French Voters Fret Over Debt Levels Not Seen Since the War

When Benedicte Peyrol, a lawmaker in President Emmanuel Macron’s party, meets constituents in central France, she says there’s one issue worrying them above others: a massive pile of public debt.

“Frankly, I was surprised,” says Peyrol, who’s 30 and trained as a tax lawyer. “It’s a rural area, debt isn’t necessarily an issue in day-to-day life, and yet people are very apprehensive about how we’ll pay it back.”

French Voters Fret Over Debt Levels Not Seen Since the War

Such worries are more often associated with voters in Germany than in France, where successive governments have overseen an upward trajectory of public borrowing over decades without any major backlash.

But French attitudes to debt are changing after an unprecedented spending splurge to prevent the economy from crashing during the coronavirus pandemic. With debt reaching 116% of Gross Domestic Product — a level not seen in the post-war era — that makes Finance Minister Bruno Le Maire’s talk this week of yet more stimulus a risky political strategy.

French Voters Fret Over Debt Levels Not Seen Since the War

Authorities say it’s the best time to borrow because interest rates are at zero after years of low inflation. But the concerns Peyrol is encountering are reflected across the country, and that could become a problem for Macron as he gears up for a tough race to keep his job in next April’s election.

The French leader’s “electorate is traditionally attached to debt issues,” says Emmanuel Riviere, a pollster at Kantar, and although they currently back his big spending strategy, they’ll be watching closely to see what plans he comes up with once the crisis is over.

Indeed, recent surveys show the French, particularly older people who tend to vote the most, are increasingly worried about the country’s economic situation. And about 84% think lowering national debt is important, according to an Ipsos poll commissioned by the finance ministry. Another survey in January showed the percentage of respondents worried about the economy up seven points since the summer.

French Voters Fret Over Debt Levels Not Seen Since the War

Even Macron’s chief rival, far-right leader Marine Le Pen who once hinted at defaulting when she advocated quitting the eurozone and never really felt comfortable discussing the economy, has been vocal on national borrowing. She is moving closer to the center to try and widen her appeal and says the debt must be repaid.

Not doing so at all is an idea advocated by people like Thomas Piketty. The French economist, who earned fame with a bestselling book calling for state intervention to reverse the rising inequality in Europe and the U.S., recently signed a petition to cancel debt owned by the European Central Bank published in Le Monde newspaper. Piketty notes that about a fourth of public debt in Europe is owned by central banks — in other terms, the French lent money to themselves — and so postponing repayment indefinitely is more efficient.

About a third of voters agree, according to another recent poll, and they’re flocking to firebrand leftist candidate Jean-Luc Melenchon.

When Macron took office in 2017, he sought to build a political brand based on using technical rigor to cut back the economy’s reliance on borrowing and ease rules restraining business activity, even though he criticized Germany’s rigorous approach to public finances as a “fetish.”

French Voters Fret Over Debt Levels Not Seen Since the War

But then came the pandemic, which has killed more than a million people in Europe and forced Macron to change course and embrace a “whatever it costs” approach. He’s become a cheerleader of Europe’s now-prevailing fiscal doctrine that sustainable economic recovery is worth  a huge buildup in debts.

Historically, the French state has a poor record of reining in public finances after a crisis.

Looking at the problem over the course of successive governments, Goldman Sachs economists found no evidence of the budget balance rising in good times, even as deficits widened when there was a shock.

“France is the only large country where we do not expect the government debt-to-GDP ratio to fall significantly by 2024,” Goldman Sachs’ Jari Stehn said in a research note last month.

Macron’s government is making efforts to show things will be different this time, but for now it’s postponing most action until after the election.

Le Maire, the finance minister, has put forward several proposals, including forming committees to look at the issue, a mechanism to separate Covid-related debts into a dedicated vehicle, and setting multi-year spending rules to avoid the political whims of annual tax-and-spend decisions.

One thing Macron and his team say is they don’t want to raise taxes.

France is already has among the highest levels of taxation in developed countries and Le Maire says any further increase would kill off the economic growth needed to repay borrowing.

Instead, Macron’s government is betting on a quick economic rebound fueled by investment.

“We are putting all our efforts into this economic restart that is vital for French people,” Le Maire said Friday as he visited a school in a village receiving state funds to renovate its canteen. “And then at some point, it will be necessary to pay back the debt and that means growth, being careful about public spending, and structural reforms like the pension reform.”

In the central city of Moulins, it’s a hard-sell for Macron’s faithful, like Peyrol.

She says her constituents struggle to understand why sacrifices may be needed on pensions and other reforms, even as the president has declared a “whatever it costs” approach and the recovery plan will see billions more of spending on industry, green and digital technologies.

“Since I was a kid, I’ve heard that debt is a very very bad thing, it’s the German and moral view on things that says debt will weigh on future generations,” Peyrol says. “That’s not how we should see it: There’s good debt and there’s bad debt.”

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