France: The issue of public finances

Series on the debates of the French presidential campaign – No. 5 In this Flash we examine another vital topic for debate in France’s presidential campaign: how should public spending be managed after the COVID crisis? At the beginning of the fifth COVID wave , France’s public debt ratio is already very high, even if we take into account the portion of the public debt that is held by the central bank. Moreover, public spending needs are going to be very high. Finally, the ECB will eventually reduce its bond purchases and Europe will eventually restore its fiscal rules, although likely to be more flexible than before COVID. Even if long-term interest rates remain lower than growth, the problem seems intractable: how can fiscal policy be made less expansionary in the presence of huge public spending needs? Will the solution come from an increase in the tax burden, pension reform, an improvement in government efficiency?