Business · Economy · 1 day ago
France faces rising debt costs as budget deficit persists
France is facing pressure on its public finances as its debt and borrowing costs rise.
Its public debt exceeded $4 trillion in June, more than the size of its economy, and the yield on its 10-year government bonds reached its highest level since 2002.
A specialist said France has not recorded a budget surplus since 1974, and that interest costs are now higher than nominal economic growth.
The European Central Bank has tightened monetary policy, and France uses the euro rather than issuing its own currency.
The specialist also pointed to pension spending as a lasting strain on the budget.
Higher borrowing costs can make it harder for the government to manage its debt, though the specialist said a default is not the expected outcome in the short term.
The estimated probability of default is about 1%, while markets are demanding higher returns on longer-term French bonds.
France is facing high public debt, a persistent budget deficit and rising interest costs.
Its debt exceeded US$4 trillion in June, more than the size of its economy.
The yield on France’s 10-year bond reached its highest level since 2002.
Analyst Guilherme Almeida said the combination of debt, deficits and high interest rates could make debt costs unsustainable without action.
He said a default is not the base-case scenario, with its implied probability around 1%.
- Who
- France, whose public finances are under pressure.
- What
- The country faces high debt, a persistent budget deficit and rising borrowing costs.
- When
- The debt exceeded US$4 trillion in June; the 10-year bond yield reached its highest level since 2002.
- Where
- France.
- Why
- High debt, persistent deficits and interest rates above nominal economic growth are adding pressure to public finances.
This story does not have two clearly opposing sides.
The debt stock is high, above US$4 trillion, which represents a little over 120% of the debt-to-GDP ratio.
France has not generated a budget surplus since 1974, so we are talking about a little over five decades.
The CDS, which measures a kind of insurance against default, is at its highest level in a decade, but the implied probability of default is around 1%.
France’s last budget surplus was recorded, according to Almeida.
The European Central Bank bought government bonds from countries in the bloc, keeping debt costs under control and at times pushing interest rates below zero.
France’s public debt exceeded US$4 trillion.
CNN Brasil reported that France’s 10-year bond yield had reached its highest level since 2002.
- Public debt
- More than US$4 trillion in June
- Debt-to-GDP ratio
- A little over 120%, according to Guilherme Almeida
- Budget surpluses
- None since 1974, according to Almeida
- 10-year bond yield
- Highest level since 2002
- Implied default probability
- Around 1%, according to Almeida
Sources
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