National Debt of France

The national debt of France , rigorously rough debt of the whole of the French Public administrations , is the whole of financial liabilities, in the forms of loans, taken by the State, including ODAC, the Territorial collectivities and the public agencies French (state enterprises, social security offices,…).

The debt national, “within the meaning of Maastricht” and estimated by INSEE, was assembled in 2006 to 1150 billion Euro S, that is to say 64,2 % of GDP.

In general, a country cannot accumulate debt under penalty of seeing its currency losing its value, the distrust to be established among the lenders and interest rates to increase. These risks being very largely mutualisés within the framework of the Euro area, a maximum threshold was fixed in order to prevent that certain countries do not misuse the situation. It is within this framework that the amount of the French national debt is constrained by the commitments entered into by France and the other countries of the zone at the time of the treated of Maastricht not to exceed the threshold of 60 % of the GDP fixed by the Stability pact and of growth. This is why the European commission supervises the evolution of the French debt and can initiate a procedure for debt and excessive deficit.

Definitions and measurements

Definitions

The national debt is the principal element of the passive of the assessment of the French Public administrations (APU). It gathers or not the credits that the French Public administrations contracted near private lenders, French, in the form of Government loans (Treasury bonds, BTAN,…). It does not include/understand the unpaid invoices and other various credits, whose importance is quite less, but which is in the countable liability.

It does not include/understand either engagements except assessment according to the countable standard adopted, which are however considerable in right (another countable standard would force to include them in the assessment) and in value since this category includes, inter alia real engagements of the State, the not financed retirements (see Retraite in France), which represent engagements of the public administrations, estimated to approximately 900 billion euros. According to the Pébereau Report/ratio on the national debt, the application of the countable standards of the private companies leads to an additional amount of debt ranging between 790 and: 1000 billion euros. The proportion of pensioners increasing (in particular reprocessed civils servant), the financing of their retirements will not be able to be made Ceteris paribus on level of Public expenditure constant.

The weight of other financial liabilities of the administration (future wages of civils servant, etc) is sometimes quoted, but this mention can be regarded as abusive: it would be necessary, symmetrically, to include the incomes resulting from the future work of the civils servant in question in the active of the assessment. Moreover any countable standard does not envisage to count the possible wages of the employees like a debt, and the accountancy of a country, functioning in a way similar to that of very undertaken, does not record in the passive (in debt) the wages of the personnel of the following exercises. In a symmetrical way and according to the same principle, the State does not enter in the active the products (returned of the taxes…) future exercises.

Accountancy admits slightly different interpretations and allows a little flexibility in the classification of an element of the liability like debt or other, but for the States of the European Union it is the debt within the meaning of Maastricht which gradually was essential.

Measurements

The national debt is evaluated with:

: 1427, 5 billion euros in 2006 (79,7 % of the GDP) according to the criteria of the Public accounts French;
: 1150 billion euros (64,2 % of the GDP) according to the Criteria of Maastricht.

The States use, in addition to the value in Monnaie (the Euro in fact), a measurement of the weight of the debt expressed as a percentage of GDP. This ratio is used in the Critères of convergence of the European Union.

Measured in euros, the national debt did not cease increasing since 1978. However, the measurement in euros is not a good indicator of this debt. Indeed, a constant money sum, in euros, will have year by year a less and less large importance compared to the economy, since the size of the economy increases. One measures the size of the economy with the Gross domestic product (GDP). The weight of the national debt in the economy is thus measured with the ratio debt on GDP.

Public deficit and debt

Foot-note bucket: one should not confuse the budget deficit, which relate to the budget of the State, and the public deficit, which relates to the whole of the APU (French public administrations).

The bond between public deficit and national debt is determining. The national debt, measured in euros, increases when the budget of the administrations is in deficit. As the payment of the interests on the already existing debt weighs on the budget of the public administrations, one also measures the “primary education balance of public finances”, which is equal to the budget balance of public finances before cutting off the value from the interests (“primary education deficit” when the balance is negative, “primary education surplus” when it is positive). If the national debt were null, then the public deficit would be equal to the primary education deficit.

A high public deficit results in an increase in the debt, which will be financed by future taxes; Robert Barro regards the public deficit “as a tax of tomorrow”.

With this measurement, the weight of the national debt can drop from one year to another, even if its face value (in euros) increases; it is enough that the size of the economy increases more quickly than the debt. That will be the case if the GDP grows more quickly than the debt (for example, when the public deficit is worth 2 % of the GDP and that the growth is worth 2,5 %).

