The German weekly Focus warned that the “everything bubble” might explode, September being a critical month, and quoted Société Générale’s Albert Edwards pointing the finger at government debt as the trigger. In this case France is indicated as the proverbial butler in the thriller story. “The ‘Everything Bubble’ Threat—And If It Bursts, It Gets Really Expensive” is the headline of the article.
French government debt, at slightly less than 115% of GDP, is not dramatically high. Japan has a 235% debt-to-GDP ratio. What Société Générale and, in general, financial traders might be worried about, however, is the impact on interest rates. France already pays 3.4% on ten-year bonds, whereas one year ago it paid 2.8%. The massive increase in German government spending, although not directly bringing German debt out of control (90% ratio to GDP), will add stress on the bond market, pushing yields higher. This, despite all rate cut efforts by central banks.
