France’s public debt is rising dangerously, reforms have stalled, and the country’s credit rating has been downgraded. According to Casper de Vries, Professor Emeritus of Monetary Economics at Erasmus School of Economics, the turmoil in France is not a classic financial crisis but ‘a crisis of unwillingness to work.’ In an interview with Erasmus Magazine, he warns that France is heading towards unsustainable debt while its politics remain paralysed by division.
Pension strain and political deadlock
France’s public debt has climbed to over 110 per cent of its gross domestic product, largely due to increasing pension expenditure. As the population ages, the pressure on the working population continues to grow. ‘Within thirty years, each worker will have to pay roughly twice as much for pensions as they do now. That’s not sustainable,’ says De Vries. Efforts to reform the system have been repeatedly blocked by political resistance. President Macron lost his parliamentary majority in 2022, and every attempt to raise the retirement age has sparked fierce protests. ‘Since September, France has yet another new prime minister, but no government has managed to get reforms through parliament,’ De Vries notes.
‘The market is doing what Brussels doesn’t dare to do’
Although European fiscal rules are meant to keep public debt in check, the European Commission has failed to intervene. ‘France has never complied with the Stability and Growth Pact, but Brussels won’t reprimand them because the EU depends too much on France,’ says De Vries. As a result, credit rating agencies are stepping in where the EU does not: they have downgraded France’s rating because the country borrows primarily to pay pensions rather than to invest. ‘That’s economically disastrous,’ he warns.
The ECB should not step in
De Vries argues that the European Central Bank (ECB) should not be tempted once again to buy up government debt. ‘The ECB has only one task: maintaining price stability. If countries can’t keep their budgets in order, that’s their own responsibility.’ He believes that the ECB’s expansionary monetary policy during the COVID-19 crisis has contributed to today’s high inflation. ‘We’re using monetary policy for the wrong purpose. What’s happening in France cannot be solved by cutting interest rates, but by increasing labour participation.’
The Netherlands: ‘top of the class’ of Europe
According to De Vries, the Netherlands is better prepared for ageing demographics. ‘We’ve raised the retirement age and we save collectively through pension funds. That makes our public debt more stable.’ Nevertheless, he warns against political promises that could undermine fiscal sustainability. ‘If parties like the PVV want to lower the retirement age again, we’ll quickly run into financial problems here as well.’
An ageing Europe
De Vries stresses that the Netherlands is not immune to the demographic challenges facing the rest of Europe. ‘Labour migration from Eastern Europe is drying up. That means higher prices for labour and goods. Ultimately, we’ll have to work more ourselves.’
‘Working is actually good news’
Despite his critical analysis, De Vries remains optimistic. ‘The good news is that our problems can be solved, by working more. We’re living longer and healthier lives, so we can also contribute for longer. Work is not only economically necessary but also good for body and mind. I’m 70 and retired,’ De Vries concludes, ‘but I still work because working is great fun and good for you.’
- More information
Click here for the full interview with Casper de Vries. For more information, please contact Ronald de Groot, Media & Public Relations Officer at Erasmus School of Economics: rdegroot@ese.eur.nl, +31 6 53 641 846.
