've been observing, as I mentioned, they began with students.

4:27Adam Tooze: I'm curious what they specifically were protesting about. And then what exactly are the other groups that this has now spread to and what are their motivations?

4:37Cameron Abadi: Yeah, I mean, the initial protests were triggered by bread and butter issues really around the crisis or the state of the French education system. Questions of school spending, which has declined in real per capita terms, not because spending hasn't gone up, but because costs have gone up more and the number of students in the system. chronic underfunding culminating in inadequate teacher provision with about 10 percent of classes being cancelled without replacement horrible school buildings which are too cold in the winter and far too hot in the blazing hot summers that france has been suffering huge social divisions uh within within the school system the protest started in one of the poorest suburbs of france but then spread more widely and were amplified in part by a really terrible new university admissions system, which contributed to the sense of dismay, alienation on the part of France's young people.

5:31Cameron Abadi: If you look at the comparative data, as they did in the newsletter recently, there's no doubt at all that, especially since COVID, performance of the French school system has been deteriorating sharply. The fact of the matter is it's not unique in this respect, but it's not surprising, I think, to see these kind of protests. You might ask why they don't happen elsewhere. But then what happens in France is that this rapidly snowballs. So by October 17th, there were hundreds of thousands of people in the street mobilized by, bubbled by trade unions for whom this was an occasion to protest more generally the state of the French public sector and the cost of living.

6:09Cameron Abadi: And then the pictures that people would have really seen more recently are not those either of the student protests all of the big, relatively well-organized mass demonstrations, but of the rioting and looting that happened subsequently. And this involves two other groups who are part of this movement at this point. One is the so-called Black Bloc, originally a designation that came out of the German anarchist scene in the 1980s, which are a relatively well-organized group of about 5 ,000, the French security services think. One has to, in some senses, engage with their discourse about this because they're the people that labeled this group.

6:47Cameron Abadi: who are really militant folks who are looking for confrontations with the French police, who in the policing of the student protests were initially incredibly aggressive. And then yet significantly, when it actually came to the clashes, pulled back from any encounter with the well-equipped and well-organized black bloc group. And then on top of that, you had piling in essentially looters. People would have seen the pictures of people just storming into shops and running off with armfuls of clothing and food and gone this world. Of course, the talk in French society is that these are kids from the Bolleux.

7:24Cameron Abadi: In other words, they're migrant kids. And so this then has about it elements of racial fear, which plays, of course, to the constituency around Le Pen and the far right. So it's a compound compression of lots of different vectors of protest. And quite serious questions are being asked about, on the one hand, how aggressive the police were in handling the original protests, where they applied methods that they clearly learned from the Giais Jeu and the Yellow Vest protests of years ago. And then their complete absence from the street when it actually came to confrontation with the people who are really interested in tearing French cities up.

8:05Cameron Abadi: So complex, complex picture.

8:07Adam Tooze: Yeah, it is interesting how there is a relationship between street militancy of various kinds that you're outlining. And it always does seem like there's a kind of latent potential for street militancy in French politics. And yeah, the relationship between that and these questions of sovereign finance and the state of French debt. because, yeah, some of these social groups are hoping for increased spending. They are citing instances of neglect in schools and elsewhere in the French economy. And the claims are that France may already be constrained in what it can spend by its existing debt. And I guess that, first of all, raises the question of why exactly is France's debt so high right now?

8:58Adam Tooze: And, you know, there are a lot of references in the context of that question to retirement policies and the attempts by the French government to reform retirement in France and its inability to do so. So is that really the main culprit here?

9:14Cameron Abadi: I mean, the short answer is no. The French retirement system has a separate funding basis. It generates deficits and those sometimes have to be covered. But the vast majority of its payments is a pay as you go type system. but it is symbolic of the inability of the French political system to deal with its fiscal issues and its long-run social policy commitments and that is the way in which I think it's tied up it's also tied up with the debt problem in terms of the issue of economic growth and the sense that as it were the French quote-unquote don't want to work and so there isn't enough economic growth to sustain the debt.

9:53Cameron Abadi: And I think that is a really key element of the actual debt story. If you look at debt and why it's ended up at the levels that it has, there are four basic components of the story. One is structural imbalances between revenue and spending in France. In the 1980s, French debt to GDP was as low as 20%. It's an remarkably low number. By the 2000s, with the formation of the zone, it was around 60 % of GDP. So there's pointing there to a structural gap between spending and taxation. Taxation levels are high in France. So the real issue here is that public expenditure is even higher. But that was a relatively stable and manageable problem.

10:34Cameron Abadi: But what then happens is that France, like other advanced economies, and this basic profile of debt is similar in most places, was hit by two major shocks. I mean, the first, the 2008 financial crisis, which bumps French debt by 20-30%. And then that level remains relatively high. The French economy doesn't grow fast enough in the 2010s. So that then becomes the next element of the story. Growth is slow across the eurozone. And then in 2020, with COVID, the French government in a single year engages in spending, which adds about 15 % to the debt burden. Again, quite typical of advanced economies.

