Krugman: France May Be 'Too Big to Save' for ECB — SkimNews
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- Paul Krugman wrote in a Thursday Substack post that France is on a "fiscally unsustainable path," with mounting interest on government debt and large budget deficits worsening its already high debt-to-GDP ratio.
- Krugman singled out France's failure to address its relatively low retirement age as the population ages, and compared the trajectory to the 2009-2012 sovereign debt crisis that engulfed Greece, Portugal, Spain, and Italy.
- Krugman argued France may have "crossed the line from too big to fail to too big to save," warning a bailout would be "extremely expensive" for the ECB and politically divisive as France moves "even further from fiscal responsibility."
- Prime Minister Sébastien Lecornu is struggling to pass a contentious 2027 budget that seeks tens of billions of dollars in fiscal consolidation, while student protests over underfunding in education continue across France.
- Former ECB chief Jean-Claude Trichet told CNBC on Friday that French politicians must compromise to reduce the deficit of the EU's second-biggest economy, saying "the ball is in the camp of the French government and parliament."
- Trichet cited the European Stability Mechanism and the ECB's never-used Transmission Protection Instrument (TPI), finalized in 2022 to combat euro-area market fragmentation, but noted TPI activation requires the French government to first ask for help — which it currently says it doesn't need.
- The 2012 ECB intervention under Mario Draghi — "whatever it takes" — worked because southern European nations accepted "massive spending cuts," Krugman noted; Trichet echoed that lesson: "you first have to help yourself, because we cannot win if you are not yourself convincing market participants."
Why it matters: If France — the EU's second-biggest economy — cannot credibly cut its deficit, the ECB's never-used Transmission Protection Instrument would require France to first ask for help, which it says it doesn't need. Lecornu's struggle to pass the 2027 budget and Trichet's direct appeal to "all political sensitivities" show the fiscal path remains contested, and Krugman's "too big to save" framing puts the scale of the risk on the table.
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