The state

Every year, the state collects taxes and pays for spending. When it spends more than it takes in, that is a deficit.

The deficit is measured over a year. It is a hole in the year's budget, like an overdraft at the end of the month.

Debt is the total. All past deficits, piled up, and not yet repaid.

To compare countries, debt is set against GDP: the wealth the whole country produces in a year.

In France, at the end of two thousand twenty-four, debt exceeded one hundred and ten per cent of GDP. More than a whole year of output.

European rules aim for a deficit under three per cent of GDP, and debt under sixty per cent. Many countries are far from it.

Take an imaginary country. It produces one trillion a year, and owes as much. Its debt: one hundred per cent of GDP.

This year, it runs a fifty billion deficit. Its debt rises to one trillion and fifty billion.

But its economy grows three per cent: one trillion and thirty billion. Its debt goes to a little under one hundred and two per cent of GDP.

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With only thirty billion of deficit, debt would be one trillion and thirty billion. The same as GDP: one hundred per cent, stable.

Here is the twist: a state can stay in deficit without its debt getting heavier. The economy just has to grow fast enough.

So the number that counts is not debt alone. It is debt compared with what the country produces.

Then comes deciding what to do with the budget. That is fiscal policy: stimulate, or brake.

In a crisis, the state can spend more or cut taxes. Money circulates, companies sell, jobs hold up better.

When the economy overheats, it can brake: spend less, or tax more. To calm prices and lighten the debt.

The trap: stimulus always pleases, braking never does. So deficits pile up, even in good years.

And debt has to be financed. The state borrows from the same lenders as companies and households.

If it borrows a lot, it can push up the price of money for everyone. This is called the crowding-out effect.

Say a two hundred thousand euro home loan over twenty years. At three per cent, the monthly payment is one thousand one hundred and nine euros.

If the rate rises to three and a half, it goes to one thousand one hundred and sixty euros. More than twelve thousand euros of extra interest, over the term.

Crowding out is not automatic. It depends on available savings and lenders' confidence.

But one thing is certain: interest on the debt is spending. Every euro paid to lenders is missing elsewhere.

When people talk about debt, ask two questions. How much, compared with GDP? And is the economy growing fast enough?

A state is not a household: it never retires. But like you, it pays the price of borrowed money.