11:13Cameron Abadi: But then, because growth in France is relatively slow, this debt doesn't come down as a share of GDP. And on top of all of these factors there now, we have the surge in interest rates, which has means that the debt service bill is now several digits of GDP, so one or two percent of GDP, which further compounds the problem going forward. So it's a chronic gap of which the pensions are an element, but not really the main driver of the government deficit. Two shocks, 08 and 2020, a failure of growth underlying this to actually claw back the debt to GDP ratio. And now the worry about snowballing high interest rates that then make it more and more hard to actually bring the debt under control, because you have to distinguish between a primary deficit and the overall deficit.

12:03Cameron Abadi: The primary deficit is what your deficit is independently of interest rate payments. But what France is struggling with now is a 3 % of GDP plus primary deficit plus on top of that interest rate payments ballooning. And so that's really making the situation increasingly unmanageable. That's a kind of a picture of this. The pension issue in France is hugely controversial. goes all the way back to the Mitterrand government of the 1980s, which created this very, very generous pension system with people retiring at 60, which was at the time seen as a way of addressing mass unemployment. And ever since the 90s onwards, the French have been laboring politically over this issue.

12:44Cameron Abadi: It's totemic. But it's, I think, not right to see it as the major driver of the DREP problem, but not wrong to see it as a symbol, if you like, of the failure of French society to really agree on a bargain of taxes, social welfare, and economic growth and working time.

13:05Adam Tooze: Yeah, that is an interesting portrait. And specifically, the fact that some of what you're describing in France is not different than what's been happening elsewhere in Europe, the kinds of spending that happened during the pandemic, in the aftermath of the financial crisis. That's quite common in various countries. And yet something seems to have shifted recently with respect to how bond markets are treating French debt. And, you know, you're talking about the interest rates going up. Bond markets seem to have now some newfound concern. And I'm curious, what explains that new evaluation of French debt?

13:49Adam Tooze: And is that an evaluation of French politics, ultimately? Or is there some other financial reason in terms of global financial politics that's producing this? I mean, one source that I came across was suggesting that the greater availability of German debt is what is producing this new evaluation of French debt and its, you know, lesser attractiveness relative to the availability of German debt. So what exactly is playing behind this new evaluation in bond markets of French debt specifically?

14:28Cameron Abadi: Yeah, I think this is a very helpful way into this, Cam, like distinguishing the underlying debt dynamics from the current panic in the bond markets. And it's also important to put that panic also in perspective. What's happening so far, and I think for the foreseeable future, is not, as it were, that there's a sudden collapse of confidence in the ability of the French government to pay its debts, but that France has comprehensively eroded and now lost the historically unusual premium that it gained from the 2010s onwards during the Eurozone crisis of being the closest thing to a deep, large, investable, liquid, safe, or at least semi-safe sovereign debt market.

15:11Cameron Abadi: market that the eurozone had to offer. And this unusually led to a separation of the yield, so the effective interest rate that France has to pay to borrow, from Spain and Italy, with which France had in the early phase of the eurozone had been quite closely linked, and a movement of French yields away from them, they were crisis cases by 2010-2011, and towards German yields, which themselves were disappearing off into negative territory, because as you were saying, the Germans with the debt break from 2010, 2011 onwards are just not issuing very much debt. So in between the Germans who are in the negative zone, there isn't any German debt to buy, and the Spanish and the Italians who are in crisis, the French emerged as the de facto so-called safe asset.

16:01Cameron Abadi: In other words, if you want to do large scale financial operations in the eurozone you go through 10-year french treasury so-called oats and that's what they've lost and so they're now on a par with the spanish and the italians in fact there have been days where the yield is higher than in italy which is a you know seen as a huge scandal i completely agree i think it's broadly speaking political in other words the crisis begins really in the summer of 2024 after macron made this rather wild bid for political freedom by holding a snap election which then produce inconclusive outcomes, no majorities that he was willing to govern with, because that would have involved governing with the left.

16:36Cameron Abadi: And as a result, a kind of hung parliament, divided government situation. And it's that that's really eroding market confidence. And then there are external factors. I mean, I think there's three that's worth citing. One is the German element, which you've introduced and which I've been hinting at. In other words, French debt is always seen in relation to German debt. And on the face of it, Germany moving from a ultra low debt issuance regime, which was compounded by the fact that ECB was buying government debt symmetrically across the Eurozone. And so it was snappling up. There was hardly any German debt that you could actually trade as a private dealer in the markets.

