Does the rise in interest rates mean a danger to The French public debt?
April 27th, 2017
Since a few months, interest rates are rising all over the world, leaving the most pessimistic predict a serious threat to over-indebted countries such as France. Indeed, in 2016, France is facing a public deficit of 76.9 billion euros, bringing its public debt to 91.1% of the GDP. The Agence France Trésor has estimated its funding requirement at 185 billion euros for the year 2017, making France as the second largest capital applicant in Europe, after Italy. In a context of rising interest rates, some are worried about a surge in the cost of the French public debt, but what about this situation?
Anticipations and uncertainties, the multiple causes of the rise in interest rates
In March 2016, the ECB lowered its policy rate to 0% after launching a year earlier its Quantitative Easing program. This expansionary monetary policy has had the effect of reducing the interest rates on the interbank market and thus the interest rates on which European countries are refinancing themselves. Thus, since the end of 2014, France has refinanced itself in 10 years at less than 1%, compared to nearly 5% before the subprime crisis. So, it has been a few years that we benefit from ideal conditions to refinance. But then why are the interest rates suddenly rising?
Several factors explain the quick rise in interest rates in the recent months. First, since Donald Trump’s election, the 10-years US interest rates have increased from 1.6% before the election to nearly 2.5% today. This sharp rise in interest rates is driven by the expansionist program of the new President of the United States which raises expectations of growth and inflation. Nevertheless, US rates, correlated with 40% of the European rates, have a contagious effect on European rates.
Maeva Courtois – Consultant in Trading rooms at Quanteam