Sébastien Laye is an entrepreneur and associate researcher at the Thomas More Institute.
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LIVE - Presidential: Macron and Le Pen on the ground for the last day of the campaign
Macron-Le Pen debate: what to remember from the face-to-face for the 2022 presidential election
As a thorny and uninteresting presidential campaign draws to a close, which has never made it possible to cut the Gordian knots that tie our economy together, sluggish potential growth, endemic unemployment, galloping inflation, colossal debt, we must replace the promises of the two candidates (several tens of billions of euros of additional net expenditure per year in both cases) in the light of the trajectory of public finances.
It is said that the French are not very interested in the subject, but they will suffer the consequences on their wallet: inflation, purchasing power, rate hikes or even potential future taxes to compensate for the situation...
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Even as we emerge from a strong eighteen-month post-Covid growth period, this windfall, essentially European monetary, has not been used to correct our budgetary imbalances.
A 2020 budget logically in great deficit (10% of GDP) was succeeded by a 2021 budget of combat (8%) and a 2022 of unconsciousness: voted at 5% last fall, the current inflation and the general slowdown bring already to adjust it to 6.5%.
Mass is not strictly speaking on the matter, and the growth forecasts for 2022 and 2023 are revised each month.
Rexecode, for example, is sticking to 2.8% (in line with the new details at the continental level) in 2022 and less than 1% in 2023. We voted for a budget with a 5% deficit of GDP in
fall on a fanciful growth forecast of more than 4%.
The adjustment will be even more painful for the next budget in September with the threat of a real slowdown.
The debt/GDP ratio, which soared from 100% to 120% of GDP with the crisis, before declining with the strong growth of 2021 (around 112%), should start rising again.
Sebastien Laye
Moreover, if Europe threw away the Maastricht rules during the Covid crisis, the German hawks, standing up against
whatever it costs (except at the height of the health crisis), are demanding their respect. for 2024. We did not already respect them before the Covid, and it is hard to imagine France complying with this new budgetary discipline easily.
These accumulated deficits have constituted public debts at an alarming level: nearly 600 billion additional euros during Macron's five-year term,
2/3 of which are not related to Covid.
And this for a catastrophic result in terms of growth, since we will have barely gleaned 140 billion euros of additional GDP: 5 euros of debt for
each euro of GDP, a relationship that no economics textbook would have deemed realistic.
Thus, the debt/GDP ratio, which soared from 100% to 120% of GDP with the crisis, before falling back with the strong
growth of 2021 (around 112%), should start rising again: the Germans have as much spent as much as we did during the crisis, but starting from very low levels (a debt of 70% of GDP against 100% for us).
Read alsoWhat economic challenges await the future President of the Republic?
This trajectory of public finances is complicated by current inflation, and its retroactive loop with interest rates.
The leaders, drugged with the sweet morphine of low interest rates, had their eyes riveted on the only annual interest payments, in the manner of French households over-indebted for their mortgages.
When the French public debt costs 0.4% per year, the annual debt burden is only 30 billion.
But each additional 1% costs 4 billion more in the first year, and 10 billion per year at cruising speed (because the stock of
debts is gradually refinanced).
All budgets must therefore be adjusted: the risk is not that of state insolvency (there is always a central bank behind it to buy its
debt in the event of difficulty), but of a brutal budgetary adjustment to receive money quickly.
We had an example of this lack of foresight at the start of Macron's five-year term, when the government had to find a billion in disaster by cutting back on the APL.
The problems of our public finances are therefore already having an immediate impact on the financing of businesses and households.
Sebastien Laye
But the movement on rates has already begun.
If the European Central Bank does not plan to follow the American Fed until later (yesterday, however, it specified that the increase in these
key rates could take place in the third quarter and no longer in the last), the markets are already inflicting a cost of more onerous debt to the States.
The rate of our sovereign bonds, negative last year, rose in a few days from 0.6% to 1.3%.
It is as if investors, faced with official inflation at 4.5% in France, were already anticipating a constant rise in this inflation over the coming months and a necessary increase in the key interest rates of the ECB.
The problem is that these sovereign bond rates (well ahead of the official rise in ECB rates, thereby signaling that the latter is in the midst of a monetary policy error) have an impact on a number of financings: French property rates have risen towards 1.5% and should inevitably move towards 2%, consumer credit rates are also tending rapidly.
The problems of our public finances are therefore already having an immediate impact on the financing of businesses and households.
With inflation at 4.5% over twelve rolling months, which is both behind our European neighbors (further ahead in the economic cycle, and therefore towards 7% inflation) and underestimated, we would need to curb this problem and restore purchasing power, to have a ten-year rate of around 3% (historical standard).
Compared to the 2021 level, this means from 2024 around 30 billion euros per year to be found: this represents, for example, all of the new expenditure (net of savings!) promised by Macron for his second five-year term.
The next government will therefore, whatever the outcome of the presidential election, have to manage a complicated equation, against the backdrop of claims on purchasing power, an energy transition to be financed, significant expectations in terms of health , reindustrialisation, innovation.
Our growth is already much weaker than this inflation.
The risk is great
that having eluded the subject of public finances too much during the campaign, the last two candidates, followers of magical thinking in economics, will find themselves stuck in their promises and humiliating coasters in the coming months.