00:00France's growing debt pile was at the heart of the confidence vote that toppled the government
00:08of Prime Minister François Bayrou. The government fell after Bayrou had called the vote to settle
00:14a fight over the budget, as he sought 44 billion euros in savings to cut the debt. But his plan,
00:22which includes reducing the number of holidays, proved unpopular.
00:26Here is a look at the country's fiscal situation. France's public debt has steadily risen for
00:41decades, fueled by chronic budget deficits financed through borrowing on bond markets. The debt grew
00:47to 3.3 trillion euros in the first three months of this year, or over 48,000 euros per French national.
00:56The debt amounts to 114% of France's annual gross domestic product, the third highest debt ratio
01:04in the eurozone after Greece and Italy. The debt ratio is almost double the limit of 60% allowed
01:11by the European Union. By comparison, the debt-to-GDP ratio was at 57.8% in 1995. But financial crises,
01:22the Covid pandemic and high inflation have fueled its rise. It's not great, but it could be worse.
01:30The avant-garde institute, a think tank, noted that France's debt ratio was as high as 300% of GDP
01:38between World War I and World War II. Eric Heyer, an economist at the French economic observatory
01:45think tank told AFP that many countries are above France's 114% debt-to-GDP ratio.
01:53More debt means more of the country's taxpayer money goes into paying interest to creditors. The growth
02:07of state spending on servicing the debt has been one of the threats cited by the government. The
02:12government's debt burden, or interest payments, totals 53 billion euros in 2025, according to the
02:19medium-term budget plan presented in April. Bayrou has warned that the number will grow to 66 billion
02:27euros in 2026, making it the government's main spending item ahead of education.
02:34The consequence for French people is that we can't do other things, Pierre Moscovici,
02:40president of the national audit body, told news channel LCI. But economists from ATTAC,
02:47a French activist group campaigning for financial justice, and the Copernic Foundation, a left-leaning
02:53organisation, recently argued in Le Monde that France's debt isn't as alarming as the government
02:59suggests. The government spent just 2% of the country's GDP on interest payments last year,
03:06the group said in a joint column in Le Monde newspaper. Other experts, including Heyer, also question
03:13the government's presentation of interest costs, saying it does not take inflation into account.
03:18When prices rise, inflation can reduce the real burden of debt because the government collects
03:24more in taxes and the economy grows, giving it more room to manoeuvre financially.
03:30Some, including the French government itself, had raised the spectre of a scenario reminiscent of
03:43the Greek debt crisis that rocked the eurozone more than a decade ago. France's long-term borrowing
03:49cost jumped to its highest level since 2011 on 2nd September, as the yield on 30-year government
03:56bonds topped 4.5%. The yield on 10-year sovereign bonds exceeded 3.6% this week, the highest since
04:05March, and approaching the same level as Italy, long seen as a budget laggard in Europe.
04:11The rates, however, do not suggest that another Greek-like crisis is in the offing,
04:16said Ipek Oskadeskaya, analyst at Swissquote Bank. The contagion risk remains limited, but France must
04:24find a way to tidy up its finances before gaining investors' confidence back, Oskadeskaya said.
04:31There is still strong demand for French debt. On 4th September, the state raised 7.3 billion euros
04:39in a sale of 10-year bonds. The European Central Bank also provides a safety net by intervening in bond
04:45markets to buy government debt, said Christopher Dembic, a strategist at Pictet Investment Firm.
04:52He predicted, however, that ratings agencies will downgrade France's debt.
Comments