LFrance is not in an economic crisis, but a political one. Of course, the economic situation is not very bright, but, with 1.1% growth in 2024 and unemployment of 7.4%, the situation has nothing to do with the great financial crisis of 2008 or even with the Eurozone crisis. Politically, on the other hand, the self-inflicted wound by Emmanuel Macron with the dissolution of the National Assembly is becoming infected. No camp seems ready to compromise and France's ability to vote on a budget for 2025 remains doubtful.
Gradually, the gap between the borrowing rate of Germany and that of France (the spread) increases: it was 0.5 points before the dissolution and is around 0.8 points today. It is not a storm, rather a gradual erosion of budgetary room for maneuver. It is also the continuation of a slow loss of credibility of French leaders: before 2008, the spread was close to zero. In the eyes of investors, the signature of the French and German governments then had almost the same value. Another era.
This tragicomedy of the French political class could, however, have been much worse. France – and Emmanuel Macron – is extremely lucky: the dissolution took place while interest rates across the eurozone were falling. Inflation, which had exceeded 10% at the end of 2022, is now under control, which allowed the European Central Bank (ECB) to reduce its key rate from 4% at the start of June 2024 to 3% today. This logically has repercussions on France's interest rate: on average, the State borrowed at 3.06% in 2024, compared to… 3.16% in 2023, according to the annual report from Agence France Trésor.
Lessons to learn
In normal times, the decline should have been significantly greater and the French government should have found additional room for maneuver. Other countries are benefiting: Portugal and Spain now borrow cheaper than France. But French political whims have so far not had irremediable consequences.
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