“If you tell (voters) fairytales, you’re not a democrat”

Well, since, uh, the last couple of weeks, we've had, uh, another what guys in the financial markets call a blowout in the spread.

So we're now at 140 basis points, which again is financial market speak for actually 1.4%.

France is now paying 1.4%, uh, more than Germany is, uh, to borrow for 10 years.

Um, and that's really over worries over the fiscal situation in France.

So this was really triggered by the presentation of the budget, uh, for next year and kind of the expectation that, um, they're not gonna be able to tackle, uh, the large deficit, uh, that they've been running for the last couple of years.

We both know this, but why, why did this happen now? Uh, Macron dissolved the National Assembly, and fro- from then onwards, various minority go- governments have been unable to pass any budgets.

Why, why now?

It's, I think it's the combination of multiple years of budgets being pushed through, um, without parliamentary approval, uh, through the 49.3 procedure, um, in the context of weak growth and, um, rising interest costs.

So the thing that, uh, economists tend to look at with government budgets is the primary balance.

It's basically the balance before interest payments, and, uh, that is already, uh, the deficit there is already up to around 3%.

Uh, before the pandemic, actually, that looked like it was moving in the right direction for France.

Um, they were very close to balance.

But in those post-pandemic years, after all the spending during the pandemic on, you know, health and economic support measures, they never really got that back under control.

And so now they're running at a 3% deficit even before they have to pay, uh, interest, which is another 2% and actually increasing.

So-

Mm

... with interest rates going up, um, after the inflation, uh, following the pandemic, you're now talking about, you know, over 2% now and probably more in the coming years.

So that challenge, uh, for the government is just, uh, getting bigger every year.

And with every budget that we get, it's becoming more and more clear that they don't have a handle on this politically.

They're just not really able to tackle this.

We get these...

They're not completely unchanged budgets every year, but they're definitely not sort of the kind of fiscal consolidation that you would want to see.

That's also what you're getting from the European Commission every year-

Mm

... where they basically say, "Well, um, you're not on the path towards a sustainable budget deficit." Which is again, why you want to be looking at this primary balance, 'cause together with growth and interest rates, it will tell you something about whether the debt is sustainable, and it's just very clear that the path that France is on is not sustainable.