17:15Cameron Abadi: The Germans have moved successively under Schultz and now under Mertz to issuing very substantial amounts of debt. Now, in the first instance, you'd kind of think that that would, just to avoid any confusion on the part of our listeners, you'd think that would actually put the French in a better position, because now all of a sudden there's more German debt. So German debt presumably commands more yield or has to pay more yield because the Germans also have to pay for the privilege of borrowing. And that should reduce the spread to the French treasury, all things being equal. But the way in which it seems to be working is what's called a portfolio allocation effect, whereby if you are a big asset allocator, you've got hundreds of billions of euros or indeed trillions to allocate, and you are looking for safe places to put them, Germany coming onto the market with an issuance of very large quantities of genuinely safe debt essentially strips France of the premium it once enjoyed.

18:11Cameron Abadi: And so those funds are just being shifted out of French assets into German assets. And that is swamping the other effect, which is that the German interest rate itself has gone up. The other international effect that's out there is Japan. And again, why Japan? Because the Japanese have very large accumulations of savings, pension funds, insurance funds, retirement funds, which need allocating around the world. And Japan obviously hasn't been offering very attractive interest rates for most of the last few decades. And so, you know, feisty Japanese asset allocators have been looking around the world for safe assets that offer a decent yield.

18:53Cameron Abadi: And French treasuries were one of their buys. And what's happened in Japan in recent years and quite aggressively since the beginning of this year is that as inflation has come up a little bit in Japan, interest rates in Japan are rising. And so at that point, the carry trade, the so-called carry trade unwinds. So it actually becomes more attractive to keep Japanese money back in Japan than to put it into European assets. So the French are squeezed on both sides by the Germans actually issuing new safe debt and the Japanese pulling their funding from European markets to go home. And that then unleashes something else we've talked about on the show, which is adjustments, sudden adjustments within the markets themselves, because speculators basically have positions which are conditioned on the relative movement of bond prices and therefore yields over time.

19:42Cameron Abadi: And as these factors converge on France and the risk becomes that French debt will sell off and yields will surge, those speculative positions become too dangerous to hold. And so people unwind them, resulting in sudden one-off waves of selling. And there has been a certain amount of that in the market as well. It's called sort of market technical issues or it's often associated with hedge funds who are the players that take leveraged positions that are exposed to this kind of risk. Leverage in the sense they've borrowed money to take their position. And so the market is moving against their bet.

20:20Cameron Abadi: They need out as quickly as possible to avoid making losses. And so there's been an element of that. It's a bit of a perfect storm from the French point of view. And we should not panic. I think this isn't a return of the Eurozone crisis. And if Madame Lagarde has today on the day of recording announced her retirement in early February next year, just ahead of the prospective French presidential elections, in the end, the ECB backstop is there. No one is going to want to use that because it's humiliating and for it to be used to support France would be a disaster politically. But in the end, the wheels aren't going to come off this bus.

20:55Cameron Abadi: But this adjustment is real and powerful and does have a constraining effect on France's budget decisions going forward.

21:02Adam Tooze: Yeah, I mean, it does seem like that backstop also comes into force, at least in the recent past, when countries under economic strain have been forced to accept certain reform programs before then the ECB is willing to sort of extend its assistance, so to speak. And I guess this brings up or zeroes in on the question of French politics and how it's relating to all of this, because the question of Le Pen and the far right seems to me to be playing an interesting role. On one hand, you know, you could see it as a cause of France's bond market and debt problems, to the extent that it's, you know, the far right is contributing to the gridlock, is contributing to the confusion of French politics right now, and the kind of inability to kind of chart a way forward.

21:58Adam Tooze: And the policy proposals of Le Pen themselves are, you know, not entirely clear, I think, despite her growing popularity. And then at the same time, would her election itself be the effect of these bond market problems? I mean, yeah, how should we see Le Pen in relation to these debt issues? I mean, is she a cause of them? Is her rise and effect of them? Or is it both?

22:26Cameron Abadi: I think there's a circularity here. We can get at it a little bit by just looking at timing questions. So the French bond spread to Germany popped towards the levels of Italy and Spain for the first time in June 2024, which is immediately after the inconclusive outcome of the snap election that Macron called. And that, at its core, the impasse in French politics is that the the centrist's play, the Macron play, has essentially failed. And the right wing is divided. And the most powerful bloc on the right wing is the Rassemblement National, the Marine Le Pen's vehicle. And the establishment wants to keep her out of power and nevertheless doesn't want to rule with the left.

23:17Cameron Abadi: And so that's the source of the impasse. So to that extent, I think we can be quite clear that her emergence as a key force is decisive to this story. She herself, I think, has come to realise that as she comes closer and closer to power, she's now the odds-on favourite to be the next French president. She will also have to deal with the bond market, and she doesn't want to take power amidst a bond market crisis. She's seen what Maloney has had to deal with and how it's constrained her. And so what we see Marine Le Pen doing is seemingly getting on the front foot. She's giving interviews to outlets like the Financial Times.

