According to a report by the British newspaper “Financial Times”, viewed by the “Sky News Arabia” website, borrowing costs in France exceeded their counterparts in Greece, in light of investors’ concern about the French government’s ability to pass a budget aimed at reducing the deficit.
French government spokeswoman Maud Bregon said that France is facing a “possible Greek scenario.” Finance Minister Antoine Armand likened Paris to “a high-flying passenger plane at risk of crashing.” Is France really facing a debt crisis similar to the Greek crisis?
The British newspaper report quoted Eric Haier, professor of economics at the Institute of Political Sciences in Paris, as saying: “At the moment, this is just a complete exaggeration.”
- France has full access to debt markets. It raised 8.3 billion euros on Monday.
- The yield on French government debt for ten years is about 3 percent. At the height of the debt crisis, the yield on Greek debt rose to more than 16 percent.
- The Greek economy had collapsed, exacerbated by punitive austerity measures, and Athens was engaged in a bitter battle with Berlin and Brussels over the terms of a eurozone bailout.
According to Heyer, the difference between French debt and German debt widened by only about 0.3 percentage points during the recent political turmoil in France.
- But investors are troubled by a combination of political paralysis and deteriorating public finances.
- The public deficit is likely to reach 6.2 percent of GDP.
- Paris is under pressure from markets and the European Union to take corrective action.
Although France has not run a balanced budget in five decades, it has reached a point where it can no longer rely on economic growth to keep its debt sustainable, the country’s Council for Economic Analysis noted earlier this year.
Budget crisis
France is facing a crisis in approving the budget. According to Antoine Bristel, director of the Opinion Observatory at the Jean Jaurès Research Foundation, the reason for the difficulty of passing the budget in the country is due to two factors:
- First: The government does not have an absolute majority, and this means that any text requires negotiation with the National Rally Party or the left-wing New Popular Front bloc.
- Second: Tight public finances mean that Prime Minister Michel Barnier is making difficult and unpopular choices to achieve his goal of reducing the deficit from 6 to 5 percent of GDP in 2024.
With such a narrow margin of manoeuvre, Barnier said he would likely have to use a constitutional procedure known as 49.3, which enables the government to pass legislation without a parliamentary vote, but also exposes it to a motion of no confidence.
Different situation
From Paris, writer and analyst Abdel-Ghani Al-Ayadi says in statements to the “Eqtisad Sky News Arabia” website:
- I don’t think France is headed toward a Greek-style debt crisis; Especially since the situation is completely different in terms of economic and political data.
- French public debt is about 110 percent of GDP, which is high but still far below the level of Greece’s debt during its crisis, which exceeded 180 percent.
- France’s budget deficit target of 4.9 percent of GDP is worrying, but it is far from the 15.4 percent deficit in Greece before the crisis.
- France is also able to borrow at interest rates ranging between 3-4 percent, compared to rates exceeding 10 percent in Greece, ensuring its continued access to global debt markets.
He adds: Thanks to its strong economy (..) and its position as a major driver in the European Union, France has great political and economic weight that helps it avoid severe scenarios. However, the persistence of deficits and high debt servicing costs make fiscal reforms, especially in the pension system and public spending, a necessity that cannot be postponed.
He concludes his speech by noting that France is not in immediate danger, but it needs quick action to ensure the sustainability of its debts and avoid future crises that may affect its leadership role in Europe.
France is not Greece
According to a report by the British magazine The Spectator,
- Bond markets have decided that French debt is a riskier bet than Greece, a country that fifteen years ago nearly destroyed the entire eurozone with its financial extravagance and irresponsibility.
- It is true that this reflects to some extent an improvement in Greece’s position, as well as a decline in France’s position. But the harsh reality is that France is in dire straits, and President Emmanuel Macron will struggle to fix things.
- It was inevitable that this critical moment would eventually happen. Since Macron threw the French political system into chaos in the spring with early elections that did not produce good results for his ruling party, bond markets have been demanding higher and higher prices for holding French debt. As Liz Truss discovered during her short tenure as Prime Minister, bond markets don’t like uncertainty.
The French Minister of Economy, Antoine Armand, said in statements to the French BFM television channel, that: “France is not Greece… France has an economy, job opportunities, economic activity, attractiveness, and far superior economic and demographic strength, and this means that we are not like Greece.” .
