The key question for the French government currently: At what fiscal deficit level will financial markets get upset?

The French government has decided to increase low wages and to lower certain taxes, and this new spending will for the most part be financed by a n increase in the fiscal deficit. Since, moreover, growth is slowing down, France’s fiscal deficit in 2019 could reach 3.3 % or 3 . 4% of GDP, but including an exceptional component of 0.9 percentage point of GDP. The key question for the French government is therefore at what level of fiscal deficit the financial markets will start reacting and long-term interest rates will start rising. When looking at purchase flows of French public debt, we see that France’s fiscal deficit in 2018 was primarily financed by the central bank and barely by institutional investors and banks and that non-residents were sellers, which may be concerning. Excluding exceptional factors, France’s fiscal deficit in 2019 (2.4% or 2.5% of GDP) is higher than the deficit that ensures fiscal solvency when growth is equal to potential growth (2%). All things considered, we cannot totally rule out a problem in terms of financing France’s fiscal deficit in 2019.