23:59Cameron Abadi: And she's outlining a fiscal consolidation package, which is quite ambitious in its goals. On the 6th of October, she announced proposals to cut 140 billion euros. it's thought that to get from a kind of critical level back to 5 % of GDP deficit you would need to cut 50 billion euros in the current French budget just to give listeners a kind of scale of this to get to 3 % deficit which is kind of where the eurozone likes eurozone members to regulate their deficits you would need maybe 150 billion she originally had proposed 125 billion in cuts she's now up that to 140 billion. She's talking about common European white taxes for things like cigarettes.

24:48Cameron Abadi: Marine Le Pen is trying to present herself as a sort of, you know, edgy, aggressive, but essentially conservative fiscal politician at this point, which is a very considerable surprise given the trajectory of her party, given its, you know, really aggressively Europhobic positioning in the 2010s, the critique of the Eurozone system. At this moment, where she has her hands on power, we see her shifting to a much more kind of conservative and more conventional view. So there's a real transition there. Mainline French economists, Blanchard, Jean-Pessani-Ferry, people like this, are skeptical about the substance of Le Pen's proposals, do they really add up?

25:34Cameron Abadi: But the mood music is definitely in that kind of direction.

25:38Adam Tooze: Well, I mean, the other prominent political figure who has really been on the stage amid this turbulence of the past few weeks is the far left figure, Jean-Luc Mélenchon, who polls suggest would be perhaps the main rival to Le Pen in a presidential election, at least the one that is scheduled in a few months time next year. And, you know, Mélenchon is also quite concertedly taking, I think it's fair to say, populist positions, specifically with respect to these questions of spending and with respect to French debt. I mean, he has mentioned plans for essentially, you know, zeroing out the debt that is held by the French central bank, the Banque de France.

26:30Adam Tooze: He would simply, I guess, not pay that back. I'm not sure what that mounts to in practice exactly. I'm not sure if that makes sense on its own terms. And more generally, I'm curious what his overall political strategy is as a kind of far left actor. You know, it almost seems like he is encouraging kinds of disorder in the country, encouraging the kinds of protests, you know, that border on looting, as you were describing. And that seems to feed into Le Pen's appeal to the country. And so, you know, how to make sense of that strategy overall, it's almost like this is a kind of accelerationism in practice, a desire to kind of elevate the far right so that then the far left can can oppose it.

27:14Adam Tooze: Is that what Mélenchon is up to here?

27:17Cameron Abadi: I think I would have a more sympathetic reading than that. I mean, I see interesting elements in the Mélenchon proposal. The first is that Mélenchon is trying to rewrite the script on the French debt issue. What he's actually trying to do is challenge the dominance of the bond markets in the conversation altogether. You know, he's threatened to take, he's threatened to, I think, prosecute the current head of the bank, the France, of the French central bank for treason for having, in Mélenchon's terms, sided with the bond market against French democracy. So he's trying to change the conversation very dramatically in saying, of course, we need to take France's fiscal situation seriously.

27:56Cameron Abadi: they have actually a fiscal spending program. But first and foremost, we need to assert the priority of democracy against this veto, against the bond vigilantes, against this fundamentally illegitimate force that comes from the outside. And I would read the proposals to write down the hundreds of billions of euros in French government debt that are held by the French central bank in those terms. So what that's saying is, look, nothing's off limits here. Central banks are there not to impose discipline on governments, but ultimately to enact the sovereign power of the French Republic. He's a strong sovereigntist.

28:36Cameron Abadi: And it makes no sense to have huge quantities of French government debt sitting on the balance sheet of a public agency. And for us to have this merry-go-round of interest payments to the Bank de France, which then flow back to the French government in the form of dividends, we should just simply write this down. In principle, I'm not unsympathetic to imaginative uses of central banks. Obviously, that's rather my bag. In this particular case, it's hard to see that it helps very much because it really is a recycling of funds. And it's obviously very likely to cause panic. And above all, it will immediately challenge the ECB and the ECB's authority because the Banque de France is no longer as much as Mélenchon might like it to be, a sovereign agency of the French state.

29:21Cameron Abadi: It's now part of the euro system. And so this would be a confrontational move in political terms. And in principle, that's not in itself damning. The question simply is whether you can win that fight. That's the central question. If you're going to do this kind of radical stuff on the economic policy, you've got to make damn sure that you actually have what it takes to win that argument. And I'm not at all sure that France is in a position to really win an argument. The French left is in a position to win an argument which involves politicizing finance to this extent. The second element is that Mélenchon and his economic advisors in October, in short order with Le Pen, because those really are the two main contenders for the second round of the French presidential runoff at this point, have in fact come forward with a fiscal program, which in some senses can be seen as responding to the demands of the moment.

30:13Cameron Abadi: So they're actually proposing to raise revenue more than they are to and raise spending, but to raise revenue more than spending by an order of about 20 billion odd euros, 24 billion, 25 billion in fact euros. And so close at least part of the deficit by a front footed policy of raising spending, but raising taxes even more. Now, the interesting thing about this is because it raises taxes more than it raises spending, this is not a strategy that is relying on some kind of Keynesian stimulus, right? This is not delivering a net boost to the French economy. but what it's about is re-architecting the French economy because you're going to have very substantial spending in their view on growth promoting policies on the environment on sustainable energy transition and however at the same time you're going to reconcile that with the deficit imperative by doing even more aggressive taxation which is about re-sculpting French society and addressing the questions of inequality by way of wealth and income taxation.

