Published on :
The issue of public debt has been pushed into the background by Covid-19 and now by the war in Ukraine. However, debt reduction remains a key issue for the French economy.
In 2012, when Europe was still healing the wounds of the debt crisis, public finances were a major campaign issue. This was also the case in 2017. With, on the one hand, the candidates rather on the right in favor of deleveraging and budgetary rigor, and on the other, rather on the left, the Keynesians with a program of heavy public spending. During Emmanuel Macron’s five-year term, France’s debt worsened, going from 97 to 113% of GDP according to the Court of Auditors, and surprisingly the subject almost disappeared from the radar.
Has Covid-19 made debt worse?
Yes and no. Yes, because we had to go into more debt to finance the fight against the pandemic and then to avoid economic sinking. But not because the policy of whatever it costs is not the only cause of the deterioration of public accounts. The structural deficit, excluding Covid-19 spending, has doubled since 2019.
In the minds of voters, these exceptional expenses financed by new debts nevertheless mark an almost “ideological” break: the French discover with amazement that the State can still go into debt without collapsing, contrary to the alarmist discourse held among other by François Fillon when he was Prime Minister of Nicolas Sarkozy.
And today, it is still “spending more” that is on the agenda, since the war in Ukraine requires new massive expenditure: in support for households exhausted by the rise in the price of gas, electricity and now fuel. The State will have to devote tens and tens of billions of euros to it. In defence, the budget could increase from 2 to 3% of GDP.
Are the Maastricht rules still the cursor of public finances?
Emmanuel Macron and Valérie Pécresse for the Republicans both promise to return to a deficit below the 3% of GDP mark by 2027, as provided for in the stability and growth pact. It would be necessary to cut back on 70 billion euros over 5 years to achieve this according to the Montaigne Institute. In view of their proposals, the experts are skeptical about their commitments.
In the entourage of Marine Le Pen, the candidate of the National Rally likely to arrive in the second round, it is considered unnecessary to take these criteria into account since no French government has ever respected them. On the left, we are counting above all on the relaxation of the stability pact which has been put on hold since the emergence of Covid-19. Expenditure related to the energy transition could be excluded from the scope of calculation of deficits, proposes the environmental candidate Yannick Jadot.
What are the budgetary challenges awaiting the next French government?
It will be necessary to find new resources to finance the increase in priority expenditure which has become unavoidable and on which all the candidates agree. Like energy transition and defence, but also health and school. More taxes are not the first choice of candidates for the Élysée, most of them, on the contrary, want to eliminate them.
The far-right candidates want to end all aid to foreigners, which they estimate between 17 and 20 billion euros. An electoral idea deemed not very credible, just like the reduction in the contribution to the European budget put forward by Valérie Pécresse.
Jean-Luc Mélenchon wants to cancel his Covid-19 debt. Finally, retirement at 65 is a track proposed by Valérie Pécresse and Emmanuel Macron, 64 for Eric Zemmour, while Marine Le Pen and Jean-Luc Mélenchon want to return to retirement at 60.
► IN BRIEF
The war in Ukraine will cost France at least half a growth point
Depending on oil trends, growth will be reduced this year by 0.5 to 1.1%, the Banque de France announced. However, it expects at least 2.8% growth.
Russia’s default is imminent according to the IMF
The state is however low in debt, but the sanctions deprive it of access to its dollar reserves, so it will not be able to settle the due date on Wednesday.