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<\/a><\/figure>\n\n\n\nSource<\/a><\/em><\/p>\n\n\n\n Suddenly, financial markets are treating France as the economic sick man of the Western world. Yes, interest rates have been surging everywhere. But the spike in interest rates on French government bonds over the past month has been especially large:<\/p>\n\n\n\n The rise in interest rates on French government bonds is largely driven by heightened perceptions of the risk that France could default on its national debt. The chart at the top of this post shows the price of credit default swaps on French government debt \u2014 that is, insurance against default by the French government. While still far below the CDS prices of the Club Med countries during the euro crisis of the early 2010s, the sudden rise of the current CDS price on French government bonds is very worrying.<\/p>\n\n\n\n Simultaneously, and not altogether coincidentally, France is being swept by large-scale, occasionally violent student demonstrations. Furthermore, Marine Le Pen, leader of the hard-right, Putin-friendly and EU-skeptic National Rally party \u2014 formerly known as the National Front \u2014 is leading in the polls<\/a> to win the 2027 presidential election.<\/p>\n\n\n\n OK, before I go on, I need to talk about one big problem that affects how foreign observers discuss France: ideologically motivated reasoning.<\/p>\n\n\n\n If, like me, you closely followed the euro crisis 15 years ago, you know that financial media \u2014 certainly English-language financial media \u2014 had, and to some extent still have, a strong anti-French animus. Readers were constantly bombarded with claims that France was going to be the next domino to fall and that the fallout would be worse than Greece. Yet the data never backed those assertions. Instead, it was obvious that many commentators implicitly wanted France to fail because its high taxes and generous welfare state offended their conservative sensibilities.<\/p>\n\n\n\n Conversely, however, U.S. progressives like me are tempted to push back against this conservative bias by underplaying France\u2019s problems, by noting, for example, that even now French interest rates are slightly lower than U.S. rates \u2014 but the important point is that French rates have risen compared with the rest of Europe, and are now above rates in Italy.<\/p>\n\n\n\n So I\u2019m going to try to be objective here and acknowledge that France\u2019s current situation is really worrisome. In particular, it\u2019s not just a matter for France alone. France\u2019s membership in the euro area creates the possibility of an explosive debt crisis \u2014 and such a crisis could be destructive to European unity.<\/p>\n\n\n\n What is France\u2019s problem? France is on a fiscally unsustainable path. Debt is already very high as a percentage of GDP, and the French government is adding to that debt by running large budget deficits even though there is no emergency like a war, a severe recession, or a pandemic to justify such deficits. Furthermore, France has an aging population, which means that pension costs will, other things equal, grow much faster than revenue.<\/p>\n\n\n\n Now, everything I just said about France\u2019s fiscal situation is true for other major advanced economies too, the United States very much included. But France does stand out, even among fiscally troubled nations, in one main way: its persistent inability to get realistic about retirement.<\/p>\n\n\n\n The official French retirement age \u2014 the age at which workers can collect full benefits \u2014 was only 62 in 2023. By comparison, the retirement age in Denmark, which is often held up by U.S. progressives as a model of a nation with a strong safety net, was 67 (which is also the age in the U.S.). The average actual age of retirement, which is always lower than the statutory age because some people choose to accept reduced benefits, was lower in France than anywhere else in Western Europe:<\/p>\n\n\n\n Macron\u2019s center-right government was on track to gradually raise the retirement age to 64, still low by the standards of other advanced nations. But due to opposition by the extreme right and the extreme left parties in France, this rise has been frozen until after next year\u2019s election. As a result, the retirement age is currently stalled at 62 years and 9 months.<\/p>\n\n\n\n You don\u2019t have to be a conservative to see France\u2019s early retirement as unsustainable, especially given that French life expectancy at age 65 is about 87 years of age, 2 years longer than in the US. Thus the fiscal pressure caused largely by France\u2019s very generous government pension plan has led to cutbacks in other spending, notably on education. France is effectively handing over large subsidies to older French at the expense of everyone else. Mass national student demonstrations should come as no surprise.<\/p>\n\n\n\n<\/a><\/figure>\n\n\n\n<\/a><\/figure>\n\n\n\n