The public debt wall is not yet a reality, nor is the call for the IMF to manage French public finances. The state is not unable to meet its commitments. This does not mean that the French budgetary situation is reasonable. The French are worried about it, and investors are questioning it.

France had long been perceived as a good risk. Its diversified economy and ability to raise taxes delighted rating agencies. As a result, when German debt was repaid, investors naturally turned to France. In fact, the interest rate gap between the two countries was limited. Since France was less fiscally virtuous than Germany, this premium had a legitimate side.

For a long time, the southern countries of Spain, Portugal, and Italy were not comparable to France. Their excesses before the financial crisis left their mark and worried investors. But since the pandemic, these countries have made real efforts to become more virtuous. Like France, they were generous during the pandemic but were then able to reverse the trend, something the French Ministry of Finance failed to do. Public debt was seen as a means, without constraints, to spend more or a capacity to tax less.

Investors were well aware of this approach, but as long as political stability was guaranteed, including through the use of Article 49-3 (a French law that help the government to pas a law notably the budget), the warnings were not heard.

It is the political instability post dissolution that is the crux of the problem with a precarious and unstable balance by nature.

With the vote of confidence on September 8, the risk is the destruction of this precarious balance.

In the event of a vote of censure, two problems will arise.

↪️ That of finding the providential personality who will be able to maintain the political course until the presidential elections of 2027.

In the event of a dissolution, the vote is likely to be even more polarized along the extremes. Political instability will not be resolved because the big players will first position themselves for 2027.

↪️ Political instability, the inability to find a majority to govern and implement a coherent long-term program will result in distrust in the markets. This could be the Liz Truss moment for France, that is, very high interest rates due to an unreasonable budget program.

Such a moment would result in significantly higher interest rates in France, as investors would be unwilling to take the risk of French political instability. This would then result in a series of restrictive measures on pensions, social security, VAT, and the CSG (General Social Contribution) to ensure convergence towards a sustainable trajectory.

This financial crisis would then be followed by a social crisis to be managed on the eve of the presidential election.

Good luck