Matthieu Pigasse loves cartoons. One of his favourites, Beep Beep and Coyote. Well, here we are, in terms of economic conditions for the ex-star banker of Lazard: never have the uncertainties been so great, and we are all Beep Beep pedaling above the void in the crazy hope of escaping the worst. In the luxurious offices of the American investment bank Centerview, of which he created the Paris branch, he confides to us his anxieties of the moment: the explosion of debt in poor countries and the outbreak of inequalities everywhere on the planet. Little lesson in economics Pigasse version.
“The debt in Europe is not the subject, we can erase part of it”
The tone is grave, the faces severe. This Thursday, April 20, in one of the large halls of the citadel of Bercy, Bruno Le Maire, the Minister of the Economy, and Gabriel Attal, that of public accounts, detail the PSTAB, this mysterious acronym designating the budgetary roadmap of France for the next five years. With a strong announcement at the key: the acceleration of debt reduction. The debt-to-GDP ratio must be reduced from 111.6% of GDP at the end of 2022 to 108.3% in 2027… Main reasons given: the need to regain budgetary leeway in the event of a new blow on growth, and, above all, the surge in interest rates, which increases the debt burden.
At the same time, in his office on avenue Matignon, with a view overlooking the gardens of the Elysée, the former adviser to Dominique Strauss-Kahn sends the arguments of the two ministers to waltz. “In Europe, the debt is not the subject, we can erase the part held by the European system of central banks. About 30% of the French public debt is thus in the hands of the ECB. We have changed paradigm”, he says, not unhappy with his small effect. “On this subject, it is necessary to distinguish the countries which have monetary sovereignty and go into debt in their own currency from those which, like the majority of emerging countries, issue in a currency other than their own, in dollars or in euros. This is a major differentiating factor. Whatever it takes was in reality financed not by debt, but by massive monetary creation, without this having an effect on inflation. Finally, the real interest rates, that is to say excluding inflation, are always lower than the growth rate of the economy, which avoids any snowball effect”.
Certainly, but the debt burden has increased significantly, and it could reach 70 billion euros in 2027, becoming in fact the first item of State expenditure. “So what?, answers Matthieu Pigasse. In relation to GDP, it is still lower than ten years ago.” We can already imagine the cries of outrage from his former boss at Bercy, François Villeroy de Galhau, former chief of staff of DSK and… current governor of the Banque de France.
“The default of emerging countries is the real time bomb”
Countries whose finances are in shambles, Matthieu Pigasse knows well. After Bercy, who became an investment banker at Lazard, he took care in the 2010s of the restructuring of the debts of Argentina, Bolivia, Venezuela, but also those of Greece or Ukraine. “The bankruptcy of emerging countries is the real time bomb. When one country defaults, it’s a disaster for its citizens. But when ten default at the same time, it’s a problem for the whole world But this risk is real, and this is the big difference compared to the situation of the last decades.”
The violent rise in interest rates is a disaster for dozens of poor countries whose debts are denominated in foreign currencies and which have seen their currencies collapse in recent months. According to estimates by the International Monetary Fund, some fifty low-income countries are now in a situation of stress on their debt, which represents more than 700 million inhabitants. “It is a major social and political problem. One should remember the lesson of the 1980s, when the cascading faults in Latin America led to revolts and revolutions. This is the case when a state cannot no longer provide its citizens with essential functions such as food, housing, transport.”
Today, the extent of the phenomenon means that, by extension, the entire planet could be contaminated. “Everyone has lent to these countries. So the financial exposure is very broad.” Financial risks to which must be added major geopolitical impacts. “I have been working in Africa for twenty years. I saw the arrival of the Russians, then the Chinese, who lent to the States, built ports, roads, taking as collateral loans that they granted mines and natural resources. Beijing, through these banks, lent the equivalent of 900 billion dollars and became the first bilateral lender in the world. And I experienced it in the case of Greece and Congo, the Chinese creditors have no intention of entering into the classic framework of debt restructuring. The geopolitical stakes are high, and Western naivety on these subjects has been confusing.”
“We made a mistake by not creating a pension fund, it’s a question of sovereignty”
The pension reform, Matthieu Pigasse followed it at night, not losing a crumb of the lunar and hysterical debates in the National Assembly broadcast on the news channels… “You must not refuse to assume your faults of today on the grounds of past mistakes. Among the possible ways to save the system, injecting a dose of capitalization was one of them, I have no problem recognizing it.” By his own admission, his social-democratic political family made a mistake in the late 1990s. “I remember that at the time there was a debate about the need to create French-style pension funds. Except that this expression was scary and acted as a foil. The question was buried. Wrongly. On the one hand, it would have given muscle to our pension system based on the distribution, and, on the other hand, the he existence of pension funds would have solved a large part of the capital shortfall available in Europe.”
In the debate on sovereignty, it is not only access to strategic raw materials or electronic chips that count. “Capital is an essential vector of the independence of our economies and a key factor in the control and development of our companies. Without capital, control of listed companies is in the hands of foreign investors, and the financing of companies is done by non-Europeans”, continues the banker. How to fix this flaw? “By creating new long-term savings products, above all avoiding calling them pension funds. Words matter. And by directing these products towards the development of the economy and the energy transition.” On the left, the subject is radioactive, it is pointed out to him. “Pff!… Yes. But the social democratic left has disappeared, that’s a fact. It’s up to us to invent a new model, adapted to the world of today and tomorrow.”
“When it comes to inequality, perception counts as much as numbers, and the situation is unbearable”
Do not start Matthieu Pigasse on the subject of inequalities, or only if you have several hours in front of you. First the observation: “My absolute conviction is that inequalities have reached an unsustainable level, in France as elsewhere.” Obviously, it is pointed out to him that the tricolor redistributive system does not work so badly, and that inequalities have progressed less in France than elsewhere.
“You can give me all the statistics, I don’t care. There are inequalities and the perception of inequalities, and that matters as much. This perception is socially intolerable, politically unbearable and morally inexplicable. I observe two things. one side of the ultra-rich who accumulate always more, and on the other a fringe of the population which works hard but which has more and more difficulties to live with dignity. I have no problem with the fact that companies release billions of profits. This is a very good thing, as long as this created wealth is used in an economically efficient and socially fair way. We will not escape a profound change in the distribution of wealth.”
And the banker to embark on a series of proposals, some of which smell of sulfur: “Yes, we will have to ask ourselves the question of work sharing, set up a universal income, and create a fairer and redistributive tax system.” And here he is proposing a new version of the IFI: the immobile wealth tax. “We must tax those who do not circulate the money.” On to the pensioners!