The French state is currently paying higher interest rates on its debt than Italy or Greece, despite a lower debt-to-GDP ratio. However, Greece’s public debt continues to fall sharply, and Italy is able to keep its ratio stable.

By contrast, the French state’s debt dynamics are breathtakingly high. Accordingly, the yield on 10-year government bonds has risen by 130 basis points since the start of the year, more than in any other industrialised country. 

Lagarde puts Paris on the spot

ECB President Christine Lagarde believes France has a duty to solve its debt problems and is thereby dampening speculation about central bank intervention in the bond market. It is up to the government in Paris to reassure investors, Lagarde told CNN in Bangkok. “There are special circumstances that mean some countries are affected more heavily — France is an example,” she added. And in this case, the first and most important solution lies at home, in France. The country should solve its debt problems through fiscal consolidation, said the Frenchwoman.

With the Transmission Protection Instrument (TPI), the ECB has a programme that allows it to buy unlimited government bonds of a eurozone country in distress. However, the condition is that the country concerned is suffering from an “unjustified deterioration” in its financing conditions and that the rise in yields is disorderly.

England has already halted

The Bank of England has already suspended its Quantitative Tightening (QT) programme and stopped selling government bonds.

As a result, calls arose for the ECB to end its QT programme as well. However, the ECB merely allows bonds in its portfolio to mature without replacing them. In effect, it is therefore being called on to resume its bond purchases.

France would have to restrict its sovereignty

Within the framework of its current powers and available instruments, this is not permitted for the ECB. Under the conditions defined by the ECB, Outright Monetary Transactions (OMT) require that the state the ECB is to support must first have accepted a programme from the European Stability Mechanism (ESM). According to observers, France is far from that.

First, the French state would have ample scope to escape its debt crisis entirely on its own if the necessary measures to consolidate the public finances were initiated. Second, France is probably regarded as the EU member state least willing to see its sovereignty curtailed.