French face a fall
Debt crisis under Macron a case of when not if Matthew Lynn
Lots of things may well happen in 2019 that we can’t predict yet. Donald Trump might rule out running for re-election as president of the United States. Bitcoin might race back up to $20,000, and Amazon might buy Netflix. Heck, who knows, Britain might even leave the EU. The possibilities are endless. But here is one potentially explosive event we can be certain of. France will take over Italy as the fourth most indebted country in the world.
Statistics published this week show that France’s total public debt is now just a whisker behind its southern neighbour, and its spending plans for this year mean it will overtake it very soon. It will take its place with the US among the world’s biggest debtors. With France, there is a crucial difference, however. It doesn’t have its own currency, and it sells its debt abroad. History tells us that borrowing lots and lots of money from foreigners in a currency you can’t control is a dangerous, combustible mix. In truth, a French sovereign debt crisis is inevitable one day – it is just a matter of when.
At the end of 2018, according to calculations by Bloomberg, France’s total public debt came to €2.31 trillion (£2 trillion). That was just €1.4bn below Italy. In 2018, France ran a deficit of €80bn, and President Macron’s feeble concessions to the “Gilets Jaunes” protesters mean it will be even higher this year. Italy, by contrast, ran a deficit of €37bn last year, even with a “populist” government desperate to spend more. Both countries will owe more at the end of 2019 than they did at the start. But France will overtake Italy in its total outstanding by at least €50bn. It will have Europe’s largest debts and some of the biggest in the world.
Globally it will rank fourth behind the United States, Japan and China. The US and Japan are way out in front, with $20trillion (£15.4trillion) and $12trillion owed respectively, while China is a long way behind with a mere $5 trillion outstanding. France doesn’t owe as much as those countries but it also doesn’t have its own currency, and it borrows mostly abroad.
Of course, Italy has a higher debt-to-gdp ratio. It is on 132pc, compared with 98pc for France in the year just ended. But in the financial markets, total stocks sometimes matter just as much as percentages. Greece is hopelessly in debt, and so is Lebanon (the two countries are on ratios of 181pc of GDP and 148pc respectively) but neither is big enough to create a real crisis. By contrast, €2.3trillion, and rising, is real money – and it would do real damage if it ever started to be called into question.
There are two big reasons why it might be a worry. First, the French deficit is mostly funded overseas. In total, 56pc of French government debt is held abroad compared with 34pc for Italy. The Italians owe money to themselves, while the French owe it to other people. Next, the French government already has some of the highest levels of taxes in the world. State spending accounts for an eye-watering 56pc of France’s GDP. According to the OECD, France now collects 46pc of GDP in taxes, and has overtaken Denmark as the developed country with the highest level of revenue raised in the world. The OECD average is a mere 34pc. Is it possible to squeeze more revenues out of the country’s long-suffering citizens and companies? The violent response to a modest rise in diesel duty last year suggests not. The stark fact is, the state can’t tax any more, and it probably can’t cut spending significantly. So what’s the plan for repaying all that debt, or even stabilising it? It’s anyone’s guess.
A country with its own currency can always print money. But that door is shut as well. History tells us that borrowing vast sums abroad, with no real plan for repaying, in a currency you don’t control is a recipe for disaster. It has ended in a crash countless times. France might get away with it for a few more years. But some form of sovereign debt crisis is inevitable one day.
Three lessons to distil from the booming gin market
Maybe it is the only way people can escape from the Brexit crisis. But sales of gin are exploding.
We learnt this week that sales of the spirit have almost doubled in the last two years and are now close to £2bn annually in the UK – and in the same week the trendy tonic company Fever-tree, which relies in part on gin to drive its growth, reported booming sales, and could well be a FTSE 100 company soon. With Mothering Sunday tomorrow, this weekend will no doubt see another bonanza in sales of the spirit.
But hold on. Isn’t that a little odd? After all, only a few years ago, gin was about as old-fashioned a product as you could possibly imagine. You might get served one at a Ukip meeting, or possibly at the bridge club, but otherwise it was in genteel decline. And yet suddenly it is huge again. If gin can stage such a remarkable revival, that tells us something about how business is changing, and what opportunities are still out there. Such as? Here are three lessons to start with.
‘History tells us borrowing vast sums abroad, in a currency you don’t control, is a recipe for disaster’
First, entrepreneurship is making a difference. The gin boom is being driven as much by small craft distillers as it is by the giant global brands (although they are doing fine as well). The UK has seen a huge increase in start-ups, and the booming crowdfunding marketplace has made it easier than ever for anyone with a good idea, as well as a few juniper berries, to get funds. Without dozens and dozens of new companies the market would not be nearly so vibrant.
Next, artisanship is crucial. The fastest-growing brands are distilled with huge care and respect for history and tradition, and that has created a vast range of premium products. The boom has been fuelled by lots of niche successes, which have made the spirit interesting again.
Finally, fun never goes out of fashion, it just changes over time. Relaxation is a great product to sell – and there is always a demand for it. Companies just need to keep the way it is sold fresh and invigorating.
If gin can be revived then so can many other seemingly moribund industries. Blue blazers? Boaters? Pearl necklaces? Shaving foam? Ties? Sometimes a product might look completely dead, but with enough energy and enterprise it can be revived, and then boom. That has been proved true for gin – and with enough entrepreneurs it could be true for many other products as well.