Public debt: 40 years of psychological denial... and counting

(first published: on atlantico, 27 November 2012, http://www.atlantico.fr/decryptage/dette-publique-40-ans-deni-psychologique-et-continue-alain-renaudin-558285.html - an article which unfortunately does not take a wrinkle! unless you consider the additional lines of debt as the wrinkles of an ageing state and weaken it)

Since the presidency of Valéry Giscard d'Estaing, France's public debt has risen from 20% to 100% of GDP (96.3% at the end of Q1 2015, or €2089 billion).

In 2012, Europe welcomed an agreement on Greek debt, setting itself the target of 124% of debt to GDP by 2020 (!). Three years later, in the summer of 2015, there is no need to revisit the abracadabrantesque soap opera of this chronic crisis, which is as much that of Europe, its states and its political leaders. As a sign of the times, Europe does not have a monopoly on this headlong rush, as most 'modern' states now seem condemned to managing their finances like Danaid barrels, desperately and eternally seeking to fill them with new debts and new taxes. On the other side of the Atlantic, the United States has been going through a series of (increasingly tough) rounds of negotiations between Democrats and Republicans to allow for new debt limits on a regular basis and without raising what they call the fiscal cliff. Today, the 'legal' limit of $18.3 trillion in US public debt is once again exceeded. For the Western economic 'model' it is therefore always useful for the state to go further into debt.

On our side we are in the same budgetary trap. Our own public debt (although no one feels it belongs to them) will therefore reach 100% of GDP in 2015This was followed by 82.3% in 2010, 79.2% in 2009, the year of the big jump with 11 points more than a year earlier (68.2% in 2008). It is then necessary to go back to 2002 to go under the 60% threshold (58.8%), you remember the Maastricht threshold. In the end, the agreement was only marginally applied, but it mainly provided (among other criteria) for staying below this rate of 60% of public debt in relation to GDP and 3% of annual public deficit. At the time, this equation was considered tenable. This was of course without taking into account the slowdown in growth and the deep crisis in which we are mired.

In retrospect, this crisis is a good thing because growth, which we thought would compensate for - i.e. allow us - this chronic public deficit, had been slowing down for several decades The growth rates were 1.4% for the 2000s; 1.9% for the 1990s; 2.3% for the 1980s; 4.1% in the 1970s and 5.9% in the 1960s. However, the surge at the end of the 1990s to around 3% of annual growth made us dream. But by 2001, we had fallen back to 1.8%, and 0.9% in 2002 and 2003, well before the subprime crisis and that terrible year of 2009 with -2.7% of growth.

Therefore, the absence of growth could no longer contain the rise in public debt, which nothing else could reduce: we bailed out more quickly than the ship sank. Public debt has thus soared from 60% to over 80% in a decade. But the problem goes beyond political changes and is much older than the recent period. In another decade, from 1981 to 1991, the debt had risen from 21% to 36%, and, even more dramatically, had jumped to 60% during the following decade, which nicely allowed itself an average annual deficit of 6% per year.

What has been striking in recent years is the achievement of absolute rates that we considered untenable a short time ago, and the chronic inability of governments to stem the haemorrhage ... while claiming for a long time that it is an evil to be fought. The most recent and most striking example concerns François Fillon, who declared on 24 September 2007 " I am the head of a state that is financially bankrupt" He explained in passing that the State had been in this situation of chronic deficit for 15 years. In fact, it has been even longer, because the reference in terms of good budgetary management is Raymond Barre, who, as early as September 1976 (i.e. 30 years before François Fillon!), gave a simple explanation for the economic difficulties: " France is living beyond its means. Incomes grow faster than production. Credit is distributed too abundantly. State expenditure exceeds revenue and the budget deficit this year (76) will be 15 billion Francs, an improvement on last year's deficit (74) of 35 billion Francs "(in 2011, the budget deficit amounted to 90 billion euros). As a presidential candidate in 1988, our 'best economist in France' won 16.54% of the vote, in third place behind Jacques Chirac (20%) and François Mitterrand (34%).

For 40 years, there has been a kind of political and collective hyper-awareness of the budgetary disease, accompanied by a soft and irregular compliance with the therapeutic treatment. The disease becomes chronic, we get used to living with it, and in the absence of acceptable (i.e. comfortable) solutions, we trivialise the issue, like the psychological denial of an illness we do not want to treat.

Since the presidency of Valéry Giscard d'Estaing, France's public debt has increased from 20% to 100% of GDP. With 50 billion euros of repayments per year, the cost of the debt has become the second largest budget of the State, behind the national education budget (65 billion). There is no prospect in either the US or Europe that the states will be able to get out of this chronic debt.

More profoundly, this period (so much the better if it becomes a 'transition', but nothing is less certain) reveals the following structural evolutions:

  • Political leaders seem to have reached their competence thresholdThey are unable to imagine new solutions to the ills of our modern societies;
  • The proven inability of increasing public debt to curb unemployment and encourage growth (see graph below)
  • A questioning of the usefulness of public spending (the question is more about the usefulness of the public euro levied than about the absolute levy rate).
  • A lack of responsibility on the part of both politicians and the people, who consider these state debts to be almost 'virtual'.

DCP France

The editorial on atlantico

2 thoughts on “Dette publique : 40 ans de déni psychologique… et ça continue

  1. Enjoyed examining this, very good stuff, thankyou . While thou livest keep a good tongue in thy head. by William Shakespeare. eeeeaebfkaka

  2. Pingback: 2000 billion euros! But what for ? NewCorp Conseil

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