[Money Talks] Why has France, the second largest country in Europe, become like this?

# France, a country of culture and art that is visited by many people from all over the world, is shaking. Ahead of the presidential election, teenage high school students and teachers from Generation Z (born 1995-2007) took to the streets, angry over old classrooms and a plan to reduce teachers.

It is difficult to believe the reality of France seen from afar across the sea. The sight of high school students protesting against the police, holding placards and smoke bombs amidst tear gas, is shocking in itself.

Isn’t France the second largest economy in Europe after Germany?

In the global financial market, France is evaluated as a more risky country than Greece or Italy, which were the epicenter of the financial crisis in Southern Europe in the past. France's 10-year government bond interest rate is close to 5%, the highest in over 20 years, and is higher than that of Greece and Italy. How did France, which boasted the world's best welfare and artistic and cultural prosperity, fall into such decline?

# This crisis is not a sudden bad news. The biggest cause of France's downfall was the excessive fiscal deficit and debt that had accumulated over the years.

France continued to implement expansionary fiscal policies in response to the COVID-19 pandemic (a global pandemic of infectious diseases) and the energy crisis. France's government expenditure to gross domestic product (GDP) ratio exceeds 57%, competing for first place among Organization for Economic Co-operation and Development (OECD) countries. France has not had a fiscal surplus for 50 years since 1974, and its national debt exceeds 110% of GDP.

In addition, political instability and populism are also considered factors that worsened the crisis. After the early general election, the National Assembly was divided into a three-party structure, losing policy momentum to lead austerity and fiscal reform, and populist promises such as tax cuts and welfare expansion were poured out. Whenever conflict arose, the government issued government bonds and used money to soothe public sentiment.

To make matters worse, the era of high interest rates has maximized risk. A large number of government bonds issued during the ultra-low interest rate period are coming to maturity, and as the interest rate on 10-year government bonds rises to 5%, we have entered a snowball phase in which interest costs are growing like a snowball. There is over $1 trillion in debt due by 2030, and interest costs alone amount to tens of billions of euros each year. In the end, when the French government cut 4,000 teachers and cut public infrastructure budgets to avoid national bankruptcy, students poured out into the streets.

# What about Korea? It is fortunate that the national debt-to-GDP ratio is around 50%, which is much lower than that of France, but it is worrisome that the debt is growing rapidly.

The total fertility rate is the lowest in the world at around 0.7, and the country is rapidly entering a super-aging society. In the future, mandatory spending on pensions, health insurance, and basic pensions will inevitably increase.

Although France's birth rate was relatively high in Europe at around 1.7 to 1.8, its pension and medical finances were in ruin due to aging and a rapid increase in the number of retired people.

Like France, Korea's ruling and opposition parties, which engage in unproductive political strife, have long been recognized as a factor that increases fatigue and danger rather than the safety of the people.

A crisis like France can happen in any country, at any time. We must keep in mind that if we miss the golden time for reform, the pain may fall on young people like in France.

Moreover, Korea's won is a non-reserve currency that is vulnerable to external shocks. If trust in the global market is lost, it may not only lead to a rise in government bond interest rates, but also lead to risks such as a surge in exchange rates (a sharp fall in the value of the won) and capital outflow. We must listen to the screams of French Generation Z.