The think tank judges that 100 to 120 billion euros in medium-term savings will be necessary to stabilize the debt “around 120-130%” of GDP. To achieve this, “everyone will have to contribute”.
Stabilizing the French public debt will require an effort of 100 to 120 billion euros per year in the medium term and will impose measures involving everyone, according to a note from the Terra Nova think tank published this Monday.
To stop the spiral of public debt growing faster than national wealth and stabilize it at around 120-130% of gross domestic product (compared to 115.6% of GDP at the end of June), “it will be necessary to make 100 to 120 billion euros in savings compared to a situation where spending increases at the rate of national wealth. This is in addition to what will need to be done to slow down certain expenses which are growing faster than national wealth. GDP, like pensions and health,” Guillaume Hannezo, associate professor at the Ecole Normale Supérieure and author of this note from the left-class think tank, told AFP.
This effort of 100 to 120 billion euros, comparable to the estimates of the Court of Auditors or economic institutes, represents 3.5 to 4% of GDP. It corresponds to the amount that the debt burden (the payment of interest) could reach in a few years if the entire 3,400 billion euros of the French debt were refinanced at the rate of 3.5% currently requested by investors to lend money to France over 10 years.
“Everyone will have to contribute”
Offsetting this amount with increases in tax revenue and savings on public spending would prevent the interest to be repaid from becoming a source of additional debt.
For an adjustment of this magnitude, “we are not doing it lightly” and “everyone will have to contribute”, writes Guillaume Hannezo, referring to the adjustments made by the countries of southern Europe (Italy, Greece, Spain and Portugal) around the 2010s.
He proposes two main levers: “reduce the flows saved (therefore useless) on public retirement expenditure” by preserving the lowest pensions and increase one of the moderate-rate taxes “paid by the greatest number”, VAT or CSG.
France “will know how to do it”
But we will not be able to “accept these sacrifices without a very big lasting effort from the richest and at least a temporary effort from businesses”, around 10 to 15 billion for each of these categories, with a targeted reduction of tax loopholes, he warns.
“Depending on their orientations, politicians try to make people believe that we can simply reduce the state’s lifestyle, with fewer civil servants, or work more, take back from the very rich or make businesses pay: all of this can contribute, but none of these solutions is up to the task,” this former economic advisor to François Mitterrand explained to AFP.
However, “it’s an optimistic note,” he added. With significant domestic savings, a diversified economy that is still attractive for foreign investments and a solid state that knows how to raise taxes, France “will know how to make” this recovery.