Guillaume Hannezo, former economic adviser to François Mitterrand, associate professor at the École normale supérieure, and founding member of the social-democratic think tank Les Gracques, warned that in any sovereign debt default, the poor and middle classes pay the bill.
Historical Lessons from Sovereign Debt Crises
When looking at past debt crises, nations can recover without International Monetary Fund intervention or a formal default, according to an interview published by L’Express. Spain faced a severe confidence crisis in 2012, implementing rigorous measures under prime ministers José Luis Rodríguez Zapatero and Mariano Rajoy. Those steps included freezing pensions, delaying the retirement age by two years, cutting public sector wages, raising the value-added tax by five points, and increasing taxes on top earners.
Splitting the adjustment equally between tax hikes and spending cuts, Spain balanced its primary budget—excluding debt service—within four to five years. The country subsequently revived public investment and social progress. Today, Spain records some of the fastest economic growth in Europe, aided by immigration, and has reduced its debt-to-GDP ratio below 100%. Investor confidence in Spanish debt now approaches German levels.
Conversely, Greece and Portugal experienced international bailouts despite starting with comparable gross domestic product, debt, and deficit figures. Portugal met every debt obligation on schedule as alternating governing parties honored their commitments. Greece entered a political crisis, defaulted by canceling 70% of its debt, and brought populists to power who steered the economy toward a potential exit from the euro before accepting strict international supervision.
The economic divergence between the two nations remains stark. Greek purchasing power sits roughly 15% below 2010 levels following a 35% crash during the worst of the crisis. Meanwhile, Portuguese purchasing power stands 18% higher than in 2012, weathering an initial 9% economic shock. Debt cancellation provided no long-term relief for Greek citizens.
The Consequences of Unilateral Debt Cancellation
Advocating for the unilateral erasure of public debt complicates national finances rather than solving them. Renegotiating or wiping out debt locks a country out of international bond markets for a generation, transforming it into a failed state and an emigration hub. The underlying budget deficit persists and must be bridged immediately rather than over a five- or ten-year span.
An immediate default halts state payments for civil servants and pensions. The government and public enterprises lose the ability to invest, triggering cascading failures across the private sector and banking networks. Economist Carmen Reinhart analyzed roughly 200 sovereign defaults across two centuries, finding that such crises spark average economic recessions of nearly 20% over a decade relative to peer nations. Social indicators—including life expectancy, infant mortality, caloric intake, poverty rates, and wealth inequality—suffer lasting damage.
Portugal successfully reduced inequality following its crisis, whereas Greece widened the wealth gap after canceling its debt. Low-income citizens suffer first because their livelihoods rely directly on state solvency and social security systems. Public administration and social security form the primary wealth of citizens who hold little else, as their savings rest in regulated savings accounts and insured euro-denominated life insurance funds tied directly to government bonds. Wealthier individuals hold internationally diversified and mobile financial assets that can be sheltered abroad before capital controls take effect.
France Faces Distinct Fiscal Pressures
France does not currently face a crisis on the scale of historical Greece or Portugal. The country’s deficit stems primarily from the state distributing substantial revenue to households that ultimately save the funds, creating a financial imbalance where government spending paradoxically widens internal disparities. Since 2017, French public accounts have deteriorated at a pace unseen since the Algerian War.
Unlike Greece during its crisis, France maintains a balance of payments—encompassing financial flows between residents and non-residents—that sits near equilibrium. Future fiscal tightening will therefore prove less damaging to economic growth if authorities target unspent funds first. France maintains a lower value-added tax rate than many European neighbors despite offering more public transfers. Bondholders worry less about French insolvency and more about political denial among national lawmakers.
The European Central Bank will not rescue French finances by purchasing sovereign bonds. The central bank operates under a mandate to regulate the euro supply for eurozone monetary needs and preserve financial stability, rather than finance a single member state that refuses to balance its accounts. Once a French government implements serious measures to control its debt, the central bank can counter speculative market pressures, matching its past interventions in Spain and other member states.
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