France · Germany · Fortune Technology
‘Chuck it in the fire.’ A leading candidate in France’s presidential race has a simple solution to its massive national debt
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Unlike in the U.S., candidates in France’s election have focused on how to tackle the national debt, as a new president is due to take charge of the eurozone’s second largest economy next year.
Key facts
- Adding to the turmoil is the fact that there’s no parliamentary majority that would support budget cuts and trim the deficit, which is near 5% of GDP—well above the European Union’s sub-3% target
- Kristian Kerr, head of macro strategy for LPL Financial, pointed to the spread between French and German 10-year yields as a key indicator, with 90 basis points historically serving as a ceiling
- In fact, France’s public debt now tops 116% of GDP, which is worse than the U.S. ratio of roughly 100% when measured by publicly held debt
- No central bank in the Eurosystem nor the ECB is allowed to cancel national debt,” Bundesbank chief Joachim Nagel told French newspaper Le Monde
Summary
Last month, a French presidential debate was dominated by the country’s rising public debt. While U.S. lawmakers are largely ignoring the issue, financial markets aren’t. In fact, France’s public debt now tops 116% of GDP, which is worse than the U.S. ratio of roughly 100% when measured by publicly held debt. But far-left presidential candidate Jean-Luc Melenchon is campaigning on a plan to have the central bank simply cancel its holdings of French debt.