The Debt: France Wants to Pool at European Level

At the time when France is worried about a risk of second wave of Covid-19, a report draws up the already salty invoice of the first: a debt which explodes and which asks questions about its sustainability, according to a report Thursday of the Finance Committee of the National Assembly.

“The current economic crisis, induced by the health crisis linked to the Covid-19 pandemic, has led to a deterioration in public finances unprecedented since the Second World War”, worries this report presented by Laurent Saint-Martin, rapporteur General of the Budget to the Assembly.

The shock is indeed estimated “at this stage” at around 22 points of gross domestic product (GDP), according to the third amending finance bill which assesses the ratio of French debt to GDP at 120.9% or 2.650 billion euros.

“As a result, the state’s use of debt issues on the financial markets should soar to 361.2 billion euros in total – compared to 230.5 billion euros initially planned -, according to the draft amending finance law.

The European Central Bank (ECB), for its part, played a “decisive” role with its arsenal of accommodative monetary measures which made it possible to keep interest rates low.

But while the hot topic of debt was already igniting political leaders and economists even before the coronavirus, is such a level of debt sustainable?

“There is no single, defined level of the ratio characteristic of an unsustainable situation,” stress the authors, who interviewed several economists from different backgrounds.

They warn, however, against the deterioration of the image of France with its creditors and the weakening of growth.

The situation “must lead us to question ourselves with a new look at the lasting nature of this situation”, say the experts.

Especially since the crisis is not over and the stimulus plans “should not be financed by a significant increase in compulsory levies”, when the executive has just announced a stimulus plan of 100 billion d ‘euros funded for more than a third by Europe.

On taxes and economic measures, the document rightly highlights the dangers of austerity policies that have cost Europe precious growth points after the sovereign debt crisis.

Prime Minister Jean Castex rightly indicated on Wednesday that the debt resulting from the crisis would be treated separately with repayment spread over the long term via a dedicated resource.

This “will be reimbursed until 2042 so as to properly identify the debt which is linked to the expenditure of the crisis of the rest of the debt”, detailed the Minister of Finance Bruno Le Maire Thursday on France Inter.