“The French denial of the debt still has a bright future ahead of it”

2023-06-12 05:00:16

Lhe France is not close to a paradox. Ten days ago, while part of the country believed it was living in an “ultra-liberal” hell, another held its breath awaiting the verdict of the financial rating agency Standard & Poor’s (S&P) on the sovereign debt. Two diametrically opposed visions, but united in what remains our best national cement: a pessimism firmly anchored in the collective unconscious. Indeed, few were those who thought that we would escape degradation. France, with its 3,000 billion in debt, its budget deficit of nearly 5% of GDP and its record level of compulsory levies, can go back to sleep and continue to have nightmares of ultra-liberalism. The double A is maintained, even if it is with a negative outlook. Phew!

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The French denial on the debt is recurrent. But it grew with the illusion of free money fueled by zero interest rates. Learned minds explained to the French that living on credit was no longer a problem on the pretext that it was painless. Few warned that the anesthetic effect would not be permanent: sooner or later monetary policy would become more restrictive, and the annual debt burden would begin to rise proportionally.

Here we are. By 2027, it should reach 70 billion euros and represent the main item of State expenditure. So much money that will not be spent on our hospitals, our schools and, above all, the fight against climate change.

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Rather than worrying about the effectiveness of public spending, the debate is structured around two pitfalls: fantasized austerity, agitated as a foil, and taxes, presented as a universal solution. That France spends almost 10% of its gross domestic product more than Germany must challenge.

Artificial support for purchasing power

While the last balanced budget dates back to 1975, deficits widened with crises, while periods of calm were not taken advantage of to improve the situation. This unhealthy indebtedness is the result of a mixture of laxity and unconditional and largely artificial support for purchasing power. Artificial because decorrelated from the increase in productivity and the wealth produced, which, over time, makes its effects more and more sluggish and diluted among the population, fueling general dissatisfaction.

Consumption has become over time the main driver of growth. Public accounts have been sacrificed on the altar of this demand strategy, which neglects our production system, resulting in the deterioration of competitiveness and imbalances in the external balance. Since 2014, the supply policy implemented by François Hollande, then Emmanuel Macron, has tried to reverse the trend without dissipating the denial around the debt.

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