Rising Rates Mean Debt Cannot Be Ignored – English Cenbanker | Investment News

PARIS (Reuters) – Rising interest rates make it all the more important that post-pandemic public debt levels be brought down to more sustainable levels, the head of France’s central bank said on Tuesday.

France borrowed heavily during the pandemic to stabilize its economy, pushing public debt from just under 100% of gross domestic product in 2019 to nearly 113% last year.

Nonetheless, the country’s debt burden figured little in the political debates ahead of last month’s presidential election, in which Emmanuel Macron comfortably won another five-year term.

As parties prepare for the June legislative elections, many candidates have focused more on policies that would increase debt. The far-left leader of a new left-wing coalition which hopes to secure a majority notably wants to lower the retirement age to 60 from 62.

At a conference organized by France’s independent fiscal watchdog, Villeroy said too many people saw debt as “limitless and costless” after the exceptional borrowing during the pandemic and in light of the plans of the European Central Bank to raise interest rates in the face of record inflation.

“Our board of governors will do whatever is necessary to fulfill our primary mandate of price stability, have no doubt about that,” said Villeroy, who also sits on the board of governors of the European Central Bank.

“It is therefore all the more important for fiscal authorities to ensure debt sustainability as interest rates rise,” he added.

The central bank estimates that every 1 percentage point increase in interest rates over time raises France’s annual debt-servicing costs by 40 billion euros ($42 billion), almost as much as the defense budget.

France could reduce debt to less than 100% in a decade by capping spending growth at 0.5% per year, half the more than 1% seen on average in the previous decade.

(Reporting by Leigh Thomas; Editing by Alexandra Hudson)

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