The French Debt Crisis

The French Debt Crisis

France has a debt problem like many other European countries its debt skyrocketed in both 2008 When government revenue plummeted due to a spike in unemployment and a fall in GDP but also during the co pandemic When government spending surge to prevent people from being fired and while high levels of debt are by no means unique among aging societies across the world France is walking a budgetary tight rope owing to its high levels of taxes the second highest in the world meaning there’s only so much it can still increase them by after a poor economic performance and a higher than expected deficit in 2023 the French government has been warned by the EU and credit ratings agencies that it needs to get its act together and alongside Italy the country looks to land in the eu’s excessive deficit procedure for countries whose deficits are higher than the eu’s 3% rule the French government is now looking to cut public spending and despite its already high taxes is exploring a further tax hike so how did the French deficit get so big why can’t it bring down its debt and what might it be able to do in order to solve its bad public finances so French debt has been increasing for a while in fact the French government has not had a balanced budget since the 1970s it’s important to mention that debt and deficits in of themselves are not a problem if they’re used for productive Investments and your economy is gr fast enough total debt might increase but debt as a share of GDP will fall despite its constant government deficit over the past 40 years there have been times where France has been able to moderately reduce its national debt due to higher growth or limited austerity the problem is that the French economy like that of many other European countries is stalling owing in part to the covid pandemic energy crisis but also other factors like overregulation decreasing productivity and an aging population while these are problems for many countries it’s even more of a problem for countries that run large deficits as a default which used to offset them through economic growth and this isn’t the first time France gets into trouble for its debt with the European Union but between 2008 and 2018 France fell under the eu’s excessive deficit procedure for having a deficit more than the 3% mandated by the EU but even while this was happening and French debt increased the interest on its debt repayments was actually falling thanks to low interest rates and the European Central bank’s quantitative easing program the ECB kept interest R low and bought government debt helping to reduce the Cod of issuing new debt in fact in 2019 France was able to sell debt at negative interest rates but interest rates started increasing in 2022 and in 2023 quantitive easing has been phased out as the ECB changed its policy Focus from combating debt to fighting inflation as a result interest on debt payments across European countries are ticking back up historically French interest rates and payments are far from their hisor hisorical highs French payments on debt are actually pretty low compared to similarly sized economies like the UK or Italy or even up until recently Germany but now with interest rates rising and the huge pile of debt France is sitting on this could mean a ballooning of France’s interest payments on its debt now worth 110% of GDP this is the main cause of the current alarm on French public finances the problem for France is that with such high debt it has only limited margins for maneuver the French have tried to deal with its deficits in the past by increasing taxes with the total tax burden having increased from about 30% in the 1970s to about 45% today but this high level of tax pales in comparison to State expenditure which sits at a whopping 55% of GDP as you can already tell the math doesn’t add up public spending is 10% higher than the income of the French State and it’s been the root cause of France’s structural deficits since the 1970s and so that begs one pretty important question what exactly is it spending on but before we get into that a word from today’s sponsor when making these videos one thing that has been a lot of help is the use of programmable templates for things like graphs and animation I’ve had to make my templates in After Effects myself and they’ve gone through many iterations over the past year but they’ve gotten to the point where I can basically now do CSV animations and data visualizations pretty quickly and they required one thing code as someone who never really paid attention and programming classes at University a tool Lake learn programming would have really come in handy to avoid me while crashing my computer with bad code or taking several months to arrive at good templates it requires no previous coding experience and thanks to an interactive setup including many intuitive features such as note-taking knowledge Maps flashcards learning code has never been so straightforward you read short lessons and then immediately practice them in guided challenges so if you want to learn the basics of code to make your next project easier than mine was then go check out learnprogramming online and learn the basics of code today now back to the video most of French public expenditure serves to finance one of the world’s most generous welfare states the French Healthcare System accounting for 50% of total public spending is one of the best in the world and France’s Social Security the extensive system of French transfers from the rich to poor allows the country to reduce inequality more than any country in the world which accounts for 43% of all public spending yet as of 2019 the French are some of the least happy people with the quality of Public Services in their country and you may put that down to French pessimism and autoc critique and yes that plays a role but French public services are objectively getting worse according to this report by noice public a French NGO French school levels are falling weights at court hearings are lengthening and there is a shortage of doctors in the countryside so what’s going on here after all France has Scandinavian levels of Taxation and public spending without the corresponding social benefits while some of it has gone to supporting France as many unemployed which which make up for a greater share of the population than in northern European countries but as unemployment has fallen much of the increase in cost and decrease in quality can be pinned down to France’s aging population which is consuming record amounts of welfare when your system is as generous as the French one any increase in demand will be met and paid for from State coffers an older population