Financial crisis: “If the country is still ungovernable in 2027, we are done”
It’s the little beast that goes up, up, up… The interest rates on the 10-year French debt. Gibberish for the employee who is in a hurry to catch his bus after work, nonsense for the retiree who is preparing for the arrival of his grandchildren on All Saints’ Day. However, these few figures shape our future. Currently, they are close to 5%. “The situation is serious,” declared Emmanuel Moulin, the governor of the Bank of France, this Wednesday, October 7. The presidential campaign anchors the debate. Bruno Retailleau affirms that “a financial crisis is before us”; Marine Le Pen assures that France is “on the verge of a bond crisis”; Gabriel Attal that “the catastrophe is not far away”. The government is banking on the 2027 draft budget to reduce the deficit and reassure the financial markets. “An important first step but the main thing will come later,” says François Ecalle, economist specializing in public finances.
To understand, you have to put yourself in the shoes of the investors, most of them foreign, who lend to France. Banks, insurers, pension funds, asset managers… “Trust” is their key word. These financiers, in principle rational, observe economic data and look at the long term. A high school burning in Paris or Nantes has little impact on their choice. “On the other hand, a public deficit of 5% on average under Emmanuel Macron, a debt of 120%, low growth, a dissolution in 2024, a political blockage since then, the suspension of pension reform… Much more,” lists economist and investor Robin Rivaton.
The state needs money because it spends more than it collects. So he issues bonds (OAT). Basically, “lend me €100, I’ll pay you interest and I’ll return the €100 in 2, 5, 10, 30 years”. Investors buy them, but the more they judge France to be risky, the more they demand high interest rates. “Our creditors act like a banker towards a household that presents risks: they do not immediately stop lending to it, but ask for more interest,” explains François Ecalle.
“6 or 7% before the presidential election, it’s possible”
France is not an isolated case. The rise in rates is global. What if the meter panics? “6 or 7% before the 2027 presidential election is possible,” says François Ecalle. Don’t panic. At 6%, people will not start running in the streets, they will not queue in front of banks to empty their accounts, retirement pensions will still be paid. Real estate loan rates could increase slightly – enough to disrupt many projects – but economic activity would not cease. A company that wanted to borrow to buy a machine could always do so.
Everything will get tougher in the spring of 2027, during the presidential election and the legislative elections which should follow. If a clear majority emerges from the polls, the next government – “whoever it may be”, the two economists agree – will have to tackle the public deficit by clearly specifying its method. “On the other hand, if the country is still ungovernable, we are done. It will be halali,” assures Robin Rivaton.
At 10%, the dark scenario
In this case, we French would be the actors in a dark scenario. Investor confidence would be broken. Rates could soar to 8%, 9%, 10%… In 2027, France plans to borrow 340 billion euros on the markets. At such rates, the State could no longer finance itself. He would find himself with a few months of cash to pay civil servants’ pensions and salaries, current expenses, and then nothing. The Minister of Finance would have no choice but to go to Frankfurt, to the headquarters of the European Central Bank (ECB). He would seek help from Europeans so that the relief fund created after the Greek crisis in 2012 (the MES) lends to France at around 2%, rather than the 10% demanded by the markets. The ECB could buy back French bonds to bring rates down. Drastic compensation would be required: work longer, lower pensions, reduce social assistance, increase taxes… “Our Minister of Finance will say to his counterparts: ‘Tell us what you want, and we will do it’”, warns François Ecalle.
A very dark fiction despite the European safety net. Reassuring? Half. “We know very well that the irrational can erupt. All it takes is for the Minister of Finance of the Netherlands to stand up on his left foot or for the AfD in Germany to win a few more Länder, and everything explodes,” assures Robin Rivaton. Because a French crisis would threaten the entire euro zone. Certain countries, among the most orthodox (Germany, Netherlands, Austria, etc.), could then prefer to tighten the single currency club rather than save France at any cost. And if they did, it would be on their terms. The 2027 budget is just the appetizer. The bill could be very, very, very steep.
