France to Stretch Crisis Debt Repayments Over More Than 20 Years
Vast sums spent to support businesses and households during the lockdown have pushed public debt to over 120% of economic output.
(Bloomberg) --
France’s plan to split off debt linked to the Covid-19 crisis means repayments will take more than 20 years, Finance Minister Bruno Le Maire said.
Vast sums spent to support businesses and households during the economic lockdown have pushed public debt to more than 120% of economic output, from under 100% before the crisis. The situation has drawn warnings from the state auditor about sustainability.
The government’s plans to separate crisis debt from the pre-existing burden aims to relieve pressure on public finances in the short term. While the mechanism is not yet finalized, it could operate like CADES, a vehicle created in the 1990s to repay social security deficits over a long period.
“We are clearly saying that this debt must be paid back,” Le Maire said on France Inter radio Thursday. “The reimbursement will continue until 2042 so that the debt linked to crisis spending is properly identified.”
He also said that while France will make efforts to reduce spending at some point, the government is focusing on boosting the economy first. Earlier this week, President Emmanuel Macron pledged another 100 billion euros of stimulus spending and said he would not raise taxes in the two years that remain of his term.
“That’s the bet we are making: invest massively now to get growth,” Le Maire said.
France’s previous attempt at splitting off debt is taking much longer to resolve than expected. CADES was initially designed to be paid off in around 13 years, but successive governments have repeatedly extended the lifetime of the vehicle and it is now set to expire in 2033.
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