Setting in prospect

The amounts concerned are difficult to apprehend. The whole of the debt of the public administrations, of 1150 billion euros in 2006, is equivalent to 55 % of the inheritance of those, and also to two thirds of the richness produced by France during the year 2005, even if it is hazardous to thus compare a flow (creation of richnesses) with a stock (quantity of debts).

The question of the relevance of the measurement of the debt compared to the GDP is sometimes put: shouldn't one only measure the debt compared to the GDP of the Commercial sector, from which the public revenue results, or compared to the public Recettes, the equivalent of sound Turnover? The choice of measurement compared to the total GDP allows the comparison between country, even if the weight of the Public administrations in the GDP strongly varies.

National debt and public credits

The national debt can be put in glance with the credits of the public administrations, of an accounting value of: 2104,1 billion euros in 2006 (including 742.1 billion euros for the financial credits (40 % of the GDP) and 1362 billion euros for the credits not - financial).

The financial inheritance Net of the public administrations is thus negative, whereas the total inheritance of the public administrations is comptablement positive (approximately 676,6 billion euros, is 38 % of the GDP). It is not inevitably relevant to not compare the national debt, which is financial, with credits - financial: it is necessary to pay interests on the national debt and to refund the loans when they expire, whereas credits not - financial are not inevitably profitable, and cannot be sold easily (infrastructures,…). Sometimes, these credits generate a cost (maintenance,…).

Total flows of treasury related in the active public and the debt are negative, because the sum of the interests paid on the debt is higher than the dividends and interests which report the public financial credits.

Debt servicing

The Servicing the debt, i.e. the payment of the interests, was assembled to 47,4 billion euros for the year 2005, is almost the totality of the income tax paid by French (which represents, in 2006,17 % of the public revenue). In 2006, and for the State alone, the debt servicing was of 39 billion euros, that is to say 14,6 % of the budget of the State. The debt servicing of the State is in 2005 the second budget heading of the French State, after that of the state education and before that of the Défense.

The Interest rate paid on the new emitted debt is likely to vary in the years to come. The real rates are particularly low and the economists anticipate an increase in these rates in the future.

“Good” and “bad” debt

At the time of the presidential elections of 2007, certain candidates (i.e. Nicolas Sarkozy and Francois Bayrou) proposed that unconstitutional the recourse to the loan is made to balance the budget, except for the borrowed amounts assigned to an increase in the public inheritance (a Investissement). Thus appear the concepts of “good debt” (allowing to increase the public inheritance and the utility services) and of “bad debt”, this one corresponding to operating expenses not financed by the receipts.

A whole current of thought requires that the operating expenses like the education or the financing of research be regarded as Investissement S. Cependant the feasibility of this proposal and its real interest are debatable: is it conceivable to reveal the citizens or their level of education in the active of the State? How to evaluate this new credit and its Depreciation, its profitability and the share of the taxes which should be allotted to him? etc

National debt and other debts

The national debt is to be distinguished, inter alia, of the “ Foreign debt of France ”, which corresponds to the whole of engagements of the Public administrations and of the Private sphere with respect to the Rest of the world (i.e. other countries). In 2006, the foreign debt rough represented 2.918 billion €, that is to say 162 % of the national GDP, the foreign debt clear (i.e. by counting the credits held by France on the foreigner) being close to zero.

Public distribution of debts

Management of the debt

The national debt of the State is managed by the Agence France Treasure (AFT).

Compared with companies private, the French public administration has a high expressed as a percentage debt its budget (the equivalent of the “turnover”). However, being given its legal means to raise Tax S, the companies of notation judge that the risk of defect on the debt is tiny - and in addition the French State was not lacking on its debt since 1796.

The State and the other public administrations can thus be involved in debt with very low interest rate. In March 2007, the rate of the emissions of debt was of 4 %, a level very close to that of the other European countries (Germany for example). From this point of view, it should be recalled that for a long time, because of the risks of devaluation of the Franc French compared to the Deutsche Mark, France borrowed froma rate slightly but significantly more extremely than Germany: there thus was a Net profit related to the monetary policy of followed harmonization (culminating with the creation of the Euro).

The principal supports of the debt are the assimilable Obligation of the Treasury (OAT), BTAN, BTF.