31:23Cameron Abadi: And so it's a very interesting effort to change the terms of the conversation, which basically says we don't accept the veto of the bond market. We do accept maybe that there are issues of this deficit, but we're not going to address those issues of the deficit by prioritizing spending cuts. We're going to use this as an opportunity to actually raise taxes even more. So it's a deliberately confrontational strategy. To go back to your final suggestion, I don't think there's any suggestion that they are pursuing a kind of catastrophist position of handing the game to Le Pen so that she fails or something like that.

31:58Cameron Abadi: I think it's rather the reverse, which is that Mélenchon well knows that he has an incredible uphill battle to get elected in a society which has a very conservative center. And so the way to drive this is to polarise the argument, not as one of sensible centrists with extremes on the right and the left, but as the people against an established oligarchy, which was represented by Macron and is now represented by Le Pen. And so if you really want change in France, you vote for his party and not Le Pen, who in a sense is handing him the game by saying, yes, you're right. As I approach power, I want to go more conservative.

32:37Cameron Abadi: and Mélenchon's gamble presumably is that where they get votes is not the existing structure of votes in France but in the disaffected voting bloc the largest single voting bloc in French politics are people who are turned off and don't vote at all roughly 28 percent in the second round of the last presidential election and their strategy is one of bringing that vote out young people unemployed people the genuinely disenfranchised and saying you're disenfranchised and you feel excluded for a reason, why would you want to vote for Le Pen? You can see why you don't want to vote for Macron. Why would you vote for Le Pen, who is now offering you this diehard conservative programme?

33:17Cameron Abadi: Clearly, France does need a break. And look, here's the policy that will actually deliver that. So it's confrontational, but I think one shouldn't reduce it to a sort of, oh, well, let's throw our hands up in the air and run this cart into the ditch. I don't think they're at that point at all.

33:36Adam Tooze: Yeah, I realize that's a sort of polemical framing, but even in hearing your description of the strategy at work, it does seem like there is an interest in raising the stakes of what's involved here politically, and that that's what is motivating this kind of interest in having a constitutional moment. I think that's fair. And to that extent, that if the far right clarifies those stakes in that way as well, in the sense of, yeah, you know, mobilizing against the far right would be itself a kind of constitutional confrontation, perhaps even a revolutionary confrontation, if in fact, the far right was in power.

34:23Adam Tooze: And I do think there's something that interests Mélenchon about that. It's almost even a sort of fundamental foundation of thinking about politics in this way.

34:33Cameron Abadi: I think that's absolutely right. And it's also, of course, over the, you know, at this point, really decrepit body of the Macronist regime that also in its own way also, you know, offered some sort of refoundation back in 2017 and has failed to deliver anything even remotely like that. So on all sides, I think, in France, and this, after all, is not limited to France, there is the sense that we need, you know, we need to do some really fundamental reorganization and some fundamental new thinking. And that can't be done without conflict. That's certainly the position of the French left. It goes back to, you know, really deep theorizing and politics in France that has always insisted on this.

35:13Cameron Abadi: The very meaning of the word democracy is ultimately one of confrontation. And it's not simply about deliberation or debate or representation. It's actually about the clash of interests. And I think you're not wrong to see that as a central element of Mélenchon's politics.

35:35Adam Tooze: Yeah, I mean, I assume even outside of moments of revolution, so to speak, you know, that the street protest direct action has been a sort of de facto branch of government in France. And so in even kind of like lower stakes, more secular instances, that's just been a part of French politics. But, you know, we're seeing, I guess, the effectiveness of that to some extent in this moment. But also, I guess, the limit of that style of politics right now as well. I suppose we should end this conversation because we need to take a break. And we'll be back in a second, though, to talk about Serbia.

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37:16Adam Tooze: Get Blockers at blockers.fm or wherever audiobooks are sold.

37:46Adam Tooze: presents Where is Austin Tice? Listen on bbc.com or wherever you get your podcasts. Hi, welcome back. Our next data point is 1.4 billion, as in 1.4 billion euros. That is the annual foreign direct investment that flows into Serbia just from China. And that rivals basically the amount of money that comes from all other European Union member states together. And yeah, that figure basically captures the balancing act that Serbia has had economically since the 1990s. And that's been represented by the leadership of Alexander Vucic, you know, who kind of built his brand as Serbia's economic stabilizer of the last 10 years.

