Yahoo Finance Olivier Blanchard's Roadmap
The campaign was full of promises of new spending or tax cuts, which, more or less convincingly, were said not to increase the deficit.
The real question is elsewhere. Forget the campaign promises. The question is: how much to reduce the deficit already present ? The answer is that, over time, the government needs to reduce the primary deficit—a concept I will explain later—by 4 % of GDP, around 120 billion euros. This is not insurmountable, but it is far from straightforward. The new government, whatever it may be, will have to explain how it intends to go at it.
La version française de cette tribune est disponible ici
One should avoid being catastrophist. On debt and deficits, one hears many scarry statements. Like we are on the brink of disaster. That if the debt-to-GDP ratio exceeds 100 %—which is the case in France today—the government will not be able to repay it. But, as many of us know from our own lives, we can perfectly well have debt (for example, a mortgage) that exceeds our annual income without it being a problem. And, a fundamental difference between the government and us is that we actually have to repay our debt, while the government can refinance it practically indefinitely, as long as there is market trust. Indeed, many countries have experienced or are experiencing much higher debt levels than France. In Japan, debt exceeds 170 % of GDP and there is no market panic.
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