France is the bad student of Europe

Even if the European Commission welcomed on Tuesday the French desire to restore its accounts, the French debt reached 3,228 billion euros. France today borrows more expensively than Spain, Greece, Portugal or even Italy.

Michel Barnier reminded us on Tuesday November 26 on the 8 p.m. news on TF1 that our debt has reached 3,228 billion euros. To finance it on the markets, France borrows at increasingly high interest rates, much higher than those of Germany. The gap between the two countries has never been this high since 2012, during the eurozone crisis. For a 10-year loan, French interest rates stand at 3.05%, compared to 2.21% for our German neighbors.

As Michel Barnier pointed out, this difference, called “spread”, is a warning signal. It reflects the confidence — or rather the distrust — that investors, particularly Chinese and American, have in our economy. Despite the recession and its political upheavals, Germany remains perceived as a safe haven; France today borrows more expensively than Spain, Greece, Portugal or even Italy.

For the markets, the French economy appears fragile. Until the dissolution of the National Assembly, they lent us without much risk. The country was seen as spendthrift but politically stable, capable of carrying out reforms and repaying its loans. Today, the situation has changed. The fear of seeing the budget rejected and the government on borrowed time worries investors. Result: when they now lend to France, they ask for high risk premiums.

However, Brussels officially supports our budgetary trajectory. The European Commission expressed its opinion on Tuesday on the budgets of the Member States, welcoming the French desire to restore its accounts. But what are these encouragements worth when our public deficit reaches 6.2% of GDP? France records the worst performance of the 27 Member States, with the exception of Romania. France remains subject to an excessive deficit procedure with the European Commission.

Today, France is Europe's bad student. Michel Barnier does not dramatize the situation, because the deterioration could get even worse. Next Friday, the Standard & Poor's rating agency will deliver its verdict. In the current context, it could give our debt a negative outlook, which would further increase interest rates. With a debt exceeding 110% of GDP, the interest burden could very quickly become our largest expenditure item, surpassing education or defense. An over-indebted France then risks losing sovereignty.