by

Robert Cauneau

19 July 2025

---

Introduction

« The last budget surplus was 50 years ago, » « We must put an end to this anomaly, » « The cancer of debt is eating away at our future. » For decades, the discourse on French public finances has revolved around a single complaint: the uninterrupted budget deficit. Raised at the highest levels of government, from the Élysée Palace to the Prime Minister’s Office, from the Ministry of Finance to the Banque de France, including the Court of Auditors, this lament has become accepted as common sense. The deficit is supposedly a fault, a weakness, a disease that must be cured at all costs.

Yet, this obsession reveals a profound, almost astounding, misunderstanding of the most basic accounting mechanisms that govern a national economy. For, and this article aims to demonstrate this, the public deficit is, in most cases, neither an error, nor an anomaly, nor an exception. It is the natural, logical, and often necessary position of a state’s budget balance. modern.

This article proposes to deconstruct, step by step, what is undoubtedly one of the biggest analytical errors in French economic policy over the past fifty years. Using irrefutable accounting identities, the ones every first-year economics student learns, we will show that the public deficit is a simple reflection of the savings desired by the private sector and our trade balance with the rest of the world.

Far from being a sign of poor management, the deficit is most often the adjustment variable that allows our economy to avoid sinking into recession. The real scandal, therefore, is not that France has been in deficit for 50 years. The real scandal is that those who govern us still don’t seem to have understood why.

To demonstrate this, the article will unfold in several stages. We will first establish the fundamental accounting logic, which, in a simple system, inextricably links the public deficit to the private sector’s savings capacity. We We will then extend the analysis to an open economy by presenting the « map of possibilities » which describes the different economic configurations for a country. Finally, we will apply this framework to the specific case of France to demonstrate that its chronic deficit situation is not an anomaly, but a predictable consequence of its structure, thus revealing the absurdity of the dominant discourse.

I. The Mechanics of the Deficit: The Source of Net Private Savings

Before delving into the complexity of international trade, let’s start with the simplest principle: that of a closed economy, with no foreign relations. In such a system, there are only two major players: the public sector (the government) and the private sector (all households and businesses).

Every economic transaction has two sides: the expenditure of one is the income of the other. From this accounting truth follows an inescapable consequence: the sum of the financial balances of all sectors is always, by definition, equal to zero.

Public Sector Balance + Private Sector Balance = 0

This is not an alternative theory or a partisan position, but an accounting fact as indisputable as 2 + 2 = 4. A public deficit is the logical condition for the existence of net private savings. This means that if one sector is in surplus (it earns more than it spends), the other sector is necessarily in deficit by the same amount.

Now, let’s ask a common-sense question: what is the « natural » behavior of the private sector? As Warren Mosler, the main inspiration behind MMT, explains, the debate on the deficit must begin with a simple question: does the private sector, as a whole, have a desire to save? The answer is yes. To protect themselves against life’s uncertainties, to prepare for retirement, or to invest, households and businesses have a structural desire to be in financial surplus. They seek to accumulate net savings.

The assertion that the private sector is a net saver is not a theoretical hypothesis, but a robust and consistent statistical fact, documented by INSEE for France. In the annual National Accounts, line B.9 (« Net lending/needs ») of the General Economic Table systematically shows net lending for all households and businesses (sectors S.14 and S.11).2

This desire to save is confirmed by this graph, which shows France’s sectoral financial balances since 1980, including the domestic private sector’s balances which are almost always in surplus.

Graph 1: French sectoral financial balances as a % of GDP

This is where the contribution of Modern Monetary Theory (MMT) is fundamental. The private sector, as a whole, cannot create its own net savings out of thin air. For households and businesses to collectively accumulate Net Financial Assets (NFA)—that is, financial wealth that is not the debt of anyone else within the private sector—the government must provide it.

And how does the government do this? By spending more in the economy than it takes in in taxes. This is the very definition of a deficit. The public deficit is therefore the functional response to this need for financial security. As Mosler insists, « the government deficit is the private sector surplus, to the nearest cent. »

The public deficit is therefore nothing other than the mirror image of private sector net savings. The red ink used to write the government deficit is precisely what allows private savings to be written in black ink. Thus, when a politician deplores the public deficit while extolling the virtues of private savings, they are contradicting themselves. This is an accounting absurdity.

This logic completely reverses the usual perspective. The true state of economic danger is not the deficit, but the prolonged budget surplus. When the government is in surplus, it destroys Net Financial Assets. To continue operating, the private sector is then forced to borrow. The history of the Clinton-era budget surpluses is a lesson in this: by forcing the private sector to borrow against its natural tendency, the government prepared the crisis that followed. The deficit is therefore not the disease; it is the vaccine against the private debt crisis.