38:39Adam Tooze: But that has now been overturned in a dramatic election this past weekend. A student-led movement organized around faculty gatherings and anti-party groupings has broken the mold in Serbia. And now a new government seems to be about to take office, raising new questions about the structure of the Serbian economy and its relationship to Europe, its relationship to China, Russia, all that is now at stake. And Adam, to start off with, you know, Serbia's strategies for recovering from its 1990s economic collapse in the wake of the breakup of Yugoslavia and the wars that followed. Yeah, I mean, between seeking integration with Europe since that time, or seeking, you know, direct investment from China and others, what exactly has played a bigger role in the Serbian economy.

39:38Cameron Abadi: There's really no question that Europe is decisive and the tragedy really of Serbia's situation since the disastrous end of the Cold War in Yugoslavia with the bloody wars of the 90s and then the conflict over Kosovo and Serbia's isolation is that it has lost connection to Europe. And so its trajectory has diverged from that of its former Yugoslav neighbours, Slovenia, Croatia, but also from Hungary, with which in political terms, you might compare the British regime with Orban in Hungary. I mean, it's a really tragic story, in the sense that Yugoslavia in the late 1980s was one of the relative success stories of Eastern Europe.

40:27Cameron Abadi: It was relatively open, it had regular exchanges, notably with West Germany. It was open to tourism. It was, by the standards of the Eastern Bloc, an open, diverse, cosmopolitan, prosperous, lower-middle-income country. And then, as a result of the civil war, and of course, Serbia is a key agent in that extremely violent Milosevic's regime, its GDP collapses to about half what it was in the late 1980s by the late 1990s. And the recovery has been incredibly slow. I mean, I find these numbers really hard to believe, having visited Belgrade reasonably recently. But according to the official data, the Serbian GDP per capita didn't return to its late 80s levels until the end of the 2010s in 2018, 2019.

41:18Cameron Abadi: I mean, the Belgrade I visited, to me, that didn't fit with those numbers. It seemed like a prosperous middle income country now. So it may be that the rest of Serbia is much poorer than the bits of Belgrade that I saw. In any case, it's that kind of trajectory. And it's a real outlier within Eastern Europe, even within the former Yugoslavia. Apparently, the Serbians are scandalized by the fact that Montenegro has higher basic pension and minimum wage levels than Serbia today. And, you know, China can help in various ways. It can build infrastructure. But, you know, for a small country of 6.7 million people who in every cent have to clearly be understood as European to be as isolated as they've been, relatively speaking, in political terms and making no progress at all towards any closer serious affiliation with the EU is a disaster.

42:14Cameron Abadi: And in the enthusiasm of the protesters, you sense, of course, the hope that somehow they may finally be able to break out of this disastrous legacy that begins in the early 90s and is personified by Milosevic and then by Vucic since the early 2010s. It's a kind of Maidani kind of moment, I think, in that respect. Yeah, it's very dramatic, very dramatic story.

42:39Adam Tooze: So if we were to take a closer look at Vucic and his legacy, I mean, he is often referred to as an autocrat, having built this autocracy politically. But economically, he's earned this reputation in Serbia and elsewhere as a sort of stabilizer of the country. Some places he referred to as a modernizer. I mean, was he effective economically? I mean, what did he do? I mean, obviously, he seemed to cultivate this relationship with the IMF at a certain point when Serbia was in need. Overall, was he an effective economic leader?

43:16Cameron Abadi: I mean, as a person, he's an impressive guy. I've been in very small group meetings with him, and he's a powerhouse. He's a flyweight boxer. He punches hard. He's clever. He's quick on his feet. He knows how to play the Western game. So he's a bit of a bruiser. He comes out of the ultra-nationalist scene. So he was doubling down on the hardest, most aggressive Serbian lines in the 1990s. He then does a stint as communications minister as a very young man in his late 20s for Milosevic during the Kosovo conflict. Then goes into opposition along with most of the other extreme nationalists after the fall of Milosevic.

43:56Cameron Abadi: And then comes back to power after 2008 and is rapidly ascends to the position of prime minister. And then in 2015, leverages, I think one has to say, an IMF program, A, to build his reputation as the kind of anchor of stability. I mean, Serbia was in terrible trouble financially and delivers fiscal stability in terms of a falling debt level, which is now down at really low levels, like 45 percent of GDP. and it's much harder for low-income or middle-income countries to kind of carry the kind of debt levels that a France does, whose debt to GDP ratio is about three times that of Serbia or heading that way.

44:34Cameron Abadi: And in that extent, like he earns his kind of stripes as an effective manager of the Serbian economy. But the knock is in a sense that the tighter their control of fiscal policy and public spend became, came, the more that gave scope for a discretionary, clientelistic, politically managed regime of investments, of licensing, of crony capitalism, basically, within this tight ship that they were running. So austerity is not, as it were, the opposite of clientelism and crony capitalism, but rather it's kind of preconditioned that the more tightly you run government spending, the more personal collections to the bosses network comes to matter.

