It’s a little music that gets more and more insistent as interest rates soar, and as the government prepares to put its hands back in the wallet, with the introduction next week of the bill on purchasing power.
Monday morning, the Minister of the Economy, Bruno Le Maire sounded the alarm on the critical situation of the tricolor debt, recalling that the financing conditions had changed. “Not everything is possible, simply because we have reached the alert level on public finances”said the tenant of Bercy.
An expression immediately taken up by the president of Medef, Geoffroy Roux de Bézieux, according to whom the alert level would not only be reached, but “already largely outdated”. “The situation could become extremely serious, worrying, out of control in France », for his part lamented Olivier Marleix, the new president of the group Les Républicains in the National Assembly.
Dramatic increase in debt
It is true that during the campaign, public finances had been surprisingly absent from the debates, even as the debt increased dramatically during the Covid-19 crisis. According to the latest figures from INSEE, it further increased by 90 billion euros in the first quarter of 2022, to reach 2,901.8 billion euros at the end of March, or 114.5% of GDP. Figures to be handled with caution, however, due in particular to the seasonality of the debt, the State always tending to borrow more at the beginning of the year.
“However, it cannot be denied, the situation has deteriorated in the last six months, due to the increase in central bank rates, which has passed on to long-term government bonds” , says Éric Heyer, economist at the OFCE (French Observatory of Economic Conditions). While France was still borrowing at negative rates at the end of 2021, it is now paying more than 2% for its ten-year bonds. A figure that is all the more worrying as the rise was very rapid, and comes in a context where growth prospects have darkened sharply, against a backdrop of war in Ukraine and galloping inflation.
Still, for now, the situation for public finances is not as catastrophic as some Cassandras would have us believe. Indeed, from a purely technical point of view, inflationary periods are generally favorable to the State accounts, the debt-to-GDP ratio mechanically tending to decrease.
An always advantageous rate level
Moreover, the rate level, even if it increases, is still very advantageous, since the State continues to go into debt without having to pay interest. “Indeed, as long as long rates remain below the neutral rate, which corresponds to the addition of inflation and the long-term growth rate, interest on the debt does not increase. In France, it is estimated that the latter will start to increase if long rates end up exceeding 3%», details Eric Heyer.
Finally, as Bercy reminds us, the rise in interest rates on public finances has a very “progressive”, due to the permanent renewal of the debt. According to the Banque de France, each 1% increase represents an additional cost of nearly 40 billion euros per year, but after only ten years…
This is why, by alerting today on the state of public finances, the Minister of the Economy is in fact playing a very political score. In the absence of a coalition or a government of national unity, the executive is relying heavily on the vote on the purchasing power law to test its new method of government.
A cost of 25 billion euros for the purchasing power package
However, in recent weeks, the opposition parties have multiplied expensive proposals, such as lower fuel taxes, defended by both the Nupes and the Republicans and the National Rally. “Bercy’s objective is to put the opposition, and more particularly the Republicans, face to face with their responsibility, on a subject of public spending which is normally close to their hearts. thus believes Éric Heyer.
The fact remains that the government itself claims to want to defend the French at all costs against rising prices. According to estimates circulating, the purchasing power package as designed by the government should cost at least 25 billion euros, to add to the 25 billion already spent since the fall. Difficult under these conditions to set itself up as a guarantor of the serious budget.
3.5% wage increase in the public service
The salary of 5.7 million public servants will be increased by 3.5% from July 1, the civil service ministry Stanislas Guerini announced on Tuesday June 28. This increase is, according to the ministry, the largest percentage increase in 37 years.
Thanks to her, “no more agents” will not be paid at minimum wage. This first thaw of the index point since February 2017 will represent a total cost of 7.5 billion euros, shared between the State and the communities. The announcement received a mixed reception from the unions, some of whom were asking for increases of more than 10 or even 20%.