The Debt-to-GDP Divergence of France and Germany (cepInput)
The public debt ratios of Germany and France are currently diverging strongly. As a result, the two countries might be pursuing different policy objectives, such as the reactivation of the Stability and Growth Pact. This endangers the stability of the euro area. A cepInput looks at the causes of this development and shows strategies to counteract it.
In order to reduce its public debt to 60% of GDP, France should increase GDP growth by introducing longer statutory weekly working hours and measures to reduce unemployment. In addition, France should reduce its primary deficit, in particular through a lower increase in pension expenditure. Germany should reactivate its debt brake and start reducing its debt ratio as soon as the COVID 19 crisis is over.