French Debt Has Already Crossed the Warning Threshold, Crédit Mutuel Chief Says

Daniel Baal, head of Crédit Mutuel Alliance fédérale, says France's debt has already crossed the warning threshold. The warning comes as the cost of borrowing rises and the country approaches a presidential election.

"The level of French debt today is unacceptable. The fact that it has to be paid for dearly makes this debt even harder to accept," Baal said on France 5. He said the alert concerned not only interest rates but also the volume of the country's debt.

“

The warning threshold has been reached for some time, not only because of rates but also because of the volume of French debt.

France's 10-year borrowing yield reached a new high since 2008. Public debt stood at 117.5% of gross domestic product at the end of March, according to INSEE. Baal said a downgrade by the rating agencies could lead directly to another increase in rates and might eventually make it difficult for the French state to finance itself.

"If France were downgraded by the rating agencies, and that is still hanging over us, there would be another increase in rates, and perhaps one day the French state would have difficulty financing itself," he said.

“

The level of French debt today is unacceptable. The fact that it has to be paid for dearly makes this debt even harder to accept.

French banks rank among the main lenders to the state, while life insurers also lend to it. Baal said they would be threatened if France defaulted, meaning it stopped repaying its debt. He rejected the idea of simply erasing the debt, saying treaties made that impossible. Leaving the euro zone could theoretically be considered, he said, but would expose France to a much worse situation.

“

If France were downgraded by the rating agencies, and that is still hanging over us, there would be another increase in rates, and perhaps one day the French state would have difficulty financing itself.

Baal argued that membership in the euro zone had protected France after the dissolution two years ago and a period when the state struggled to be governed. Without that protection, he said, interest rates would probably have been much higher. He expressed hope that the presidential election would give France a new direction and return it to a healthier, calmer way of functioning.

Fitch Ratings kept France's sovereign rating at A+ with a stable outlook on Friday. Moody's is due to review the rating on October 23, followed by S&P Global Ratings on November 27.

“

We must hope that the presidential election will bring a new direction for France and return it to a healthier, calmer way of functioning.