Can the euro zone and France avoid a major fiscal contraction?

We look at the fiscal situations of the euro zone and France. Given the size of the structural (not cyclical) fiscal deficit today, and the high level of public spending needed in the future, high fiscal deficits should be expected to persist spontaneously. But is this possible? There are potentially two obstacles: The financial markets’ acceptability of these fiscal deficits; for the public debt ratio to no longer rise, if the gap between the growth rate and the long-term interest rate remains the same as today, the total fiscal deficit would have to be no more than 3.9% of GDP in the euro zone and 4.1% of GDP in France. Is it possible, since there are excess savings in the euro zone, that a higher fiscal deficit would be acceptable throughout the euro zone? This is not the case in France where there is a shortfall in savings; The introduction of new fiscal rules in Europe, which will certainly accept that some useful public spending will be financed by debt, but will certainly not allow public debt ratios to remain unchanged without declining. All in all, the need to reduce the structural fiscal deficit (the cyclical part will be corrected by the return to full employment) compared with the situation in 2021 is around: 0.7 percentage point of GDP in the euro zone; 1.6 percentage point of GDP in France; if monetary policy remains as expansionary as it is today, and more if it becomes more restrictive. This means an additional 1.0 percentage point of GDP reduction in the structural fiscal deficit in the euro zone and 1.2 percentage point in France if interest rates rise by 100 basis points.