Transmitters

Sources: Agnes Bénassy-Quéré, Benoit Coeuré, Pierre Jacquet,
Jean Pisani-Ferry, Economic policy , De Boeck, 2004

Creditors

Since the creation of the euro, the French State turned to the worldwide market of the saving, with the result that in 2007,60 % of the debt of the French State is held by non-residents.

Temporal evolutions of the French national debt

History of the debt in France

During its history, the French State often had recourse to the debt to deal with large expenditures, the wars for example. The debt fluctuated, passing for example by an almost null value (compared to the GDP) in 1540 or 1820, and reaching until approximately 290 % of the GDP in 1944. After the periods of strong increase, a rise in inflation allowed a return to lower levels, despoiling the savers. In addition, an elevated level of inflation disorganizes the economic production.

Old mode

During the Old Mode, the King de France was involved in debt near the bankers or of the corporations. The corporations often enjoyed a better reputation than the State. This process was prolonged besides until the Entre-deux wars, since in 1926 is created to reassure the private individuals the autonomous Caisse of damping charged to refund the debt national, and financed for example by the benefit of the the SEITA.

The first public loan was launched by François I {{er}} in 1535, in the form of a perpetual revenue.

The practice of the State to refund this debt by emission of Monnaie (typically by reducing the noble metal weight in the of the same currencies facial value) often led the population to doubt the value of the emitted coins and with thésauriser the noble metals (gold, money).

The load of the public purses is due then to a delicate balance between maintenance of confidence, refunding of the loans and necessary financing of the expenditure. The very high debt often of France will obéra the French capacity to be involved in debt to financially rent the services of mercenaries (the Conscription not existing yet) in its wars against the nations like the England, much healthier and which could be involved in debt with lower costs.

One of the many causes of the French revolution was the excessive debt of France. In 1776, the Sinking fund is created vis-a-vis an already colossal debt and causes polemics. The goal is to found a more direct bond between the interest of the private individuals and the collective interest incarnated by the sovereign. The project was approved by Turgot.

Modern period

Since 1796, and the episode of the Assignat S, France always honoured its debts. Certain periods (First World War in particular) carried the national debt on very important levels, expressed as a percentage of GDP. The periods of strong Inflation or the Dévaluation S which followed these episodes of strong debt mechanically brought back the level of debt to more bearable levels for the State, and in addition constituted a form of “spoliation” of those which had Government loans. the succession of these periods to the 19th century involved, with the increase in the progressive taxes on the incomes and fortune, the end of the shareholders in the world.

Since 1913, the structure of the debt evolved/moved: the State repurchased its perpetual loans and sponged its debt at Banque de France.

In the Years 1970 and 1980, the industrialized countries returned in a new mode of permanent debt: “ for the first time in the modern tax history, the governments explicitly used the debt to finance the current public expenditure, including the welfare transfers ”.

In the Années 1970, the Oil crises caused an increase in inflation on a worldwide scale, that a Monetary policy desinflationnist (starting from Paul Volcker as directing of EDF to the the United States) will reduce during the Années 1980. To achieve the reduction objectives of inflation, the governments cannot finance any more their public deficits by emission of currency. Since March 1974 the Banque de France does not make any more advances with the Treasury. Who more is, the law of August 4th, 1993 relating to the statute of Banque de France prohibited with this one in his article 3d' to authorize overdrafts or to grant any other type of credit to the Treasury or at any other public organization or company, in agreement with article 104 of the Traité of Maastricht. The governments then sought average not monetarists of financing, by emission of debt. In addition, the strong increase in real interest rates in the years 1980, which strongly increases the amount of the Servicing the debt, and the increasing costs of social protection related to the rise of the unemployment, dig the public deficits.

However, as from 1985, the reduction of inflation bears its fruits, and the French State (like the others developed Pays) profits from rates of loan much lower; average rate passes from approximately 11 % in 1985 with 5 % in 2000. The fall of interest rates made it possible at the State to be refinanced with lower costs (average rate of the interests thus drops lowers loads of the debt); if this fall had not taken place, the debt would be much higher.

Recent evolutions

Sources: INSEE, tables, figures in current euros and expressed as a percentage of the GDP, debt and deficit within the meaning of Maastricht, GDP bases 2000 of them;

The Budget of the State was always overdrawn since 1980, and consequently the weight of the national debt in GDP (debt ratio debt publique/PIB) increased more or less regularly since 1980. This evolution knew more or less accelerated phases: the level of the public public deficit is related on the budgetary choices of the governments in place (in particular the Budget policy ), but also to economic environment: by a mechanical phenomenon, the budget deficit is more important during the periods of hollow of the business cycles. Indeed, the growth of the Public expenditure is more regular than the growth of GDP, whereas the public Recettes are more strongly cyclic than the GDP. The business cycles being synchronized more and more between France and the remainder of the Euro area, the evolutions of the French public deficit and the average deficit in the Euro area are strongly correlated.

