A very difficult time ahead for French public finances

The French government has chosen to boost household purchasing power, due to the rise in energy and food prices, and also to support industry, the energy transition, etc. Moreover, growth in 2022 is modest. This results in a high starting point for the fiscal deficit in 2022, probably around 6% of GDP. The difficulties will then come from: The rise in long-term interest rates due to the more restrictive monetary policy; if the 10-year interest rate reaches 3% in 2023, the increase in interest payments on the public debt will eventually be €55 billion, when also taking into account inflation-indexed debt; The political situation after the June 2022 parliamentary elections. It will probably be easy to pass measures to increase public spending (support for purchasing power, hiring of civil servants, increased public investments, increased spending on education and healthcare, lower production taxes, etc.), but very difficult to pass measures to reduce public spending (pension reform, public sector productivity gains, etc.) or to increase taxes. It is therefore possible that in France, fiscal deficits will increase permanently, the public finance situation will deteriorate continuously, while, to ensure public debt sustainability, the primary fiscal deficit will have to be reduced by at least the amount of the increase in interest on the public debt plus the excess of the initial fiscal deficit (6% of GDP) over that which stabilises the public debt ratio (4% of GDP at most), which means that in the long term, the primary fiscal deficit will have to be reduced by 4.2 percentage points of GDP.