Nobel winner Krugman says France may have become 'too big to save'

Writing in a Substack blog post on Thursday, Krugman said France was on a "fiscally unsustainable path," facing mounting interest on its government debt while exacerbating its high debt-to-GDP ratio with large budget deficits. A key issue is the country's failure to address its relatively low retirement age as the population ages, he argued. "France's reliance on the euro means that it's all too easy to see how this loss of confidence could turn into an ugly crisis... We saw this movie in 2009-2012, first in Greece, then in Portugal, Spain and Italy," Krugman wrote, referring to the Sovereign Debt Crisis that spurred extensive intervention by the ECB. "First, investors stop buying a euro-area nation's bonds, raising the specter that the government will be forced into default because it simply doesn't have the cash to pay interest and principal on its debt. Fear of default then leads to even more capital flight, which increases fears of default and the interest rate, and the vicious circle deepens." The ECB's famous 2012 reassurance to markets by then-president Mario Draghi that it would do "whatever it takes" to avoid national defaults was accepted in large part because southern Eu...