The high spending on social services, defense and infrastructure is driving up national debt, and not just in Germany. The situation in France is now so tense that renowned economists are warning of a new debt crisis. “The debt crisis in France is very serious,” said economics professor Ulrike Neyer from the University of Düsseldorf to the “Rheinische Post”.
In France there is currently "a dramatic mix of high debts, extremely tense budgetary situations, hardly any economic growth, and political instabilities." “This situation significantly reduces investor confidence in French government bonds.” France is “currently the biggest problem in the euro area.”
Although Greece and Italy still had higher debt ratios, "Greece is now achieving budget surpluses and Italy has reduced its deficit to around three percent," explained the economist. Added to this is the unstable political situation in France, and there is no improvement in sight.
France is currently in worse financial shape than it has been for a long time. The government expects total debt to amount to 121.7 percent of gross domestic product next year. France is currently more indebted than any other EU country. The interest burden this year amounts to almost 80 billion euros, significantly more than the budget of the Ministry of Education. Interest rates on ten-year government bonds recently rose to 4.9 percent - a high since 2002. The euro, on the other hand, is weakening and imports are becoming more expensive. Read the SPIEGEL analysis here: Europe's weakness is fueling fears of a new financial crisis.
Fratzscher: A change in financial policy is necessary
The head of the German Institute for Economic Research (DIW), Marcel Fratzscher, primarily sees long-term problems. He warns of a "vicious circle in which rising debts and political paralysis further weaken trust in state institutions and thus drive up interest rates." He spoke to the “Rheinische Post” about a weaker economy as a result and an increasing risk of recession, “which will cause deficits and debts to increase even more.” “In the long term, this dynamic can lead to a debt crisis,” warned Fratzscher. A change of course in French financial policy is therefore urgently needed.
The country relies on its own strength. France's central bank chief Emmanuel Moulin told radio station France Inter on Wednesday that he currently sees no intervention by the European Central Bank (ECB) as necessary. “The solution lies in this country,” he added. It is possible to adopt a budget that aims to reduce the deficit. At the same time, he rejected right-wing populist Marine Le Pen's suggestion that talks with the ECB were essential to ease the interest burden.
When asked about her suggestion, Moulin explained that this was not part of the ECB's tasks. This is dedicated to combating inflation: “We are currently above our target of two percent. “So the ECB is not there to react to the budget problems of individual countries,” said Moulin.
However, France's high borrowing costs in the wake of the global bond market sell-off have risen so much that the euro is also under pressure. Investors fear that the unstable public finances of the second largest economy in the euro zone could affect other countries through contagion effects on the bond markets.
The Frankfurt-based ECB has a program called the Transmission Protection Instrument (TPI) that allows it to purchase unlimited government bonds from a troubled euro country. However, the condition for this is that this state suffers from an unjustified tightening of its financing conditions and that the increase in yields occurs in a disorderly manner.