45:22Cameron Abadi: And this is hardball stuff. We shouldn't, you know, I've had the privilege of meeting activists in Serbia who've had death threats. I mean, this is not, was not an administration or a government to be messed with and its control of the media, a little bit like in Orbán's Hungary as well, felt while it was in power massively solid. so it was a it was a powerful regime of kind of consolidation and this is something in fact that you know is underrated i think as an element of these you know authoritarian nationalist kind of projects in europe in the 2010s putin after all is also notable for having run a very tight fiscal ship so this kind of logic of politics is is is a model across eastern europe in the former soviet space.

46:12Adam Tooze: Yeah. And what comes with that is the opposition obviously does not have as much experience or the avenues to be involved in politics on the national level. And this puts now a spotlight on this student movement that has effectively won these elections this past weekend. And, you know, they took an unusual political form outside the channels of kind of normal institutional party politics. These were kind of leaderless, networked, anti-party, academic structures that produced this election outcome. And now I guess this raises the question of what does this kind of movement do when it takes power?

46:59Adam Tooze: I mean, how does it relate to economic policy and power when it's handed that opportunity? I mean, what would an economic program that's kind of written by this group of academics and experts, ostensibly. What could that look like in practice?

47:14Cameron Abadi: Yeah, it's a really remarkable movement. For those wanting a flavor, I recommend the Guardian article by Alexander Matkovic, who was an activist in the movement until he had to leave the country as a result of intimidation by the regime. And it's a movement that, yeah, we describe it as the student movement, effectively it's become a kind of non-party opposition in a much broader sense. I heard one Serbian commentator say that the remarkable thing about this election is that it has defeated both the regime and its opposition because the opposition parties that were living in a kind of live and let live relationship with the government were effectively accepting their fate and the student movement is singular and radical and novel and saying, no, there is an alternative for our country.

48:04Cameron Abadi: They aren't without program when it comes to economics. It's interesting to pose this specific question. It comes in different forms. So in early October, there was a platform by 30 leading Serbian economists announcing, first of all, that a victory for the student-led opposition movement would not be a disaster for Serbia. There is a deeply ingrained fear that Serbia could slide back to an era of high inflation to rapidly depreciating currency. And this was an important statement by some of the leading figures across the academic establishment, former heads of the fiscal council that implemented the austerity drive, people from the University of Belgrade, figures from the Central Bank, folks from Serbians in exile or working in institutes in Vienna, for instance, all asserting first the bottom line that this is not a vote for economic disaster.

49:02Cameron Abadi: And what then has emerged are a variety of different positions of economists and former technocrats who have allied themselves with the movement, Perhaps the one most commonly mentioned in this context, I may be butchering the names here, is Dejan Soskic, who between 2010 and 2012, so before Vucic rose to power, was the governor of the Serbian National Bank. Now, that's a period in which the currency was depreciation. So he's not an entirely uncontroversial figure. But he has emerged since then as a kind of standout centrist figure, arguing essentially for what you would expect, namely, you know, rigorous auditing of government spending, anti-corruption drives, high quality public spending.

49:50Cameron Abadi: it's not a terribly imaginative kind of policy, but in the Serbian context, it's important. And his role as a former central governor and his insistence that the future will not see further depreciation of the currency, though he considers the possibility of progressive adjustment rather than some sort of collapse, so as to increase the competitiveness of the Serbian economy. He is a kind of anchor figure for that whole issue, which is very neuralgic. How does Serbia revive growth in a conventional framework? How does it overcome corruption? What to do with the currency? There are also other figures associated with the movement who are offering much more fundamental kind of programs.

50:34Cameron Abadi: And one such is Branimir Jovanovic, who is a figure that's in Vienna, who is focusing not so much on immediate short run issues of governance and central bank policy, but on the central issue of growth. how do you get growth going in Serbia other than through exploitative FDI relationships, say, with the Chinese, where you always have to ask what is there, what's in it for them, if you like. How could you build a more attractive growth program? And then there is also what you might call the more genuinely populist left-wing element within the coalition that wants to target Serbian oligarchs, that wants to introduce redistributive taxation, that wants to raise the floor for those who have really suffered through the program of consolidation since the 2010s and to rebuild elements of a welfare state and raise the average standard of living.

51:27Cameron Abadi: So within this coalition, there's at least those three kind of positions, a kind of clean hands technocrat that's concerned about financial markets and the currency, a growth orientated structural industrial policy kind of person and a welfarist you know tax and spend program and it will be I think fascinating to see how this is how this is worked out in coming months and years because there is it's a central issue for the movement and there isn't a single coherent platform but there are a lot of ideas this is not a movement that's some sort of naive on economic issues But it's not one that's consolidated a coherent position.

52:08Adam Tooze: Yeah, it seems to me like it could be an interesting case study in how an autocratic regime can be unwound or dismantled in practice. You know, when you look at the nuts and bolts of these kinds of policies and specifically how they might be constrained by what this new movement is inheriting from the autocratic regime that it just deposed. I mean, you know, in reading about the policies that some of this kind of members of this movement have been promising, they want to audit the kinds of clientelistic infrastructure contracts that you mentioned. But what would that exactly mean for a country dependent on foreign investment from maybe Chinese investors and builders who, you know, were relying on special law treatment of various kinds?

