While the Socialists allowed themselves to be trapped in a strange primaries debate (where the candidates only questioned themselves on subjects that are not of presidential competency, but of parliamentary competency, without being asked anything neither on defense, Europe or foreign policy, any of the major social issues for which the president is accountable) preparing the moment when the right will say that none of the candidates of the left have presidential qualities, another meaning of the word *”primaire” should be of interest to us: the one concerning the state budget.
“Primary deficit” is called budgetary deficit before the payment of the public debt service (interests due to lenders). This concept is very important. If a country is in primary surplus, it can begin to repay its debt and is in a position to negotiate with its lenders as it can stop repaying without compromising the functioning of public services.
If a country is in primary deficit, it sinks into debt and can only default (and therefore cannot stop, for a few years to contract loans) by laying off immediately some of its state employees and by ceasing to fund partially its armies, social benefits, schools and hospitals.
Italy, like Germany, have a primary surplus, which puts them in a promising and comfortable position, despite a high public debt. Greece has a primary deficit of 8% of GDP, which forbids it to default without laying off a quarter of its state employees. This is the case also of Ireland and Great Britain.
This is also the case of France. Its primary deficit was indeed 5.1% of GDP in 2009, 4.5% in 2010. According to the latest revision of the Finance Act 2011, the debt burden will be €45.4 billion in 2011 for a GDP of €1950 billion, or about 2.5% of the GDP of primary deficit. Given the rapidly deteriorating economic situation in the third quarter, it is likely that the year ends with a primary deficit above 3% of GDP.
For 2012, the Finance Bill is based on a hypothesis of 1.75% growth, and shows a deficit of €81.8 billion, leading to a projected funding need (which corresponds to all of the loans, those for the deficit and those intended to replace the State loans that arrived at maturity) of €182 billion.
Creditors of the State are expected to be paid €48.8 billion of interests, which, assuming a GDP of around €1918 billion represents a primary deficit of 1.6% of GDP: in other words, if France suddenly ceases to pay its creditors, losing access to the markets, it will have to find €33 billion to pay its state employees… And if the expected growth is not there, but only of 1%, the primary deficit will be higher than 3.5%.
This scenario is impossible. The lenders will not accept it. And they will soon let us know this.
* There are 2 definitions for the word “primaire”
1. Primaire = Primary
2. Primaire = Simplistic