France: Lasting turnaround in fiscal policy?
The new French government wants to reduce the budget deficit in the coming year and thus curb the increase in the public debt ratio.
Commerzbank Economic Research
10/09/2024
France's debt keeps rising
Investors in the bond markets are looking at France with increasing concern. This is because France's public debt ratio has risen sharply in recent years. While in the early years of monetary union it still largely corresponded to Germany's ratio and was thus below the euro area average, it is now almost twice as high as Germany's and thus also higher than the euro area average.
Unlike in almost all other euro area countries, the jump in the ratio in 2020, which was caused by the pandemic-related collapse in GDP and fiscal measures to stabilize the economy in the short term, was only partially corrected in the following years. Although nominal GDP also increased markedly in France due to the economic recovery and high inflation, this was just enough to prevent the public debt ratio from rising further despite the continued high deficits. In response, the risk premiums on French government bonds rose significantly compared to their German counterparts.
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