means more health problems and in turn higher demand for health care for which the French tax payer foots the bill but it also has a lot to do with the way the country’s pension system is set up workers pay for retirees and French pensions increase on inflation that system works when the number of workers is more or less stable but when the share of retirees increases it means pension spending Rises accordingly despite a painful pension reform in 2023 which raised their retirement age to 64 that problem of indexation on inflation Remains the Same in 2024 French pensions were increased by 14 billion euros to match it the French government has ruled back the pension rules for some groups like Railway workers to Avid them striking during the Olympic Games allowing them to stop working 18 months ahead of their retirement while earning 70% of their salary in other words it reinvented pensions but it’s also fair to say that the French system has a lot of waste incorporated into it I don’t have time in this video to mention it all but two of the most flagrant examples are France’s administrative structure as well as the back and forth in funds between governments and companies France’s Administration is called L territorial named after the mil a cake which should have a th000 layers it’s a system of varying levels of national Regional and several levels of local governance often with overlapping responsibilities as you can imagine quite a few people are needed to govern and administer this system there are roughly 600,000 elected officials in the country this also contributes to France having the highest number of public workers after the Nordic countries but let’s talk about how France spends some of its money France has increased the amount of state aid it gives to companies over the past seven years of emuel M’s presidency in a bid to encourage businesses and reindustrialize France it’s a move that some Outlets have called a crazy amount of money but it only makes up in part for the country’s High Core per tax rates France’s high taxes on businesses only to give a significant amount of money sometimes back to the very same companies while creating a bureaucratic burden in the process and Wast aside this high level of public spending and tax has had some pretty negative effects on the rest of the French economy according to the head of the French Investment Bank Nicola duuk French inheritance taxes for example are credited as being an important reason in the country’s de-industrialization with corporate errors cannibalizing their companies in order to pay for their taxes this in turn led to we skyrocketing of France’s balance of trade deficit with France having to import way more Goods than it sells internationally and according to several prominent French economists it’s not just companies that have felt the pressure and heat Silva kin points out that the French pension system is unfair to Young workers with pensioners actually having higher average incomes than working people another consequence of high income tax is that it’s almost impossible to become rich through work instead as French Economist Pik points out people can only become Wealthy by inheriting it and with the top 10% of earners paying 75% of all income tax it should come as no surprise that France has high levels of skilled immigration French immigrants were more than twice as likely to have completed tertiary education than those staying in the country okay so now that we understand where France’s money is going and how it’s actually damaging we can ask ourselves what might fr Doo and there are three ways forward France could cut back on social spending the French government is doing that by looking into unemployment benefits a move which is politically acceptable to large parts of the population although they only account for a small fraction of social expenditure there’s also some debate around cutting pensions which are the largest item of French expenditure but France has just gone through a painful pension reform to raise the retirement age but crucially left existing pensions at their current level and the thing is there’s little appetite to reduce them especially since the 65 plus formed the backbone of Emanuel macron’s voter base having overwhelmingly voted for him in the 2022 presidential election another way forward would be to simplify France’s bureaucracy and cut back on France’s large public service employment but the special status of public workers means that in most cases they can be fired in fact past territorial reforms to save costs have yielded almost no reduction in public employment or spending if France were to do away with this special status it would likely lead to mass protests and Strikes from the country six million Public Service workers and so that leaves us with our last option France could increase taxes the French government is now considering a tax on rents that is the ownership of stocks in cryptocurrency and there has been talk of taxing French billionaires as well as what some call the excessive profits of companies and it’s pretty clear that successful French multinational companies like total LV or heres which make most of their income internationally are the target but with the highest tax burden in the world we can ask ourselves how far France can actually go with its tax to solve its debt crisis but perhaps the thing that has International markets worried the most is the ability of France to carry out the reforms it needs French political gridlock has in the past led to the failure of many reforms and while the easy solution seems to be taxation there are some words of warning from Jean batist Gober a 17th century minister to Louis the 14th he once said that the art of Taxation is like plucking feathers from a goose you want to pluck as many feathers as you can with as little screaming as possible and it’s fair to say that today the French G is screaming this was inter Europe up thanks for watching if you like this video feel free to like comment and subscribe for the latest updates and analyses on European news if you like this video about France’s Deb crisis then I might suggest watching this video on Europe struggle in the global competition for talent or this video on the European Central bank’s plan to build what it sees as the future of money with the digital Euro

Start learning programming today with this video’s Sponsor: learnprogramming.online/?utm_source=intoeurope

Into Europe: France’s Debt Crisis Explained

Find the scripts and sources on the Into Europe website: intoeurope.eu

0:00 Introduction
1:11 1-France’s Debt Build-Up
4:04 Sponsored Segment Learn Programming
5:01 2-What France Spends Money On
9:24 3-What Can France Do?