More or less public debt in France?

◆ The purpose of this Policy brief is to present an estimate of the fiscal space for a new stimulus plan in France that takes fully into account the impact of the low interest rate environment. ◆ Negative rates should lead to a different way to measure the public debt, a method that complements the Maastricht measurement. An alternative measure of the cost of the debt should take stock of the low interest rates and the repurchase of public debt by the central banks. ◆ The public debate is marked by some harmful confusion about the redistributive effects of public debt. First of all, it involves redistribution within each generation. An increase in public debt does not constitute a debt to future generations. ◆ The low interest rates are the result of an increase in the global savings rate, with no medium-term factors apparent that could push this back down. The Covid-19 crisis, which pushed up French savings by 89 billion euros in 2020, will increase the excess of savings over investment. ◆ The fall in real interest rates over the past several years reflects that demand for public debt has risen more than supply. The shortage of public debt is not being offset by a rise in private net debt. We are experiencing a shortage of secure savings vehicles. ◆ A conservative estimate points to a fiscal space of 5 GDP points, i.e. around 100 billion euros for an additional stimulus plan. This fiscal space is elaborated on the basis of a prudent level of debt service amounting to no more than 2 GDP points and an apparent interest rate on public debt of less than 1%. ◆ In drawing up a new recovery plan, concerns around managing the risks of rate hikes and future crises, as well as the European framework, should lead to promoting public investment. ◆ This recovery plan must be understood as complementary to the European recovery plan and accompanied by a possible Europe-wide mutualizing of part of the public debt inherited from the Covid-19 crisis. ◆ Finally, this estimate shows that the low interest rate environment provides substantial room for fiscal maneuvering and that a cancellation of the public debt held by the central banks could deprive us of this environment due to the loss of confidence it could engender.