Meanwhile, France is in the midst of a real financial crisis as its debt stock and yearly deficits go through the roof. No wonder—the country enjoys the second-largest economic output in all of Europe. Yet it strikes a deep contrast with the United States, which reaps the benefits of being home to the world’s most entrenched reserve currency. This lack of homogeneity or disparity between the bonds makes it difficult for France to borrow efficiently.
France’s annual interest costs just recently reached an all-time high of 67 billion euros. During that same time, the national debt has tripled. It popped up from 98% of GDP in 2019, a pre-pandemic starting line, to 114% in 2020. All told, these figures are nothing less than alarming. Despite all that, France’s debt is considerably less than Greece’s, which is 152% of GDP, and Italy’s, at 138%. Even more definitively, it is a little less than the U.S. debt, which as of now is at 119% of GDP.
In a twist that would make Jean Valjean cringe, France’s annual deficit shot well above predictions last year to 5.8%. This number far surpasses the 3% cap set by European Union rules. All this is made more complex by the fact that France has the highest taxation in the EU. They make up, by the way, a jaw-dropping 43.8% of GDP.
While President Emmanuel Macron navigates this fiscal crisis, his government has lost the ability to command a working parliamentary majority. The legislature has at best been capable of defeating austerity measures and bringing down prime ministers. One year later Macron finds himself on his fourth prime minister as political instability continues to tumble alongside the euro into the short term economic chaos.
France’s total debt has actually been above 90% of yearly GDP since before the financial crisis, having crossed that threshold in 2008. It was sustainable because of consistent growth and ultra-low interest rates for most of the last 10 years. That changing tide Despite having this ideal environment, the tide has turned with both the cost of borrowing and level of deficits having spiked.
Economists are calling for urgent fiscal adjustments. According to economist Gábor Darvas, “So again we come back to the same position… that in whatever world, France will have to do the fiscal adjustment.” He underlines the need for France to act urgently to shore up its economy.
In light of these challenges, experts suggest that the French government will need to implement a combination of tax increases and spending cuts amounting to around 5% of its gross domestic product over the next few years. This would threaten the very foundations of public services and welfare programs that are a cornerstone of French culture.
“The risk could rise if legislators continue to reject common sense and insist on unfinanceable demands,” Darvas warns. And laments whether France, the most proud and culturally intransigent nation in Europe, will go to the central banks and International Monetary Fund. Will it request support from the European Stability Mechanism (ESM), or the IMF?
Despite these disappearing opportunities, the French have still managed to keep a relatively welfare state with strong worker protections that are very popular as a culture. Making these important social commitments while being fiscally responsible has gotten harder and harder. France last balanced its budget in 1973—a sobering marker on the extensive, albeit stubbornly proud, history of the country’s struggles with public finance.
