There is of course “good debt”, that which is used to finance productive investments which have a multiplier effect and repay themselves. This impact is multiplied when interest rates are low. Thus, from the arrival of Mario Draghi at the head of the European Central Bank (ECB) until the end of the Covid-19 crisis, the country benefited from an exceptional environment of zero interest rates, or even negative. It was a historic opportunity, unfortunately missed, to massively raise debt on the markets and finance large strategic investment projects before the ECB lost its way in a record cycle of rate hikes.
“When the State applies short-term accounting logic to hospitals, universities, and armies, it weakens the growth potential and attractiveness of the country. »
But when the State finances health, schools, universities, child welfare, defense, etc. should we consider that these are not also long-term investments? A country without elites, without citizens trained in language mastery and the exercise of judgment, without an efficient health system open to all, is exposed to the decline of its productive forces. When the State applies short-term accounting logic to hospitals, universities and armies, it weakens the growth potential and attractiveness of the country.
No, France is not bankrupt
Thus, unilateral debt reduction policies generally produce effects contrary to those expected. As economic history shows, “rigor” inevitably results in a reduction in growth and tax revenues and… in an increase in debt with the addition of the occurrence of social unrest. This was the case in the 1930s when most European democratic states drastically reduced public spending while desperately clinging to the gold standard.
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The situation repeated itself in 2010 with the absurd austerity policies carried out within the “euro standard”: by having sold its ports, postponed the renovation of infrastructure and tightened the screws on populations, Europe mortgaged its future growth and made itself more dependent on external demand. It has since shown a major growth deficit compared to the United States, which has further accentuated since the end of Covid-19 with the strongest monetary tightening in the history of the euro zone.
Furthermore, the debt problem must be taken into account in its proper proportions: public debt represents 3,000 billion euros, or approximately 100% of gross domestic product. But the net wealth of individuals, the State and companies is estimated at… 20,000 billion. So we have some room. Furthermore, a State is not a household, it always has the possibility of getting out of trouble on its own like Baron Münchausen launched himself towards the Moon by projecting himself by his shoelaces. Contemporary France (unlike Germany) has never defaulted on its debt.
“In this context, those who regularly relay the absurd idea that France is “a failed state” incur a heavy responsibility. »
Berlin's little game
Our creditors know that the country has stable long-term resources, guaranteed by a diversified economy and willingness to tax. This is why French debt is particularly appreciated by international investors. In this context, those who regularly relay the absurd idea that France is “a failed state” incur a heavy responsibility. Sowing concern about the quality of the country's signature or that of our European friends is criminal. This little game played by Berlin at the time of this unfortunate and totally self-inflicted episode of the “euro zone crisis” cost a lost decade from which Europe has not yet recovered.
So, rather than worrying about the “debt” by pursuing deflationary policies, European leaders would do better to think about reviving internal demand. Europe does not suffer from debt (the average debt of the euro zone is 90% of GDP) but from chronic underinvestment and suboptimal consumption. With China once again exporting its manufacturing deflation and America closing down, it must rely on itself and implement a growth strategy similar to that of the United States. What we need is an economic New Deal, accompanied by an appropriate monetary policy. Is this turning point so difficult? Germany has become the main victim of the curbs it has imposed on its neighbors. The idea of a more autonomous Europe, less dependent on Chinese demand or Russian gas, is taking root in people's minds. To avoid the decline that has haunted it since 1914, the Old Continent must break with economic conservatism of which the obsession with debt is the unhealthy figure.