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AB 2000 studies

Alain Boublil Blog


french public debt : the wrong debate

The creation, by the National Assembly, of a select Committee in charge of inquiring about the situation of the public finances, chaired by a deputy, belonging to the opposition, a member of the republican party, Philippe Juvin, is just another new episode of this long controversy about the country public indebtedness. But what is the importance of the report which is going to be elaborated? Is it to make a pressure on the government during the preparation of the 2025 finance bill which will be presented in September or is it to make an objective analysis of the origin and of the risks weighting on the French economy, generated by the very high increase of the public indebtedness since 1995?

Even if the quoted figures will show the indisputable character of that trend, everything allows to thinking that the analysis of the real data will disappear behind an alarmist message dedicated to weaken the government. It is likely that the issue of the real cause of the sharp increase of the public expenditures and so of the deficits and of the country indebtedness with its economic consequences will remain into the background.

To have at our disposal the pertinent elements of appreciation, it convenes to choose the right indicators. The public indebtedness definition must be the one made by INSEE, i.e. the net indebtedness after deduction of the deposits and of the tradable debts and not the debt according to Maastricht definition, by nature higher, but which does not constitute a rigorous indicator of the situation. Then, the usually employed concept, also in conformity with the Maastricht treaty, is the ratio between the debt and the GDP. But this one is not pertinent because it compares a flow, the GDP, with a stock, the debt. When it is searched to evaluate the ability of a country to reimburse its debt, its solvability is function of that of its economic agents with in the first position are household and not its yearly production of goods and services.

In 1995, the household financial assets represented 1648 billion euro (after conversion) and the net public debt 567 billion, i.e. a ratio of 34.4%. In 2023, still according to the INSEE and Banque de France statistics, the related figures were 6185 and 2870 billion, i.e. a 46.4% ratio. The indicator increase is so much lower than the one given by the Maastricht rules which has almost doubled. The France solvability is so much less hurt by the increase of the public debt than it is pretended. This statement is heightened by the point that a significant quantity of the debt is today detained by the European Central Bank.

The rating agencies Fitch and Moody’s have made the same constatation through the confirmation of the France high grade with stable prospects. The financial markets are still massively subscribing Treasury and mid and long-term bonds. The spread with Germany around 50 basis points, is also stable when the public finances trends of the two countries are diverging for a long time. The technical argument about the risks of an excessive indebtedness is so not convincing.

The political argument according to which the current generation transfers to the future ones the charges it has not wanted to assume is even less because the next generation will certainly inherit the debt but also the wealth to reimburse it which, due to the high saving rate of the seniors, is not stopping to increase. Between 2012 and 2023, household financial assets have increased by more than 2 000 billion euro. Atop of that, and it is what happened since the creation of the financial markets, nothing will impeach them, to their turn, through leaving the State to have recourse to borrow, to transfer this debt and their accumulated wealth to their own heirs.

The debates which will start with the Committee meetings, risk to be mainly political because the purpose will be to hold up threats in putting forward largely overestimated situations and using it to put into difficulties the government. But, then, they will ignore the true problems: the quality of the debt management and the volume and the destination of the public expenditures.

The public debt charge will increase in the future, less in reason of the interest rates rebound and of the deficits than due to its past management by the State. During the period when the interest rates were very low and even negative, and against any logic, the agency in charge of the issuances has systematically proposed bonds carrying rates higher than market ones and has cashed “issuance premiums” corresponding to what that subscriber was ready to pay in advance to benefit, until its maturity, of rates higher than market ones. The State has been doubling the loser. The reduction of treasury needs thanks to the cashed premiums when the short-term rates were negative or nil did not bring any advantage but the future charges them, were artificially increased. Another mistake, the issuance of bonds indexed on French and even European inflation, which was worst. Today, France must every year include in its finance bill a provision to cover the over-cost of the reimbursement of these bonds, due to their indexation.

The second, and by large the most important problem is the one regarding government spending which does not stop to increase when its efficiency has never generated so many critics. The instauration of urgency measures to cope with the consequences of the Covid-19 pandemic, and of the different shields after the invasion of Ukraine by Russia in order to avoid a major energetic crisis were justified. But the structural trend of the public expenses is the result of the growing bureaucracy of the country for twenty tears.

The multiplication of texts and the creation of public operators have doubly weight on the economy. On the State and the local administrations side, operating expenditures increased when we would have expected, notably with the digitalization, significant reductions of both employee number and costs. To adapt themselves to a such invading and unstable environment, enterprises had to recruit which has weighted on the productivity, on growth and so on fiscal receipts and the public deficits. During twenty years the volume of laws and regulations has been multiplied by two. It exists today 438 State operators, organisms which are in charge of administrative functions with a legal existence without that the concerned administrations disappeared or, at a minimum, had known a reduction of their size.

It will so be difficult for a Committee of the Parliament to criticize the institution to which they belong when one of the main responsible of that costly bureaucratization is precisely the Parliament with the proliferation of bills and of amendments. But it is the credibility of its works which is at stake. The government action carries also a heavy responsibility. Every Minister, in order to justify its existence and to appear in the medias, is attempted to ask to its administrations to prepare a bill and to make it adopted by the Parliament. He so contributes both to the proliferation of norms and rules and to the legal instability of the juridic environment of the economic life which has heavy consequences on productivity.

Instead of agitating the debt red flag, the Committee would do better in remembering its May 1968 ancestors slogan and in concluding its works by a strong recommendation:” Only one solution, the simplification”.