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France is going through a critical period in its history. While the regime crisis of 1958 was a major event, the crisis the country is experiencing today is quite different, as it is taking place in the context of a world in turmoil. The country's democratic and political crisis is now compounded by the possibility of a financial crisis. The markets are beginning to punish the country, which is now preparing for all possible scenarios. France remains the only country in the eurozone with four simultaneous deficits (budget, trade balance, primary budget, and balance of payments) and the highest level of debt.

“France's policy is not made on the trading floor,” General de Gaulle said in 1959, reminding us that the nation must remain entirely sovereign in economic matters. However, when we see the decisions taken by former Prime Minister François Bayrou, we wonder what has become of the General's legacy. Over the summer, a €44 billion savings plan was presented, including various budget cuts (in the functioning of the state, local authorities, health, and other unpopular measures such as the elimination of two public holidays, etc.). The sole objective, in essence, was to maintain the confidence of creditors. Unlike in the era of Charles de Gaulle, when France's debt was only 30% of its GDP, the country's debt now stands at 110% of its GDP. The keys to its destiny are no longer entirely in its own hands.

This shift has taken place over several decades. Since France stopped borrowing from its national bank in 1973, joined the financialized economy in the 1980s, began issuing its debt in a supranational currency in the early 2000s, and, moreover, began borrowing mainly from foreign investors, it has lost all its influence. Successive governments have continuously increased the country's debt under the pretext that such a policy would ensure the welfare state and with the guarantee that the umbrella of the euro and the ECB would always be there. However, the central banks of the eurozone are now operating with negative equity (after repeated bailouts by the ECB) and the euro has continued to lose value...

From this perspective, France's major problem is not that it spends too much, but that it has taken on too much debt. It is precisely because France has taken on too much debt that it spends so much. Emmanuel Macron is primarily responsible for this, having increased the debt by more than a third of its total volume, essentially to ensure his re-election and stem public anger. There are countless examples of countries with massive spending but moderate debt (Norway, Sweden, Luxembourg, Finland, etc.). But there is no other country with very high debt that also has very high spending (with the exception of Japan, which holds almost 100% of its debt). There is a reason for this phenomenon: the more a country borrows, the more wealth is concentrated within the country and inequality increases, which means that social spending must increase to maintain political stability. What's more, growth prospects are reduced because income is concentrated in spending that does not create wealth. In this regard, France is one of the worst performers in the eurozone.

The next government will therefore only be able to rectify the mistakes of past policies. However, given that no majority is likely to be found, the country risks being deadlocked until 2027... Added to this situation is democratic anger, as demonstrated by the “Bloquons tout” (Let's block everything) movement. And today, social peace can no longer be bought as it was during the pandemic with the distribution of all kinds of checks.

This period of political uncertainty is blocking the drafting of the budget and causing concern in the markets. Once again, if France's debt were low or even moderate, the situation would be under control. But with debt exceeding €3.3 trillion, uncertainty is growing and causing interest rates to soar, with France now borrowing on average at a higher cost than Greece and higher than during the sovereign debt crisis. This shows just how serious the situation is... Under such conditions, interest on the debt, which already amounts to more than €60 billion annually, could reach €110 billion in 2029.

This situation could quickly spiral out of control. First, on September 12, Fitch is due to announce its verdict on France's credit rating. Given the current conditions and the historic volume of debt issued this year, a downgrade of France's rating from AA- to A is highly likely, which would further increase interest rates. Second, the government's resignation has created a wave of uncertainty in the country, which could result in the markets attacking French debt. At the end of a cycle, as is the case today, political difficulties are always compounded by financial difficulties. The risk of a financial crisis in the country cannot be ruled out, even if intervention by foreign institutions in the world's seventh largest economy is not imminent.

The eurozone would be the first to be affected by this situation. Such weaknesses in the zone's second-largest economy would affect all European countries. The continent is already going through a period of extreme fragility, given that globalization, on which the European Union was built, is breaking down. Due to the interdependence of member states, the consequences could be felt in all areas: first, for European banks exposed to French debt; second, for the euro exchange rate, European growth, market confidence in the European Union, and even the stability of its institutions.

French savings are also affected. Already, the savings rate in France is rising to nearly 19%, a historically high level, similar to the 1980s, and higher than in Germany for the first time since 2000. This trend can be explained by the deterioration of the financial situation and political instability, but also by the risk of tax increases. Uncertainty is therefore the main explanation, with the French saving to protect themselves from an uncertain future. In this context, gold should naturally occupy a central place.

While demand for the yellow metal remains strong among institutional investors, particularly central banks, a new trend is beginning to emerge. Bond yields are falling in value and, with inflation, currencies are depreciating further... The dangers surrounding public finances are prompting investors to turn to safe-haven assets, including physical gold (bullion and coins). This is especially true given that political instability — as is the case in France — is encouraging investors to move away from assets that are dependent on government decisions (particularly since there has been increasing debate about directing savings towards public debt). Like many countries in crisis, France could face major shifts in the direction of national savings.

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