How high can France let its fiscal deficit go?

France’s current government is certainly tempted to increase its fiscal deficit in response to calls for more resources for health, police and justice, education, transport and pensions (to gain acceptance of the pension reform). This raises the question as to how high France’s fiscal deficit can go without triggering a financing problem. France’s public debt ratio would remain stable in the long term with a fiscal deficit of 1.7% of GDP. But it is important to take into account that there is strong demand for risk-free bonds in euros at a time when Germany’s public debt ratio is declining. This allows France to increase its public debt ratio. In the past, France’s interest rates rose when its fiscal deficit reached 4% of GDP. Last, i nterest payments on France’s public debt will decline as long as the long-term interest rate remains below 1.3%. All this suggests that France’s fiscal deficit could rise to 4% of GDP without giving rise to any problem. While this means that there would be no major financing problem, it does not mean that it would be a good idea.