France has gone from being one of the most stable countries on Europe’s financial markets to one of the continent’s weakest links. It is now paying more to borrow than Greece and Italy, which previously went through an economic crisis, the Wall Street Journal writes.
The cost of France’s ten-year borrowing has risen to almost 5% — the highest level since 2002. Investors expect the situation to worsen.
Rising rates are burdening the government with higher costs at precisely the time it needs to refinance a mountain of debt accumulated in the era of ultra-low interest rates. By 2030, more than $1 trillion of France’s debt will fall due, and next year it must sell a record volume of debt securities — about $380 billion. France’s central bank is no longer buying government bonds and is allowing its portfolio to shrink as the securities mature.
France’s debt-servicing costs are expected to rise by 59% by 2030. This is according to a recent study commissioned by the French finance ministry. Debt repayments are already one of the largest items of expenditure for the French government and could overtake defence spending by the end of the decade. France’s debt, now almost 120% of gross domestic product, risks squeezing the economy into what its central bank governor recently called a “gradual strangulation”.
The economy is one of the main issues for politicians planning to take part in the next presidential election. Marine Le Pen, the far-right candidate leading in the polls, has promised to lower France’s retirement age to 60. She says this would require an additional €9 billion (about $10.1 billion) a year.
Her closest rival in the polls, far-left leader Jean-Luc Mélenchon, wants the European Central Bank to freeze or write off French bonds held by the Banque de France worth €488 billion.
President Emmanuel Macron links the current situation not to excessive spending, but to insufficient tax revenues flowing into the budget.