53:00Adam Tooze: And yeah, I guess more generally, the question of how the structure of the Serbian economy that Vucic oversaw and built, how could that constrain how it can now change exactly?

53:16Cameron Abadi: Yeah, this whole issue is fascinating because, I mean, Alexander and I first got into conversation over the fact that I believe the Serbian left is the first European left in our current moment to have split over the question of how to interpret Chinese imperialism in the modern age. It's the first Leiden struggle that's happened within a European left-wing party over the issue of Chinese imperialism. Not the other way around, not our imperialism in China, but Chinese imperialism in Europe. That is one of the key issues for Serbia. I think that's much more important than the Russian issue. Russia is important for gas in various ways, but there are alternatives that can be built.

53:57Cameron Abadi: China is a much more promising partner for them for investment and for long-run growth. And it's indeed a very interesting case of a much more general question in the current moment of how democratic governments deal with China and Chinese investors, which, as you say, may in a sense have signed up for a deal which is different from the one that an elected government that Serbia now wants to offer. and that is a conversation you know the famous robust conversation that people need to be prepared for and a certain amount of rethinking has got to go on in beijing about the consequences of dirty sweet hide inside oligarchic deals in the long run and how stable they are and the more serious the chinese get about understanding the potentially damaging blowback from bad deals with terrible labor conditions, which were a major allegation in the Serbian case, as they have been at times in Brazil, the better.

54:53Cameron Abadi: So all power to this movement. And I hope very much that they get advice from folks who know how to renegotiate contracts with the Chinese to the optimum effect. It will be a shame, I think, if those investments stopped altogether. They've been important in rebuilding copper mining, for instance, steelworks and for Serbian infrastructure. But as the, the Novi Sad collapse in the railway station exemplified, it is the details, it is the nitty-gritty of those contracts, who builds what on what terms and with what quality, that were the original spark of this movement. So to answer your question, in some senses, that's the red meat, that's the easy bit, right?

55:34Cameron Abadi: Getting into the nitty-gritty and working on the corruption around these deals is the clear target with a crosshairs on its forehead, and this is what the movement will do. to my mind, the bigger issues down the line are, okay, fine, you clean up your act. And then you're just a middle income country on the periphery of Europe, long left behind by your neighbors, you know, with moderately bad infrastructure, looking for your place in the global political economy with an aging population, a large migrant population. Okay, now you've just got all the ordinary problems of everyone else. Now what do you do?

56:11Cameron Abadi: And I think that's going to be the big challenge going forward but overthrowing bush i mean we should we shouldn't get we shouldn't lose sight of the remarkable and surprising sequence of events we've seen here after all i mean like three big wins in hungary and serbia and after all in brazil um as well that i don't think a lot of people were expecting um you know a series of wins for pro-democracy forces for in in a very broad sense, progressive politics, and a truly, truly, truly turn up for the books in Serbia, but just an awful lot of work to do.

56:48Adam Tooze: Yeah, I mean, I think your citation of Maidan in Ukraine is an apt one and an interesting one. You know, obviously, in a lot of ways, this is a milder form of the kinds of developments we've seen in, you know, Ukraine in the past decade or so. But I think it's sort of clarifying and cuts both ways in the sense of, yeah, it's both inspiring and interesting to see how kinds of people can produce change that they desire in their own countries. And then at the same time, yeah, in practice, these kinds of changes are much more complicated, you know, in kind of the rhetoric of Europe and civilization and the West and democracy in practice gets much more complicated about how to actually implement it, what it means in practice to actually do it and the kind of constraints one faces in the structure of a specific country.

57:42Adam Tooze: So yeah, I guess we'll see how this all exactly works out in Serbia. But yeah, I guess we should end this particular conversation. And yeah, as always, we'll be back in a week with new data points.

57:57Adam Tooze: ones and twos is written and edited by adam and me and produced by claudia tady the show is made possible through the support of foreign policy readers and ones and twos listeners as always we love getting listener feedback you can leave voice messages on the ones and twos homepage on foreign policy.com or email us that's podcasts at foreign policy.com or you can tweet us that's at onesandtwospod. I'm Cameron Abadi. Thank you very much for listening, and we'll be back in your feed next week.

58:43Adam Tooze: The world at this moment is more fractured than it's been in decades. More wars.

58:48Cameron Abadi: Iran will not have a nuclear weapon.

58:51Adam Tooze: More extremism. Germany could soon have a far-right political party running one of its regional... And deeper disagreements on a range of issues. On Season 3 of Counterpoint, we get to the heart of those disagreements with a series of debates. On each episode, two of the smartest people in their field face off over one question. Counterpoint is a production of Foreign Policy magazine in partnership with the Doha Forum.