It is not so much the ignorance that is surprising as its persistence. Yet public officials have an army of experts at their disposal, as well as the accounting and statistical tools to understand the mechanics of national accounts. If they prefer to ignore the fact that a public surplus destroys private savings, it’s because they choose to ignore what governing entails. And this is where public discourse becomes absurd: the observation of « 50 years of deficit » is expressed with regret, as if one had to apologize for having allowed private savings. Such a lack of understanding of accounting balances at the highest levels of government raises questions.

Of course, our economy is not closed. But as we shall see, the introduction of foreign trade only reinforces this conclusion.

II. Opening up to the real world: the three sectors and the map of possibilities

The preceding reasoning, while correct, was a simplification. No modern economy is an island. We must therefore introduce the third major actor in our system: the external sector, that is, all non-resident actors (businesses, households, and foreign governments) with whom we trade.

The fundamental accounting identity is enriched, but its principle remains the same: the sum of the balances must always equal zero.

Public Balance + Domestic Private Balance + External Balance = 0

This fundamental equation is not a mere accounting curiosity. It forms the heart of the sectoral balances approach, a powerful macroeconomic analytical framework developed by British economist Wynne Godley of the University of Cambridge. His insight was as simple as it was profound: the balances of the three sectors (public, private, and external) are inextricably linked. A sector cannot change its balance without at least one other being adversely affected. It was using this model that Godley was able to predict the 2008 global financial crisis with astonishing accuracy, years before it occurred, by analyzing the unsustainable debt of the US private sector.

The « External Balance » corresponds to our trade balance. If it is positive for us (a trade surplus), it means that the rest of the world is in deficit with us. If it is negative (a trade deficit), it means that the rest of the world is in surplus with us.

This three-part equation complicates the analysis, but above all, it allows us to draw a « map » of all possible economic configurations for a country. Australian economist Bill Mitchell, one of the founding fathers of MMT, uses a simple and very telling visualization of this map: a four-quadrant diagram.

• The horizontal axis represents the external balance (on the left, the deficit; on the right, the surplus).
• The vertical axis represents the public balance (on the top, the surplus; on the bottom, the deficit).
• All points above the 45-degree line on either side of the vertical axis correspond to private domestic sector deficits, and all points below the 45-degree line on either side of the vertical axis correspond to private domestic sector surpluses.

Each quadrant of this map describes a different economic « world, » a specific macroeconomic configuration.

Figure 2. Sustainable Space for States Without Financial Constraints

1. Top right quadrant (Public Surplus / External Surplus): This is the situation in countries like Germany or Norway. They export so much more than they import that their massive trade surplus « finances » both their private sector savings and their government budget surplus. This is a viable model, but it relies on other countries agreeing to run deficits with them.
2. Bottom right quadrant (Public Deficit / External Surplus): This is the typical Japanese configuration. A large trade surplus adds to the public deficit to allow for extremely high levels of savings in the domestic private sector. This is a very stable position.
3. Top left quadrant (Public Surplus / External Deficit): This is a rare and unstable configuration. Here, the private sector is forced to borrow massively to finance both the government surplus and the foreign deficit. This is the situation that preceded the 2008 financial crisis in Spain and Ireland.
4. Bottom left quadrant (Public Deficit / External Deficit): This is the structural position of countries like the United States, the United Kingdom, and, as we will see, France. In this world, the public deficit is doubly necessary: it must compensate both for the private sector’s desire to save and for the « leakage » of income abroad due to the trade deficit

This map of possibilities is crucial. It shows that a country can run a surplus, but only under very specific conditions (being a major net exporter). Above all, it shows that there is no single « good » model, but rather different configurations that depend on the characteristics of each economy.

Now, the key question is: where does France fit on this map?

III. The Case of France: A Proof by Absurdity

Now that we have our « map of possibilities, » we must superimpose on it a very real constraint that weighs on the eurozone countries: fiscal rules. It is by understanding the interaction between the structure of the French economy and these rules that we can fully appreciate the absurdity of the dominant narrative.

From the Possible to the Sustainable Space Under Constraint

As Bill Mitchell has demonstrated, while a sovereign state can theoretically reach any point on the map, not all positions are sustainable in the long term. Economic history teaches us that the private sector cannot borrow indefinitely. The only viable situation in the long term is therefore one where the private sector is globally in surplus. On our diagram, this « sustainable » zone corresponds to the entire area below the 45° diagonal line.

This is where the European drama begins. The European treaties have imposed an artificial limit: a member state’s public deficit must not exceed 3% of its GDP. This rule draws a horizontal line on our map, cutting into a large portion of the sustainable space that would normally be available.

