In the offices of the Circle of Economists, just steps away from the Arc de Triomphe in Paris, Xavier Ragot, president of OFCE – which is merging with CEPII to create the first French economic institute – has sounded the alarm on the drift of public accounts. According to this economist, who was part of Arnaud Montebourg’s cabinet in 2013, there has been excessive distribution of public aid. Ragot pointed out that the protective shield put in place to cope with the surge in prices after the invasion of Ukraine by Russia in 2022 ended up costing a whopping 80 billion euros between 2022 and 2024, deepening the deficit to 5.8% of the GDP in 2024.
The public debt is widening the gap with the GDP, leading to concerns about a real financial strangulation of the state, particularly due to rising interest rates. Ragot explained that the current borrowing rate of 3.5% is a far cry from the 1% rate from a few years ago. He emphasized the need to address this with the public. Ragot and his colleague Alain Trannoy, a professor at Aix Marseille University, highlighted that France is currently paying a higher interest rate to its lenders compared to its growth rate. They pointed out the example of the United Kingdom, which despite being less indebted than France, borrows at a higher rate due to not benefiting from the protection of the eurozone.
In the face of this worrisome diagnosis, the key question is how to restore the accounts with a budgetary effort estimated at around 100 billion euros to bring the deficit below the 3% GDP threshold and stabilize the debt. There will inevitably be cuts in spending, but the challenge will lie in managing these cuts in a politically sensitive manner, especially in the area of social benefits, which represent a significant portion of public expenses. Xavier Ragot admitted that pensions, in particular, represent the main room for maneuver to restore the accounts.
The situation is delicate, as imposing sacrifices on the 15.4 million retirees, who constitute a significant voter base, can be politically challenging. Ragot suggested initiating a public debate on social benefits to determine what should be covered by the state. However, past attempts to make retirees contribute more have failed. The risk of a worsening economic scenario looms large if the current trends continue, with Ragot warning of a potential economic decline akin to Italy’s experience.
Ragot, advocating for smart sacrifices, hopes that this crucial issue will be part of the 2027 campaign discourse, even though the current economic conditions do not seem conducive to such discussions. Unemployment is expected to rise, inflation to accelerate, and purchasing power to decline this year, making a debate on reducing social benefits challenging. Many presidential candidates may view addressing this issue as electoral suicide.
