France's Debt Crisis Could Trigger a Much Bigger European Meltdown
OilPrice.com · Alastair Paynter ·
France's presidential election, Poland's political crisis and the rise of Central European nationalism could accelerate divisions within the bloc.
France’s present economic woes signal serious trouble ahead for the coherence of the European Union. On Wednesday evening, the French National Assembly unanimously rejected the government’s proposed budget, provoking further fears in the bond market. A couple of weeks ago, it was reported that the French government’s budget deficit now stood at 5.1 per cent, the worst it had been for nearly a quarter of a century. Its national debt now stands at over 115 percent of its GDP. Last Friday, the credit ratings agency Fitch downgraded the outlook for France from stable to negative. How close might we be to a French default?
There are precious few good options for dealing with such a scenario. Permitting a country of France’s magnitude to default would undoubtedly undermine international confidence in the Euro, at a time when most EU economies have been struggling under the weight of multiple pressures. However, the only possible means of preventing a sovereign default would be a bailout from the European Central Bank. This option would place an immense burden on Germany and would hit savers there hard. While bailing Greece out in 2010, 2012 and 2015 was considered a necessary course of action to stabilise international markets and save the Eurozone, the prospect of having to do the same for France could prove a bridge too far.
For its part, the German economy has also been under immense pressure for several years, particularly as the industrial sector has suffered under the dual burden of extensive Green regulations, enacted during the high water mark of climate politics during the late 2010s and early 2020s, and geopolitical crises such as the Russia-Ukraine war and the US-Israeli war with Iran and the turmoil in the Straits of Hormuz. Related: European Gas Prices Drop on Iran Deal Hopes after U.S. Midterms
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