/ world today news/ France has realized that it has been living in debt for too long. The accumulated volume of liabilities already exceeds the national GDP, which still remains one of the largest in the world. Experts have a negative forecast – the hour of reckoning is coming. What brought one of the richest countries in Europe to such a fate?
The US public debt has long been a topic of conversation: the topic of possible bankruptcy comes up almost every year, prompting a wave of apocalyptic predictions. And every time the discussion of this topic resembles a theatrical performance: the supporting actors utter simple remarks and diligently escalate the tragedy, after which “stars” appear on the stage, uttering the main words – and the tragedy is canceled. The audience, some relieved, some disappointed, disperse to the next performance.
However, the US is not the only major country experiencing sovereign debt problems. In France, one of the eurozone’s two strongest economies, this has become increasingly difficult under President Emmanuel Macron. However, this is not only Macron’s fault, the pandemic also played its part. Previously, government debt was 100% of GDP, now it has risen to 111.6%. That’s about 3 trillion euros.
In April, Fitch downgraded the French sovereign debt rating from AA to AA-. This decision was justified by the social tension that arose due to the pension reform and the slowdown in economic growth. French Finance Minister Bruno Le Maire tried to attack, saying Fitch “underestimates the impact of the reforms” and generally “gives a pessimistic assessment”.
Perhaps the agency’s experts angered the authorities by publicly mentioning the “political impasse” in the country, but the finance minister did not touch on this topic. AA- cannot be called a black point for the economy: yes, France, according to experts, is moving away from Germany, whose public debt has the best rating – AAA, but it is still on a par with countries such as Great Britain, Belgium, South Korea or Qatar. Not such a poor company to worry too much about.
However, the French authorities were obviously very worried. On June 2, S&P was due to issue its rating. It is known that the Minister of Finance tried to influence the decision of the agency by promising, for example, to reduce the budget deficit by 2.7% of GDP by 2027. Also in the plans of the Ministry of Finance is to achieve a reduction of the public debt, so that at the end of this year it will be 109.6% of GDP, and in 2027 108.3%.
Since the French are a nation of realists, their media has prepared for the worst in advance and decided to mitigate the negative effect of a possible S&P downgrade by releasing former budget minister Eric Worth as spokesperson. He assured the public that if S&P followed the path of its peers and downgraded France’s sovereign debt, “the consequences will be more political than economic” as “the opposition will use this occasion” as a trump card. As for the downgrade option itself, it “most likely won’t have much of an effect as it has already been exhausted with the previously given rating.”
Sylvain Berzenger, an economic expert at the Aster consulting firm, expanded on the topics raised by the former minister in the interview. “Economically, the downgrade will almost certainly mean very little. Valuations of this kind only have an impact when they start to mistrust investors. For several years, we have seen in countries like France, Japan or the United States talk that the downgrade has practically no consequences,” he reassured the French.
In that case, asked the scathing journalist, if the rating doesn’t affect anything, then why did the government go out of its way to convince S&P not to downgrade it? Because, replied Monsieur Berzenger, “it has a certain symbolic meaning” and if, for example, you get a lower grade, they start looking at you “as a bad student.”
But while pro-government pundits tried to unanimously sing their own version of the “It’s all right, pretty marquise” song, Elab’s poll showed that Fitch’s downgrade did not go unnoticed by citizens – they took it as an alarming sign. 70% of respondents thought it was a negative event, including 19% who decided it was not just negative, but extremely negative. This feeling is present in all sections of society, but it is mostly felt by the right-wing (84%) and the poorest sections of the population, who have to save or borrow to last until the end of the month (74%) .
Economist Marc Touati has written an extensive piece on French national debt with a historical excursion that makes it clear that citizens’ fears are far from unfounded.
The last year the government was able to make ends meet and operate without a deficit was 1974. When spending exceeds revenue, one begins to live in debt – and that includes the country. If the borrower carefully repays his debts, it is not difficult for him to find new creditors. In fact, life is obtained at someone else’s expense, but at the same time tasks are solved that are important for the state at a given time.
It is convenient to live on credit, but a person can still stop, but the state, obviously, cannot. The change of power leads to the fact that the government debt pyramid is inherited from one government to another, acquiring new obligations. An example of this is the American national debt, and now apparently the French one as well.
The Covid epidemic and the conflict in Ukraine have significantly increased France’s budget deficit. To cover it, on the one hand, you need to take a loan again, and on the other hand, try to reduce costs. And that’s why they raise the retirement age and reduce hospital staff – these are already the most painful topics for society. In France, it is difficult to find work at pre-retirement age, and the saving on junior medical staff means that no one wants to take such a job.
But Bruno Le Maire can present figures and boast that the Ministry of Finance has achieved an improvement in the situation by some percentage.
One of the main pitfalls of public debt is that at some point the economy can no longer handle it. The French economy in the last ten years is just one of them all. According to Fitch, in 2012 the French government debt had the highest AAA rating, in 2013 it fell to AA+, in 2014 it fell to AA- and remained at this level until April this year. The next stage, A+, now moves France from the category of reliable borrowers to the category of less reliable.
Because, as the same Touati writes, “France persistently proves its inability to reduce the deficit and the public debt.” From 2008 to 2023, the average annual budget deficit was 4.9% of GDP, with peaks of 7.2% in 2009 and 9.1% in 2020. Government debt in 2007 was 64.7 % of GDP, having almost doubled to date. In 2020-2022, public debt increased by €575.1 billion, while GDP increased by only €201.6 billion.
According to Touati, France’s economic difficulties form a “vicious circle”, and the constant decline in the rating is a sign of a worsening situation.
As a result, S&P showed an example of Solomon’s decision: it left the French sovereign debt rating at the same level, but with a negative outlook. Let’s say that the patient is more likely to be alive than dead, but may die someday – if the economic problems are not addressed.
Curiously, many participants in the above study suggested taking money from the rich to solve these very problems, but the French government would not agree to this. At least the current one.
Translation: V. Sergeev
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