Since 1980, the France knew various periods of economic hollows, of which a severe period of Economic crisis, in 1983, with a Economic recession, which was logically accompanied by a big rise of the debt. A contrario, the periods of economic strong growth were not used to lower the debt, only to stabilize it. The government builds its annual Finance law according to economic forecasts of growth; a growth weaker than hoped will tend to dig the deficit beyond the forecasts. Conversely, when the growth higher than is envisaged, the governments tend to let spin the expenditure instead of saving in preparation for the future economic hollows. Good the European Conjoncture around the year 2000 reduced the deficit mechanically, under the Jospin government, and it was question of a “budgetary kitty”, which can appear abusive since the deficit was far from being filled.

Whereas the other countries of the European Union carried out important reforms, the French governments, since 1997, did not reduce the Public expenditure (improvement of the Efficience of the expenditure or reduction of the public field). They proceeded to important privatization S which made it possible to temporarily reduce the amount of the deficits and the debt, while impoverishing the inheritance of the State. The sale of the participations of the State generally makes it possible to improve the effectiveness of the privatized companies, but it also brings to a reduction of the public revenue (paid dividends and appreciations) that the reduction of the paid interests will not compensate, since interest rates of loan of the State are very weak. The financial credits of the State thus decrease on average between 2000 and 2006, but, on the total level of the whole of the public administrations, the value of the financial credits increases.

According to the report/ratio Pébereau, “the increase in the debt does not result from a specific effort for the growth but, essentially, from a not very rigorous management. ”

The State is devoted periodically to dummy entries countable (legal) to post a debt “within the meaning of Maastricht” weaker than actually, masking part of its evolution and national debt, in particular for the election times: in particular, transfer of the debt at public agencies, payment of “Balance S” by large state enterprises, which will be entered like receipt and thus reducing the debt, in exchange of the assumption of responsibility by the State of the retirement of the agents of these companies, financial liabilities not entered “within the meaning of Maastricht”. In particular, the debt of ODAC strongly increased during the Années 2000.

Vicious circle of the debt and level of the public deficit

The debt entered a Vicious circle: the interests paid on the existing debt (debt servicing) burden the budget, and the State resorts to the loan to pay them.

The debt ratio debt publique/PIB was tiny room in 2006 for the first time since 2001, passing from 66,2 % at the end of 2005 with 64,2 % at the end of 2006. However, this fall does not translate a rebalancing of the public accounts. Indeed, it was obtained thanks to a reduction of the Besoin in working capital (and issue of loan with very short term during the year) and transfer for credits for an amount exceptionally high of more than 16 billion euros (see Privatizations in France) which could not be taken back. In 2006, the ratio debt publique/PIB remains definitely higher than the ceiling of 60 % fixed by the Treated of Maastricht (see section to #Avenir debt and political action).

The public revenue progresses in a mechanical way (without change of the legislation) of approximately 5 billion euros per annum, if an inflation of 1,5 is retained; %. The State tries to maintain the growth of its expenditure under the growth rate of the GDP, without reaching always that point.

In the next years, the increase in volume of reprocessed French Public office will increase the public expenditure more.

Criteria of Maastricht

The Foreign exchange rate of the currency and the confidence of the investors are related to the soutenability of the public debt: In general, the rise of the debt of a country causes the weakening of the currency, the distrust of the creditors and the rise of the interest rates paid on the debt.

The installation of a common currency for the countries having adopted the euro acts like a mutualisation of the risks on the debts, which led to a strong convergence of the interest rates paid on the debt within the Euro area. However, this mutualisation encourages each country to behave in “stowaway”, i.e. to increase its national debt to cover expenditure of short term, by knowing that it will not have to undergo a rise of interest rates consequently. During the signature of the Treated of Maastricht, a Stability pact and of growth, equipped with Criteria of convergence, was thus set up.

Since its adhesion with the Euro area in 1999, France must thus respect these criteria; the European commission supervises the public deficit and the evolution of the debt of the countries memebres, and will be able to initiate a procedure for debt and excessive deficit. The European States begin regularly on reduction objectives of debt and deficit, for example of reduction of the deficit of 0,5 % per annum. The European commission and the ECB make pressure to avoid “laxism” and the behavior of “stowaway” European countries. In this matter, France seems one of the poor pupils of the unit.

