Forum Post: french public debt

In 1973, France did not have a debt problem and the national budget was balanced. Indeed, the state could borrow directly from the Bank of France to finance the building of schools, road infrastructure, ports, airlines, hospitals and cultural centers, something that it was possible to do without being required to pay an exorbitant interest rate. Thus, the government rarely found itself in debt. Nonetheless, on January 3, 1973, the government of President George Pompidou--Pompidou was himself a former general director of the Rothschild Bank--influenced by the financial sector, adopted Law no.73/7 focusing on the Bank of France. It was nicknamed the "Rothschild law" because of the intense lobbying by the banking sector which favored its adoption. Formulated by Olivier Wormser, Governor of the Bank of France, and Valéry Giscard d'Estaing, then Minister of the Economy and Finance, it stipulates in Article 25, that “the State can no longer demand discounted loans from the Bank of France”.[3]

As a result, the French state is now prohibited from financing the public treasury through zero interest loans from the Bank of France. Instead, it must seek loans on the open financial markets. Therefore, the state is forced to borrow from and pay interest to private financial institutions, when until 1973, it could create the money it used to balance its budget through the Central Bank. With this quasi-monopoly, commercial banks now have been granted the power to create money through credit, whereas previously this had been the exclusive prerogative of the Central Bank, that is to say of the state itself. As a result, commercial banks are getting rich off the backs of taxpayers.