But according to the British magazine’s report, the French minister’s statements are not reassuring at all, given the level of the country’s financial deficit (..).
The report adds:
- Macron does not bear entirely the blame for this unfortunate situation.
- French politics is dominated by parties of the left and right that only want to spend more and more.
- If Prime Minister Michel Barnier’s government cannot pass a budget within the next few days, and it may not, bond prices could start to spiral out of control.
- But even if Barnier succeeds in finding a solution, the bigger problem remains: French overspending is structural.
- France has huge and expensive social welfare obligations that are difficult to reduce.
Pressure
From London, the economic expert, Dr. Anwar Al-Qassim, says in exclusive statements to the “Eqtisad Sky News Arabia” website:
- France, like the United Kingdom, faces significant challenges related to high public debt and fiscal deficits, which increase pressures on the national economy.
- The French national debt, which exceeded 100 percent of GDP, compared to 97 percent in 2019, represents a noticeable increase that reflects the increasing financial challenges.
- One of the most prominent economic concerns in France is the rise in government bond yields, especially after Standard & Poor’s lowered the credit rating on French sovereign debt to “AA negative.”
- Although the French economy has the elements of strength that avoid a fate similar to what the Greek economy went through in the past, French bonds, which were once considered an investment haven close to German bonds, today face major challenges that affect the stability of the economy.
He adds: “The escalation in debt service costs increases pressure on economic growth rates and deepens the public deficit… In light of the dwindling financial reserves, the continuation of this trend may push credit rating agencies to lower France’s rating again, which may lead to a severe economic situation.” The difficulty may be the worst since World War II,” he said.
Al-Qassim concludes his speech by pointing out that there is an urgent need for strict and rapid economic measures to control public debt and avoid worsening financial conditions in the near future.
Why did borrowing rise so sharply?
According to a report by The Guardian, French borrowing rose sharply after the Covid-19 pandemic and the war in Ukraine caused a global inflationary shock, as the government intervened to protect households and businesses, while weak economic activity drained tax revenues.
But analysts also said that the tax cuts launched by President Macron as part of his reform agenda to inject more free-market dynamism into the French economy undermined the stability of public finances.
The newspaper report quoted Leo Barenko, a prominent economist at the consulting firm Oxford Economics, as saying: “The main reason for the current fragile financial situation is related to the unfunded tax cuts under Macron.”
The main rate of corporate tax was cut from 33 to 25 percent, while the “solidarity tax” on wealth, which is levied on assets in excess of €1.31 million, was replaced by a much lower tax of 30 percent on capital gains from interest and dividends.
But taxes as a share of national income – although falling in recent years – remain at the highest level in the OECD. Spending also reached the highest level in the group of thirty-eight rich countries.
Andrew Kenningham, chief European economist at research firm Capital Economics, said France faces long-term problems, including pension spending at 15 percent of GDP, and “a political culture that makes cutting spending difficult.”
An alarming situation
For his part, Professor of International Economics, Dr. Ali Al-Idrissi, said in exclusive statements to the “Eqtisad Sky News Arabia” website that France, despite the rise in its public debt to unprecedented levels, is not currently facing the risk of a debt crisis similar to Greece’s experience.
However, he pointed out that the French financial situation raises concerns due to the complex global economic environment and recurring shocks, highlighting a set of key points as follows:
- French public debt exceeded 3 trillion euros in 2024, representing more than 110 percent of GDP.
- Despite this increase, the rating France As a country with an advanced economy, this gives it flexibility in borrowing compared to countries with emerging economies.
- France still has a relatively strong credit rating, allowing it to borrow at reasonable interest rates, unlike Greece during the height of its crisis.
- The French economy is diversified and significantly larger than the Greek economy, which mitigates the severity of financial crises.
- As a key member of the Eurozone, France enjoys direct political and economic support from the European Union, which is a major stabilizing factor.
At the same time, he points out a set of challenges facing the French economy, including the inflation of public spending, in that high spending on social care and public services constitutes a burden on the budget, and the modest growth rate hinders France’s efforts to reduce debt ratios compared to gross domestic product.
While Al-Idrissi confirms that Paris is not in a completely comfortable financial situation, he points out that it possesses the tools and economic flexibility to avoid major crises, stressing the importance of taking serious reform steps to ensure financial stability in the long term.
