History teaches that the practice is more dangerous

President Nicolas Sarkozy announced the launch of a "great debt" whose purpose would be to "fund the priorities of the Government." The Government will have three months to set the priorities which will benefit from this loan, as well as its technical terms. Why an additional loan Three types of explanation are possible: a skid increased public finance, a second "fiscal package" to support economic activity that does not repartirait the financing of structural reforms.

Side conditions, after considering that growth would be between 1.0 and 1.5 in 2009, it appears now that it would be-3, which mechanically increase the public deficit of more than 2.5 points of GDP. Add to that a plan of budgetary support from approximately 1 point of GDP, VAT revenues reduced by the restoration, and the deficit slips to a record level of 7 of GDP. While the last State funding plan date of March, time at which the deficit envisaged was less, is well understood that it is necessary to find new sources of funding.

It can also be considered that the "first" package of measures to support growth was built above a deterioration of conditions. It was mostly able of cash for businesses, and facilities of modest public investments (around a dozen billion euros), for the most part already planned, and which would be advanced at the time.

Before the magnitude of the recession, a new package of measures, most "productive" investment would be made. So here are the idea to distinguish the "good" of the "bad" deficit: these new investments will be so "good deficit" funded by this new loan.

If you continue the reasoning to the end, suggests that the "structural" deficit existing (excluding the impact of conditions and the first package of discretionary measures) is "bad" deficit. The European Commission considering this "bad" deficit to 5.5 of GDP today, is a little less of 90 billion euros. Out of crisis, in addition to the loan to be repaid, it will also identify sufficient budgetary resources to reduce this deficit: borrowing, even great, cannot therefore be used to eliminate the structural deficit and will not avoid a significant effort of adjustment to the exit from the crisis.

This brings us to the third option: a loan to finance the structural reforms needed to stem chronic skid of public finances. Structural reforms provide gains in the long term, but have two major drawbacks in the short term: some win, others lose, and the budgetary cost is initially high. As Delpla and Wyplosz (2007) believe that all of the structural reforms that would be needed in France could cost up to 20 points of GDP. Without delay also large scale reforms, borrowing to finance the reforms would merit announce clear priorities, to estimate the costs and benefits (thus breaking with a tradition of non-transparency that perspective embodied in the reform of special pensions regimes), and anchoring the promises of reform.

In practice, a "special" borrowing costs a little more expensive than a standard loan, that it caters to the individual or institutional, and has therefore sense to finance options 2 or 3. In this case, the reforms and investments should be identified and encrypted and expected profits to refunds, calculated. Membership in this program by savers, or investors, would become political as economic. Policy, as agree to the loan, it is believe to be reimbursed by the benefits it will generate. Economic, because investors who invest in savings regulated and poorly paid (as the booklet A 1.75) can expect superior performance, institutional investors also because such an investment is less liquid than the conventional emissions of State.

In total, the debt will increase to blithely exceed 80 of GDP. Economics teaches that public debt is to finance productive investment which cannot be supported by a single generation, which is desirable. History teaches that the practice is more dangerous.