Goldman Sachs warns France’s debt could rise by up to 120%

in the report Goldman Sachs Last February 1, entitled “2024: the year of elections”, there was one missing date (actually two) that brought back nerves to European markets: the elections that will be held in France to renew the National Assemblyonal, in two rounds of voting, June 30 and July 7.

This 31-page report Marine Le Pen This has already been said three times – “Bad times are good for populists” – but an electoral test was not planned until 2027.

A few months later, in a very different context, a new report from Goldman Sachs warns that Neighboring country’s debt could soar to 120% of GDP if Le Pen’s National Rally party wins an absolute majority in the next vote.

France has 111% debt Spain’s GDP is 109%, down 4.3 points from 2020, at the height of the pandemic. The deficit last year was about 4% of GDP.

Analysts at the North American firm offer three scenarios. The first, which now seems most unlikely, is “status quo”, and foresees the budget gap shrinking to 1% in 2027, a presidential election year that would bring the debt to 113% of GDP. In parallel, the difference between 10-year French bonds and German bonds will narrow in the medium term to 0.5 percentage points.

Second of “Dead point“, characterized by coexistence in which drastic measures affecting costs and revenues cannot be approved, suggests a slower consolidation that will reach 2027 with an imbalance of just over 2%. Goldman Sachs says the debt differential will rise to 0.75 points .

On the other hand, the way”extension“will imply the first phase of increasing the deficit and the second – partial fiscal consolidation: in 2024 the deficit will increase and in 2025 will reach 4.5%, and in the next two years it will decrease to 3%, while the debt in ten years this amount will be by one point higher than German. In 2027, debt will rise to 120% of French GDP.

“In the labor market, both the left coalition and the far right are opposed pension reform raising the retirement age,” the report said, adding on taxes that both extremes support cutting VAT on energy and food, as well as reintroducing a wealth tax.

Economics and finance

Goldman Sachs It also stressed that “current moments of uncertainty” could harm France’s economic prospects if the country is forced to shoulder higher financing costs.

According to some estimates, tax cuts and spending increases under Le Pen amounted to approximately 38,000 million.

The situation has already led to the loss of the scepter due to the capitalization of the Paris trading platform against the London one and the survey Bank of America just came to the conclusion that France has become the country with problems in investing in the stock market, compared to Spain, the favorite.

There is no shortage of comparisons to catastrophic events in the City these days. mini-budget presented by former British Prime Minister Liz Truss in the fall of 2022, when tax cuts were not offset by new revenues, leading to the devaluation of the pound and the threat of recession, as well as a political crisis that swept it away in 45 days.