"Whatever the cost."
Emmanuel Macron's formula, pronounced on March 12, 2020 during his televised address to announce the closure of schools in the face of the spread of the coronavirus, was followed by effects: short-time working, aid to companies, support plans for the sectors of culture, tourism, automotive, aeronautics, purchase of masks and vaccines, support for tests, recovery plan of 100 billion euros ... Previously impossible to find to finance investments in health or education, the "magic money" suddenly began to flow.
In reality, the billions of euros spent to help France did not come out of a hat, but come from loans.
Result: French debt exploded in 2020, from around 98% of GDP at the end of 2019 to nearly 120% of GDP at the start of 2021, an increase of around 300 billion euros.
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For the French, the case is heard: 88% of them are convinced that this soaring debt will be financed by a future tax increase, according to an Ifop poll published on January 22.
A feeling all the more understandable as many political voices have already set foot in the dish, suggesting a future tightening of screws.
"If you reduce public spending, that avoids additional debt," said the Minister of the Economy, Bruno Le Maire on December 1, excluding any tax hike, however.
“2021 must also mark the end of 'whatever the cost',” for his part estimated the Minister of Public Accounts, Olivier Dussopt, on January 20.
To show, in particular to its creditors, that it was taking the debt issue seriously, the government set up, in early December, a Commission on the future of public finances chaired by former Minister of Finance Jean Arthuis.
Its mission is to propose scenarios for a return to balance in the accounts.
While awaiting its conclusions, expected by the end of February, France 24 offers you some keys to understanding a highly political debate.
Where does "magic money" come from?
Whether during the Covid period or before, France's financing mechanism does not change: the State borrows the money it needs from the financial markets.
Agence France Trésor is in charge of operations by regularly placing bonds and Treasury bills on the market.
The French state has no trouble finding buyers for its debt, especially because France has honored its signature without default for more than two hundred years.
French debt is therefore considered a safe bet.
"There is currently a lot of savings available worldwide and few safe investments. Consequently, French debt is very popular with fund managers who are constantly looking for secure investments", analyzes Arthur Jatteau, lecturer at the University of Lille, co-author of "La Dette publique" (Seuil, 2021), contacted by France 24.
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Investors are split between residents (around 49%) and non-residents (around 51%).
Essentially, these are institutional investors such as pension funds and insurers.
There are also central banks - the European Central Bank (ECB) thus holds around 20% of French debt -, commercial banks and mutual funds.
Is a growing debt dangerous?
On this question, economists are unanimous: the French debt remains sustainable as it is, even after an exceptional year 2020.
"We can increase the level of the debt as long as we manage to repay it under good conditions, without jeopardizing the state of life, Judge Arthur Jatteau. But it is impossible to define a threshold beyond that from which the debt would become unsustainable. It depends on several factors. "
In fact, the European Stability Pact provided that the debt of a member state could not exceed 60% of the GDP.
Then the threshold of 100% of GDP was seen as a red line.
However, France is still standing with a debt of 120% of GDP.
The reason is simple: if investors have confidence in French debt, borrowing is especially costing France less and less.
"The real cost of debt for a State is only interest, explains Arthur Jatteau. When France borrows 1 billion euros, this sum must be repaid at the end of a term of several years. The repayment is made. done all at once and not with monthly payments as for the credit of an individual. To repay, the State then borrows again 1 billion euros on the markets. This is what is called rolling the debt '. So the only cost to the state, in reality, is the interest, which must be paid each year. However, interest rates are at historically low levels. "
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In 2020, France thus issued bonds at an average negative rate of -0.05%.
And the debt burden - what it costs France each year in interest - has been falling continuously for ten years, going from 2.6% of GDP, or 55.7 billion euros, in 2011 to 0 , 8% of GDP, or 36.2 billion euros, in 2020.
It remains to be seen how long rates will stay this low.
"The equation would not be the same if rates were to rise because the debt load would increase, warns Arthur Jatteau. It is unlikely in the short term, but in the longer term, it is a possibility."
What options to repay the debt?
If the French debt remains sustainable, economists nevertheless consider it appropriate to consider its reduction once the health and economic crises have passed.
The levers are known: a debt is repaid thanks to taxes, to the fall in public spending and to GDP growth.
The government has already ruled out resorting to taxes, leaving the likelihood of a return to austerity.
But a new question has arisen since "the relevance of a confinement of the Covid debt" is mentioned in the mission letter of the Commission on the future of public finances.
"A cantonment would consist in separating the debt linked to the Covid from the rest of the French debt by committing to repay it in full, without rolling it over, thanks to the creation of a specific tax or the use of a tax existing for these purposes ", explains Arthur Jatteau, judging that it will however be difficult to estimate precisely the amount of this Covid debt.
The political debate is in any case launched and could become a major theme of the presidential election of 2022. On the right, the explosion of French debt is one more reason to cut spending.
On the left, on the contrary, it is judged that it is time to review taxation as a whole and in particular that of the wealthiest.
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And there are those who evoke an idea that is gradually gaining ground: cancel the part of the debt held by the ECB.
More than 100 economists, including Thomas Piketty and former Belgian Minister Paul Magnette, launched, on February 5, a call to cancel public debts held by the ECB to facilitate social and ecological reconstruction after the Covid-19 pandemic .
If this solution was quickly swept aside by the President of the ECB, Christine Lagarde, and by the Treasury administration, the very fact that it is being seriously debated is the sign of an evolution.
"We see that things are moving in the field of thought, observes Arthur Jatteau. The neoliberal vision of debt and public spending is losing ground. We see centrist economists holding a slightly different discourse, as if they were caught up with reality. Debt is a hot topic now. "
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