In March 2005, the stability pact is softened following the pressures of the Germany and the France, engaged in the procedure for excessive deficit. In November 2006, the Commission repeals the procedure of excessive deficit committed with regard to France following the return of the deficit under the 3%.

Periodically, France communicates its estimated scenarios of deficits and pledges towards the European commission on the evolution of the Public finances of France. France committed itself with respect to its european partners reducing his national debt in lower part of 60 % of the GDP, against 64,5 % at the end of 2006. In December 2005, Dominique de Villepin had fixed it for objective by 2010. Nicolas Sarkozy since pushed back the objective at 2012.

The official estimates of the next public deficits are presented in the Finance bill (PLF).

Analyzes and comparison

Future of the debt and political action

The future of the national debt depends on the future choices of management. To make pass the public deficit under growth rate would make decrease the ratio debt on GDP. It is possible to act on:

the inheritance of the State: part of this inheritance can be sold to refund part of the debt; however, the problem is not solved if the public deficit remains high;

the Public expenditure: the reduction of the current expenditure, by improving the Productivité in the public administrations (see Reform of the State) would allow a reduction of the national debt. It is also possible to reduce the capital expenditures, which is for a government easier to realize (less dispute of the trade unions than for a reduction in the number of civils servant). The administrations can also change the way of financing of the investments, while resorting more largely to the delegation of service public, the concession, the leasing, etc: the State does not have thus anything to spend, financial balance being ensured by the users or the abandonment of future receipts an public operator or being deprived (example: concession of the viaduct of Millau). A rationalization of the expenditure between State and Local government agencies would also make it possible to reduce the national debt of various communities;

the public Receipts: an additional increase in the public receipts is always possible. In particular, the Budget of the French State almost never decreased, even in euros constant, since 1956, in spite of the transfers of competence and of expenditure to the territorial collectivities by the Décentralisation. By 1978 to 2006, in current euros, the budget of the State decreased only in 1998 and 2006.

To decrease the public expenditure is likely to decrease short-term growth rate a little (see Relance keynésienne), but this effect is very mitigated because France became a very open economy. In addition, important a tax pressure can have a negative effect on the growth, and even on the public receipts (cf Courbe of Laffer). A reduction in the expenditure can lead to a Virtuous circle: reduction in the weight of the debt then lowers imposition and thus possible increase in the level of the GDP.

To touch with the receipts or the expenditure appears always risky for political reasons, because that causes the protests of the recipients of the public action or the categories of people whose imposition increases.

Accounting transactions make it possible to mask the problem of the public debt in the short run (swing of the debt on State enterprises, other public administrations which do not return in the field of the criteria of Maastricht, delay in the payment of the public credits and the payment of the civils servant, debt with respect to the social security offices, etc). These operations are sometimes refused by the European commission or Eurostat; thus, in 2007, the State was obliged of recomptabiliser in the national debt a sum of 8 billion euros, resulting from the SNCF and which had been transferred at an ad hoc organization.

A recourse to the loan to finance the refunding of the last loans can make quickly the debt insupportable and involve a Schéma of Ponzi.

Political weight of the debt

The question of the weight of the national debt opposes traditionally holding them of a management of “good father of family”, which underlines the high cost that make weigh the interests of the debt in the Budget of the French State and take in example the sparing behavior of other developed countries (for example the Canada: to see national debt of Canada), and those which regard the public loan as the means of financing the public policies, that they are new expenditure or those induced by the operation of the State.

Starting from the Years 2000, the press is regularly made the echo of the problem arising from the national debt, in particular within the framework of the constraints imposed by Europe. In 2007, the candidates with the presidential election proposed programs, in their promises of countryside, whose estimated amount caused polemics. If the evaluations of these programs vary, the committed amounts are very important. The electoral campaign of 2007 is the first French countryside where the figuring of the projects and their impact on the debt were discussed in an so important way.

Comparison of the debt within the euro area

See also: national Debt, List of country by national debt

The French national debt is a little in on this side mean level of debt of the countries of the Euro area (69,6 % in 2006), slightly above that of the countries of OECD and UE-27 (61,7 %). Its temporal profile is however more worrying. Within the Euro area, the national debt passed from 69,6% of the GDP in 2000 to 68,6% in 2006.

Appendices

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