Massive national debt: Economist warns of “dramatic situation” in France

France is heavily indebted and has to raise almost 80 billion euros per year for interest alone. The country is currently the “biggest problem in the euro area,” explains an economist. From her point of view, a former problem child has recovered.

Renowned economists are warning that France's debt crisis is expanding. "The debt crisis in France is very serious. It is a dramatic mix of high debts, extremely tense budgetary situations, hardly any economic growth, political instability," says Ulrike Neyer, economics professor at the University of Düsseldorf, to the "Rheinische Post". "This situation significantly reduces investors' confidence in French government bonds."

Neyer emphasizes: "France is currently the biggest problem in the euro area. Greece and Italy still have higher debt ratios, but Greece is now achieving budget surpluses and Italy has reduced its deficit to around three percent." Added to this is the unstable political situation in France, and there is no improvement in sight. President Emmanuel Macron and his party do not have a majority in the French Parliament, which makes political reforms difficult or impossible. His second term also ends next year. He is not allowed to run as a candidate again.

France expects total debt to reach 121.7 percent of GDP by 2027. No other country within the EU has higher debt. Interest alone puts a strain on the budget of around 80 billion euros. The uncertainty on the markets with a view to France is also reflected in the interest rates for ten-year government bonds. These recently rose to 4.9 percent, a high since 2002.

Marcel Fratzscher, head of the German Institute for Economic Research (DIW), sees long-term problems in particular: "The greater concern today is a vicious circle in which rising debts and political paralysis further weaken trust in state institutions and thus drive up interest rates," said Fratzscher.

"The result is a weaker economy and an increasing risk of recession, causing deficits and debts to increase even more. In the long term, this dynamic can lead to a debt crisis. Therefore, a change of course in French financial policy is urgently needed." However, concerns about an imminent debt crisis in France are exaggerated.