Public Finances : A Difficult Balance

Public finances are caught in a permanent tension between conflicting demands. Investment must be made without widening imbalances, protection ensured without discouraging incentives, deficits reduced without harming growth, and urgent needs addressed without sacrificing the long term. Between necessary fiscal discipline and expected intervention, balance is constantly sought but rarely achieved.

It may be difficult to define what a “good” fiscal balance is. However, there is broad agreement that the current situation is unsustainable. To summarise: France has been accumulating debt for 40 years, regardless of whether it financed current spending or investment, and regardless of interest rates—whether near zero or above nominal GDP growth. Without a rapid return below a 3% deficit, France’s public debt will become unsustainable.

No public or private actor can continue increasing debt when the growth rate of future revenues is lower than the interest rate charged by creditors. Yet this is currently the case, with a 3.5% interest rate, 2% inflation (which the ECB will maintain as part of its mandate), and 1% growth, modest but consistent with the average of the past twenty years.

Under these conditions, all political parties and candidates aspiring to govern France must present a credible plan to bring the deficit back below 3%, combining tax measures and spending cuts. This is a necessary step to restore confidence in the country’s future.