France’s debt is surprisingly high – but experts aren’t worried – fr

France’s debt is surprisingly high – but experts aren’t worried – fr

A French tricolor in hands of the Arc de Triomphe.
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LONDON – Unlike other euro countries, France does not intend to significantly reduce its public debt in the near future.
But market watchers and economists don’t seem bothered.

The eurozone’s second-largest economy projects its public debt ratio to stand at 117.8% in 2021 and decline only slightly to 116.3% in 2022. Goldman Sachs estimates suggest that French debt will remain at the same level until at least 2024.

“France stands out as the only major country in the eurozone where we, and external forecasters, do not expect a significant reduction in the debt-to-GDP ratio by the end of our forecast horizon,” analysts said. the investment bank in a note. in April.

“We forecast a French public debt of 116% in 2024, down slightly from 2020 levels, while we expect a notable drop in Germany, from 71% to 68% and in Italy from 156% to 151%”, they added.

France has long struggled with high debt levels and the pandemic has naturally made the situation worse. Its long history of debt is one of the reasons economists believe there will not be a massive improvement in the years to come.
France has not seen a “steady decline in debt for decades,” Sarah Carlson, senior vice president of Moody’s, told CNBC on Tuesday.

Data collected by the International Monetary Fund shows that France’s debt has increased since 2010, when it stood at around 85% – above the EU-recommended threshold of less than 60% of debt by to GDP (gross domestic product).

Jessica Hinds, an economist at Capital Economics, said there were two main reasons France posted high debt levels: it runs persistent primary budget deficits and its sluggish economic growth has made it harder for the government. reduce the debt burden.

“Over the whole of 2010 to 2019, France’s borrowing costs were on average slightly lower than nominal GDP growth between 2010 and 2019. But the persistence of the primary budget deficit (public borrowing) meant that despite that the debt ratio did not go down, it just stabilized at a high level, ”she said.

In addition, Goldman Sachs also declared that its research “has shown that over the course of history, French fiscal policy has tended to respond less to rising debt than other major euro area countries”.

This will likely remain the case as the country prepares for a new presidential election next year and the country continues to grapple with the Covid-induced crisis.

At this point, I would be more worried about a premature return to austerity.

Jessica Hinds

economist at Capital Economics

“We don’t expect France to adopt a new fiscal rule before next year’s elections, as we believe President Macron is unlikely to push through a fiscal consolidation program ahead of the election.” said Goldman Sachs.

But at the end of the day, analysts believe that France’s not focusing on its debt at the moment doesn’t make a huge difference. Indeed, interest rates are low and fiscal stimulus is needed to cope with the economic crisis.

“At this point, I would be more worried about a premature return to austerity which could dampen the economic recovery rather than a slow reduction in the debt burden,” Jessica Hinds, economist at Capital Economics, told CNBC by e-mail.

Carlson of Moody’s also said that “what matters is affordability of debt” – the ratio of annual interest payments to maintain a government’s debt to its annual tax revenues. And she added that France is able to finance itself at cheaper prices now than in 2015.

The French 10-year government bond yield is currently trading at around 0.153% versus 1.2% at its 2015 high.


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