The French public deficit is slipping, so what? While INSEE revealed on Tuesday March 26 that it had reached 5.5% of gross domestic product (GDP) in 2023, significantly above the government’s initial forecasts of 4.9%, the financial markets seem react with a simple shrug of the shoulders. Since October, the interest rate on ten-year French bonds has even fallen significantly, going from 3.5% to 2.8%. On Tuesday, in the hour following the announcement of the deficit figure, the French rate even fell… very slightly, by 0.02 points.
“France currently has no difficulty borrowing money”, recalled Sylvain Bersinger, chief economist at Asterès, an economic consulting firm, in a note released on Thursday March 21. A sign of the unconcerned attitude of investors, the gap between the rates of France and those of Germany, considered the country with the strongest public accounts in the euro zone, is narrowing slightly: it has gone from 0 .55 points at the end of October 2023 to 0.47 points today.
Why such leniency on the financial markets? The first answer comes from the situation. During the surge in inflation that followed the Covid-19 pandemic and the Russian invasion of Ukraine, central banks sharply increased their key rates, in the hope of stemming the phenomenon.
“Huge excess savings”
Now, as the price rise eases, they are starting to reverse course. “Everyone is waiting for interest rate cuts”, recalls Gilles Moëc, chief economist of the Axa group. The European Central Bank indicated that a first cut was likely in June. In the United States, the Federal Reserve follows a similar timetable.
Furthermore, adds Mr. Moëc, “what really matters is the message and the trajectory”. Clearly, the government can reassure the markets if it explains how it intends to limit the slippage. The announcements by the Minister of the Economy, Bruno Le Maire, on immediate savings measures of 10 billion euros, followed, in 2025, by 20 billion euros, go in this direction. “The markets react when they have the impression that there is no awareness of the problem”believes Mr. Moëc.
A more structural phenomenon also explains the ease with which France currently finances itself. “There is a huge excess of savings in the world compared to investments”, underlines François Geerolf, economist at the French Observatory of Economic Conditions. On the one hand, the population is aging and putting money aside. On the other hand, the European economy is relatively stagnant, and it is not so easy to find projects in which to invest this money. Investors therefore find themselves at the head of enormous amounts: “They don’t know where to put their money and they love the public debt [qui apporte un rendement garanti et presque aucun risque] »continues Mr. Geerolf.
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