Nobel laureate warns of euro zone debt crisis

Nobel laureate in economics Paul Krugman said that the deteriorating state of public finances of France is on an “unsustainable trajectory” that could cause a debt crisis in the eurozone, reports Bloomberg.

“The current situation in France is indeed alarming. This is not just a problem for France alone. "France's membership of the euro zone creates the possibility of an explosive debt crisis - and such a crisis could be devastating to European unity," Krugman said on the Substack platform.

The Nobel laureate's publication follows a sell-off in French public debt, fueled by fears of a new wave of inflation and fears of the country's large budget deficit and polarized politics. Bloomberg notes that the premium investors demand for holding French bonds has risen to levels seen during the 2011 and 2012 crisis.

At €3.6 trillion, or 119% of GDP, France’s debt is the highest since the creation of the euro. However, the government continues to increase its debt burden and France’s lack of fiscal responsibility means that other eurozone members may resist the bailout proposal.

The euro was introduced on 1 January 1999 in cashless form, and cash notes and coins were introduced on 1 January 2002.

"France may have crossed the line from 'too big to collapse' to 'too big to save'," he said.

Paul Krugman became a Nobel laureate in 2008. He was awarded the prize for his analysis of trade and economic activity patterns and research in international trade and geography.

European Central Bank President Christine Lagarde said officials monitor financial markets and have the tools to counter unjustified and disorderly movements of funds in the market. At the same time, the head of the French Ministry of Finance Roland Lescur said that the country is “far from needing the intervention of the ECB”.

Earlier, The Wall Street Journal (WSJ) reported that France’s passion for excessive budget spending turned into a “debt bomb”. Experts interviewed by the newspaper expressed the opinion that the authorities of the country “lost touch with financial reality”.

Bloomberg also wrote that Macron’s decade in office had made France “the weakest link in Europe.” The country has faced rising debt and loss of investor confidence, and attempts to cut spending have complicated divisions in parliament, where the government lacks a majority. In the summer, the agency indicated that without emergency measures, France’s budget deficit could rise to 7% of GDP by 2030 and Macron’s successor would need to find €126 billion to stabilize the national debt, which is becoming a “slow poison to the economy.”.