Figure 3. Sustainable space for states with financial constraints (the case of France)

This considerably reduced policy space does not affect all countries in the same way:

• The blue zone represents the (relatively large) policy space of countries with a trade surplus.
• The red zone represents the (very limited) policy space of countries with a trade deficit. For these countries, the public deficit must be large enough to finance both private savings AND the « leakage » of income to the rest of the world.

France, confined to the red zone

Let’s apply this framework to France. Its economy is characterized by two stubborn structural facts:

• A private sector that wants to save (this point was developed above);
• A chronic trade deficit.

These two characteristics combined leave no room for doubt:

• The trade deficit places France on the left side of the graph.
• The need to finance private savings pushes it below the 45° line.

France is therefore inevitably and structurally located in the red zone. Herein lies the fundamental absurdity of the situation: we have constructed a rule that directly conflicts with the reality of the economy it claims to regulate. We have taken a necessity—the deficit that allows us to finance private savings and offset our trade deficit—and transformed it into a political sin, a mismanagement that must be confessed annually to Brussels. The result is a straitjacket that not only limits public action, but also places it in a state of permanent violation. The public decision-makers who deplore this situation are therefore only complaining about the effects of a cage whose bars they themselves defend, a cage that transforms the natural condition of our economy into a perpetual crisis.

And this is where we can appreciate the full absurdity of the dominant narrative. When our political and economic leaders deplore the public deficit, what exactly are they asking of us? Let’s analyze the logical consequences of their desire: wanting a budget surplus in France means demanding that households and businesses not only stop saving, but also go into debt collectively and massively, year after year. In short, it’s calling for a major financial crisis.

Conclusion: Putting an End to 50 Years of Analytical Error

At the end of this demonstration, one conclusion emerges with the force of evidence: the « problem » of the French public deficit has never been an economic problem. It’s a problem of understanding.

We have seen that the government deficit is not a « management error » or an « anomaly » but, on the contrary, the mechanical and predictable consequence of the structure of our economy. It is the accounting mirror that reflects both the legitimate desire of our private sector to save and the chronic deficit in our foreign trade. Far from being the cause of our woes, the public deficit has, for fifty years, been the shock absorber that has allowed the French economy to function despite its imbalances.

The real tragedy of the « 50 years of deficit » is therefore not budgetary. It is intellectual. It is the tragedy of political, economic, and media elites who, for half a century, have persisted in analyzing a modern state through the lens of a household or a business. It is a symptom of an economic mindset trapped by simplistic metaphors (« filling the pot, » « living beyond one’s means »), incapable of grasping the most fundamental interactions of a macroeconomic system. By repeating this fundamental error, they perpetuate a general confusion that prevents any rational public debate on our real societal choices.

But is it really a simple error? Or should we rather see it as a convenient cover for an ideological project? This analytical error is indeed not without consequences. It is in the name of this absurd fight against a symptom that we justify austerity policies that slow growth, underinvest in our public services, and abandon plans for the future. The obsession with the deficit is a powerful tool of political discipline. It presents austerity not as a societal choice, but as a technical inevitability, thus neutralizing all opposition. The fetishization of budget balances distracts us from our real objectives.

It is therefore high time for a paradigm shift. And, beyond simply expressing outrage at the intellectual inadequacy of public decision-makers, we should certainly also ask ourselves a more demanding question: are we, as citizens, ready to abandon reassuring fables for a mature debate on the economy? A debate where the relevant question is no longer « How can we reduce the deficit? » but « How can we use our budgetary capacity to achieve full employment, succeed in the ecological transition, and guarantee quality public services? » A debate where the budget is finally seen for what it is: not a burden to be reduced, but the most powerful tool serving the public interest.

Ending 50 years of deficit spending is a pipe dream. Ending 50 years of analytical error is an urgent necessity. Only then can we finally have a rational public debate on the real issues of our time.

---

Notes

1. Warren Mosler (2010) : https://moslereconomics.com/wp-content/uploads/2020/11/Seven-Deadly-Innocent-Frauds-of-Warren-Mosler.pdf
2. For the year 2024, the INSEE Economic Overview Table can be viewed here: https://www.insee.fr/fr/statistiques/8574722?sommaire=8574832
3. Bill Mitchell, (2018) : MMT and the external sector – redux
4. It is important to note that the Modern Monetary Theory (MMT) perspective on foreign trade differs radically from orthodoxy. MMT thinks in terms of real flows: imports are a real benefit (goods and services the country receives), while exports are a real cost (goods and services the country gives up). Therefore, a trade deficit, which means that imports exceed exports, is not a problem in itself. On the contrary, it contributes to the material enrichment of the population, which benefits from more goods and services than it produces for foreign countries. Conversely, a trade surplus represents a net cost to the nation, which sends out more real resources than it receives.