Are French public finances manageable?

The political spectrum in France is wide, with the Rassemblement National (on the right) and the Nouveau Front Populaire (on the left) having very different diagnoses of what ails the country and how to fix it. Our chart of the month for July offers a perspective on the French predicament from a recently released report from the European Commission on the state of public finances across the European Union.

In the chart above, each dot represents one of the 27 countries in the European Union. On one axis, we show the Commission’s forecast for debt/GDP in 2025. On the other axis, we show their forecast for the government balance/GDP in 2025. The first is a measure of the stock of government spending in excess of revenue. The second is a measure of the flow of government spending in excess of revenue. The median across the EU is very respectable: debt/GDP at just below 60%, the government balance at just below -3%. If the EU were a single entity, it would have little problem passing the Maastricht criteria laid down in 1992. But France has a clear issue. Only two countries have higher debt (Italy and Greece), only two countries have higher deficits (Romania and Slovakia). No other country has higher debt and higher deficits.

The recent sell-off in French government debt has clearly been catalysed by political developments with the unexpected announcement of a parliamentary election. But as my chemistry teacher taught me nearly 30 years ago (thank you, Mr Browning), a catalyst is an accelerant rather than the cause of a chemical reaction. France’s underlying predicament, as captured in the chart, is economic rather than political.