Here is a great article from Fortune that a friend emailed me. It retells the situation of French President Mitterrand and his economic policies from the 80's. Here's a brief review of some important details:
Mitterrand won the presidential election on the Socialist ticket in mid-1981, pledging an ultra-Keynesian agenda of government expansion, and a program of sweeping nationalizations. His moderate supporters were certain that he would take a far more centrist approach once in office. But to their horror, Mitterrand kept his most radical promises. At the time, France, like the rest of Europe, was mired in recession. Mitterrand's strategy was to revive the economy by boosting consumer demand through vast increases in wages and government spending.It sounds very familiar, doesn't it? Check out the rest of the article to find out what happened. Ultimately, the article concludes:
The Mitterrand plan was the ultimate experiment in extreme stimulus, a Gallic campaign to out-Keynes even Keynes. The new president raised pay for civil servants and employees of state-owned companies.... He created 250,000 new government jobs, and lavishly increased payments to mostly middle-class families through a program called Allocations Familiales. The minimum wage rose sharply, and the government flooded the banks with easy money.
To pay for all the new spending, Mitterrand tripled the budget deficit. Mitterrand not only talked like a Socialist, he acted like one, nationalizing 38 banks, including Paribas, and seven big industrial giants, ranging from chemical colossus Rhone-Poulenc to container producer Pechiney.
The results were an unmitigated disaster. In 1982 and 1983, inflation stood in double digits, twice the level in the Germany and America. Unemployment soared to over 10%. Mitterrand devalued the franc no less than three times to keep France's exports of wine and insulation competitive. The French economy was growing by millimeters while its European neighbors recovered in long strides. Top talent was fleeing: Bernard Arnault, now the CEO of luxury goods marketer LVMH, departed for the U.S., declaring that his homeland was becoming a "banana republic."
Then, in early 1983, Mitterrand made an historic change in direction. Admitting that he'd been "intoxicated" by his Keynesian vision in 1981, Mitterrand, as the French say it, "put water in his wine" by shifting to far more conventional, prudent, and, frankly, capitalist policies.
"So Americans should hope for what they can get, a president willing to put water in his wine, and recognize the virtues of a policy that revived France 27 years ago, when François Mitterrand traded fantasy for austerity."