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Alain Boublil Blog


The crisis bill

After having set out his rebound plan intended for supporting the French economy bounce back after the deep recession caused by the covid-19 epidemic, the government, last week has presented his finance bill project along with his social security bill project for the year 2021. These two texts give a first estimation, for the year 2020, of the consequences of the crisis, on public and social security finances, and the figures, open to be updated during the year, regarding expenditures and receipts for next year. So we start to have a more precise idea of the cost for public finances of the sanitary crisis and of the recession which resulted from it.

The crisis has had two effects for the State. It has, first, due to enterprises activity and  household consumption downturns, generated a fiscal receipts fall of about 15 billion euro during the first eight months of the year. In the same time, to soften the consequences of the recession on employment and on the enterprises situation, the State had to increase its expenditures. Based on the full year, the cost of part-time employment supported by the State, would reach more than 20 billion euro to which must be added the several direct measures in favor of enterprises for about 10 billion. Atop of that, the state had guaranteed for an amount of 120 billion euro loans offered by banks to enterprises. A large share of these loans went to abound their cash position, as a signal of their worries about the coming situation. But if these measures have allowed to reducing unemployment increase, they didn’t impeach it. At the end of the third quarter, there were near 700 000 more jobseekers having no activity than at the beginning of the year. The unemployment insurance deficit would reach 25 billion in 2020.

The Social Security system, for the same reasons, has not been saved. Almost back at equilibrium in 2018 and 2019, the general regime would know in 2020 a 44 billion deficit and a 27 billion one in 2021. The diminution of the perception of contributions has affected all the branches but it is health and pensions regimes (respectively 30 and 8 billion deficit in 2020) which have endured the heaviest shock. The measures which will come into application next year with the wages revalorization in hospitals and in retirement establishments represent almost 6 billion. These estimations do not seem to have taken into account the cost of the persisting outbreak with the second wave announced for this autumn and its consequences on the occupation rate of hospitals.

Confronted with these deficits, the government has presented a “rebound plan” which would, in theory, allow, thanks to the recovered growth, to get back fiscal receipts and social contributions, to generate job creations which will contribute to reduce the cost for the State of unemployment and which will find social contributions. But this plan, because it lays, for most of it, on structural transformations and because it targets sometimes contradictory objectives, would not have significant impacts on the very short term. In these conditions, the budget deficit forecasts of 195 billion in 2020 (after 96 billion in 2019) and of 153 in 2020 and 2021 could so be too much optimistic, especially if new partial or total confinement measures were to be decided.

The public indebtedness ratio would be near 120% of GDP at the end of the year, the double of the maximum ratio inscribed in the Maastricht Treaty, which shows that its criteria have become obsolete and that there is an urgency to reform them. But the risen issue today is to know who, at the end, will pay for its reimbursement. Until now, financial markets, partly fed by ECB purchases, under the growth support program decided by Mario Draghi, confirmed by Christine Lagarde and even amplified to cope with the consequences of the sanitary crisis, have absorbed without any difficulties France as other major euro-zone members States financing needs.

In 2020, after having added the mid and long term bonds arrived at maturity (130 billion) to the budget deficit financing, the level of 300 billion has been over passed. Until now, the revised mid and long term issuance program until 260 billion has not met any difficulty to find subscribers, as the 40 billion short term one. The State, thanks to issuance premiums resulting from issued bonds carrying rates subscribed at higher interest rates than the market ones, has been able to increase its cash position. Regarding 2021, the program forecasts an about 40 billion budget deficit reduction, and a level of issuances stable around 260 billion of mid and long term bonds but with a sharp reduction of short term ones.

The increase of the volume of issued loans has not, to the contrary, generated tensions on interest rates. Their level remained negative (-0.25% as an average during the last three months for ten years maturities) and the spread with the German Bund even reduced itself, down under its structural level of 30 basis points, as another sign of the absence of any markets doubts on France solvability. So the debt charge will continue to fall and to be significantly under 30 billion next year, when it was above 40 billion five years ago. It will stay at this low level during many years since the issued bonds have a long maturity. During this period, they will cost nothing, or even they will bring some receipts due to negative interest rates. But that situation is not sane, as most of observers notice it.

The only way to pay the bill of the crisis, it is the return to growth, which will generate new resources and, especially which will put an end to all these expenses (part-time or full unemployment) which have been decided to soften in the short term its consequences. The 100 billion rebound plan presented by the government had this purpose as an objective. Unfortunately and despite announcements effects which have looked for minimizing it, its expenditures will be split during several years and its short term impacts risk being very limited. Especially, it lays on an economic philosophy, the supply-side policy, whose efficiency has not been proved since it has been put into practice near ten years ago at the beginning of François Hollande mandate, with notably the “CICE”. Growth remained low, unemployment, even with a small fall until the apparition of the sanitary crisis, too high and the trade deficit still excessive.

The debate about the crisis bill must not be concentrated on the level of the deficits and of the public debt to afraid and to make adopted unpopular measures like the liberalization of the job market or alike the pension reform. They would generate an increased employees precariousness and threats on the pensioner level of life, which will not contribute, to the opposite, to bring back the confidence, indispensable to the return of growth. It is the effectiveness of public policies adopted to bring French economy out of the crisis which is in question. So it is not the debt trial which must be done but the supply side policies one.       


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