The amount is astronomical. 3,228.4 billion euros in the second quarter of 2024, or 112% of gross domestic product (GDP)… This is the amount of french debt. If we compare with our European neighbors, our debt is high: we are on the podium, behind Greece (163.6%) and Italy (137%). But the most worrying thing is that we are going uphill… In 1995, our debt represented only 57.8% of GDP!
But how did we get to this point? If you have followed the previous episodes, you will know that debt is the result of the accumulation of deficits… well, it’s simple: for fifty years, France has never managed to present a balanced budget! “Regardless of ideology, I think we can recognize that politicians have been unable to properly manage our French public finances,” points out Christopher Dembik, an investment strategy consultant at Pictet AM, a Swiss bank.
He’s not wrong: left and right have shown equal laxity regarding our public finances. On the spending front, all governments have rushed to write checks and have not gone far enough in the difficult reforms that would have allowed us to control our accounts… It must be said that the french have a tendency to shout about austerity at the slightest reduction of increased spending, demand more and more public services and expect the State to solve all problems. While our generous social model, built during the Trente Glorieuses, continued to be undermined by weakening growth.
Is it the fault of the crises?
The pension reform is certainly the most emblematic case. If the original sin was committed by François Mitterrand, who in 1981, when the decline in the birth rate had already been underway for several years, raised the retirement age from 65 to 60, his successors were not up to the task. they were content to patch up the building a little, leaving the population bomb intact for the next one.
On the fiscal front,some have chosen the strategy of beatings (with the risk of stifling growth,as at the time of François hollande’s fiscal shock),while others,such as Nicolas Sarkozy or Emmanuel Macron,have preferred to lower them… but without aligning opposite equivalent economies, hoping that the renewed growth would be enough to offset the deficit.
Of course, our galloping debt can also be explained by crises, such as those of subprime mortgages or the Covid pandemic. From an economic outlook, it is indeed justified to let deficits fade away in these difficult times, to avoid entering the vicious cycle of depression. But France has remained trapped in what economists call the ratchet effect: we are unable to reduce our debt once the crisis is over…
Why did rates drop?
Easier access to financial markets and the eurozone umbrella, which has allowed us to lower interest rates, has also helped us get into debt more easily than before.in recent years, the monetary policy of the European Central Bank (ECB) has also reduced the burden of debt: interest rates have fallen, and sometimes even become negative! An oddity: creditors paid to grant loans to Eurozone states…
We better understand why our political leaders were in no rush to reduce debt when rates were at rock bottom. “It was an astounding phenomenon: the debt was increasing and yet the debt burden was decreasing thanks to the decline in interest rates. We were all addicted to cheap money, even the most liberal economists who had previously told us we had to get out of debt,” Michel Sapin, former finance minister under François Hollande, confided to us last autumn. An era that now seems truly over. The burden of debt is once again on the rise, and once again we feel its immense weight…
Next episode: Is having debt serious, doctor?
– How can France implement accomplished strategies too reduce its debt without negatively impacting public services?
Interview between Time.news Editor and Economic Expert
Editor: Welcome to time.news! Today, we have Dr. Isabelle fontaine, an esteemed economist and expert on public finance, with us to discuss an alarming topic: France’s soaring national debt. Dr.Fontaine, could you start by elaborating on teh figure that has recently come to light—3,228.4 billion euros in the second quarter of 2024, amounting to 112% of France’s GDP?
Dr. Fontaine: Thank you for having me! Yes, it’s indeed a staggering figure. France’s national debt has now surpassed the psychological threshold of 100% of GDP, a level that indicates a serious fiscal challenge. This number not only reflects economic policies and government spending but also highlights the country’s reliance on borrowing to fund public services and investments.
Editor: When we compare this to other European nations,France seems to be among the highest. Greece is currently at 163.6% and Italy at 137%. How does this placement affect the perception of France’s economic stability?
Dr. fontaine: Being on the podium of high debt levels, unfortunately, signals potential vulnerabilities to foreign investors and economic partners. While each country’s situation is unique, high debt-to-GDP ratios can lead to increased borrowing costs, especially if there is a lack of confidence in a country’s ability to manage its finances. So, it raises questions about fiscal sustainability and future economic growth.
Editor: so, what are some of the potential risks for France if this trend continues?
Dr. Fontaine: The risks are multifaceted. First and foremost, high debt levels can constrain the government’s ability to respond to economic shocks. If revenues fall, the government could struggle to meet its obligations, leading to austerity measures that could impede economic growth. Furthermore,servicing that debt—paying interest—becomes more expensive,which could divert funds from critical public services like healthcare and education.
Editor: You mentioned the concept of “austerity measures.” Could you explain what these are and how they could specifically impact the French population?
Dr. Fontaine: Austerity measures typically involve cuts to public spending and increases in taxes to reduce budget deficits. For the French population, this could mean reduced public services, higher taxes, and a slower growth environment. It can lead to social unrest, as we’ve seen in past movements in France regarding taxation and public service cuts.
Editor: It sounds quite daunting.Are there any strategies or models from other countries that France could adopt to manage its debt more effectively?
Dr.Fontaine: Definitely. France could look at how countries like Germany have handled their debt through stringent fiscal discipline and economic reforms that focus on productivity. Additionally, countries that have embraced innovation and technology effectively have seen higher growth rates, which can create a larger economic base to support debt repayment. Investing in growth sectors—like green technologies—can also be a path towards sustainable financial health.
Editor: Given the current economic climate and pressures from external factors,what immediate steps should the French government take to address this debt crisis?
Dr. Fontaine: Immediate actions could include engaging in a thorough review of government spending to identify inefficiencies and prioritize essential services. A proactive approach to tax reform that fosters growth could also be beneficial.Furthermore, engaging in dialogues with European partners to explore more flexible budgetary rules in response to unprecedented economic circumstances may help buffer against future shocks.
Editor: Thank you, Dr.Fontaine, for sharing such valuable insights.it’s clear that while France faces critically importent challenges, there are also opportunities for reform and recovery. We look forward to seeing how these developments unfold.
Dr. Fontaine: Thank you for the opportunity to discuss this pressing issue. It will certainly be an engaging time ahead for the French economy.