29 Apr 2017

France : Over €1 trillion in interest payments on Public Sector debt since 1995

The latest Public Sector debt and interest payment figures from EuroStat make for sobering reading. Yesterday, I gave the headline figures for the the whole European Union - €12.4 trillion in public sector debt, with in interest payments €317 billion in 2016 alone.

Today, I want to look at the specific case of France, particularly in the light of the next week's Presidential run off between the Extreme Right wing candidate Marine Lepen and Neoliberal Emmauuel Macron.

First, lets just plot a graph of the increase in Public sector debt from €696,291 million at the end of 1995  to €2,147,418 millon at the end of 2016. 

Now lets look a some more details. This table can also be found as a sheet in a publicly avaible Google Sheet file that you can examine and download here (go to the folder called "France").     

The table reveals that, over the period 1995 to 2016,  French public sector debt levels inceased by €1,451,126 million (€1.45 trillion). Of that, €1,017,375 million was due to the interest payments, i.e over €1 trillion. 

The right hand column shows that the effective interest rate paid on French public sector debt has dropped from 5.79% in 1995 to a "mere" 1.96% in 2016. 

Does this mean that the French taxpayer has been gettting a better deal? I don't think so. If you look at the actual amount of interest paid, it has remained remarkably stable, averaging €46.2 billion over the whole period. The minimum was around €40 billion in 1995, peaked at €56.2 billion in 2008, andhas dropped back to roughly €42 billion last year. How interesting. Effectively, as the levels of debt have more than tripled, the markets have magically adjusted the interest rates to ensure that the amount of money extracted from France's taxpayers has remained roughly stable.

For info, the Agence France Tresor (AFT), which manages French Public Sector debt, is currently prediciting that for 2017, the interest payments will stay pretty constant relative to 2016, with a total of €41.55 billion

The system reminds me of a parasitic tapeworm that skillfully avoids killing off the host.

The column that gives the interest paymnets as a percentage of GDP shows that the percentage has indeed tended to drop - from a peak of 3.4% at the start of the period, to a "mereé 1.9% in 2016.But the average over the entire period was 2.7% of French GDP.

That parasitic tapeworm has siphoned off a very sizable proportion of the tax revenue of the French governments revenue. According to World Bank figures, France's tax system took about 23.4% of French GDP in 2015. Shall we say that roughly 10% of that was used to keep the parasitic tapeworm happy? 

Who profited from this? In other words, where should we looking to find that tapeworm? 

Well, unfortantely it is difficult to have clear information about who gets the interest payments. We know that around 60% of the debt is held by non-residents - the historical details are available on the Banque de France's website which demonstrates that the percentage held by non-residents has dropped a bit from a peak of  over 70% in 2010.  But who are these "non-residents"? It seems quite plausible that a major holder could be  US and Canadian Pension Funds. That would mean that a substantial proportion of the 2.7% of GDP that gets used to pay the interest on French Public Sector debt has been used to pay pensions in the US and Canada. One might reasonably ask whether it might not be better to use French taxpayers money to pay pensions in France!

No doubt the defenders of the status quo will argue that the French government has no choice but to borrow from the financial markets. But I would argue that this is simply false. Until the infamous "Loi Pompidou-Giscard" in 1973, the French government could simply ask the Banque de France for funds, and actually had no debt at all. 

For some reason, the idea that only commercial banks should be allowed to lend "money" to governments subseqently became the norm, and was finally sealed into the Maastrict and Lisbon treaties. The result has been total disastrous for French Taxpayers who, in the period 1995-2016, as  have effectively handed over more that €1 trillion of hard earned cash to Banks who, in case you didn't know, don't even have to have the money they lend. They can just create it out of thin air by buying up French government bonds with non-existent money, and then either sit back and collect the interest payments, or flog the bonds on to Pension Funds in countries like the US and Canada.

Is this insane? You bet.

If Emmanual Macron would really like to be elected in one weeks time as France's President, why doesn't he say that he will fight to (a) end this racket, and (b) ask for out €1 trillion back please. Now that would be a really popular move!

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