The debt crisis unfolding in France isn’t urgent news for most Americans. It won’t affect the US economy very much.
But it’s worth looking at a few charts to see what’s going on, because the French situation could be a preview of what the United States faces in a year or two or three. Surging interest rates are making France’s public debt load unsustainable, which could ultimately force cuts in cherished government benefits. Voters are angry, while politicians seem shell-shocked and paralyzed.
In other words, it looks like America c. 2029.
Interest rates have been rising everywhere, for a number of reasons. One is the inflation surge caused by the Iran war and the energy crisis it triggered. Another is the sheer amount of debt coming onto the market from governments and businesses, especially those borrowing money to finance the artificial intelligence buildout.
Yields on French debt, however, have risen by more than similar types of debt. Here’s the yield on the 10-year notes issued by the US and French governments:
Since July 1, the yield on the benchmark 10-year US Treasury note has jumped by 80 basis points, or eight-tenths of a percentage point. That’s a big increase in a short period of time, and it has rattled financial markets.
[It’s time to revise the American Dream]
The French 10-year note, known as the OAT (obligation assimilable du Trésor), has jumped by 131 basis points. The message is that markets think France is in trouble, which is why rates there are surging more than elsewhere. The cost of insuring French debt against default has nearly doubled in recent weeks.
Part of the problem in France is mushrooming government debt, paired with worries that the government might not be able to pay it off. Here’s the public debt load in France, compared with the United States: