A model result: our French-election series begins

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Give it a try@mintmobile.com Switch upfront payment of $45 for three month plan equivalent to $15 per month. Required new customer offer for first three months only. Speed slow. 135 gigabytes of network busy. Taxes and fees extra. See mintmobile.com hey, Ryan Reynolds here for Mint Mobile. You know, one of the perks about having four kids that you know about is actually getting a direct line to the big man up north. And this year he wants you to know the best gift that you can give someone is the gift of Mint Mobile's unlimited wireless for $15 a month. Now you don't even need to wrap it. Give it a try@mintmobile.com Switch upfront payment of $45 for a three month plan equivalent to $15 per month. Required new customer offer for first three months only. Speed slow after 35 gigabytes. If network's busy, taxes and fees extra. See mintmobile.com. Hello and welcome to the Intelligence from the Economist. I'm your host, Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. The global total of debt has gone through the roof in recent years, but borrowing costs have stayed low. Our number crunchers look at the enormous bill that borrowers will suddenly face as interest rates start to rise, a burden that'll be unequally shared. And we examine an outlier in the global marriage statistics somewhere that despite pandemic restrictions, actually experienced a sharp rise in wedding. First up, though. French voters haven't re elected an incumbent president since the victory of Jacques Chirac two decades ago, We've got reason to suspect that that pattern will be broken in April's election. According to our freshly released election forecast, model President Emmanuel Macron, who's expected to throw his hat in the ring any day now, is likely to prevail. That outcome, though, won't be decided in Parisian salons or rural vineyards.

Saint Bris Sous Foret is a very average sort of suburb that you find on the fringes of greater Paris. It's really the edge of the city where the capital, the sort of built up capital, bleeds into the fields.

Sophie Bedder is our Paris bureau chief.

If you walk around, which I did, you see sort of curved streets with small houses each with a little garage and a parking space and A1 Main street with a boulangerie, a baker, and a cheesy pizza restaurant and a cafe. And then on the out of town, you have these big hypermarkets where people have to drive and do their shopping to get back to their suburban house.

Okay, that all sounds pleasant enough. And not much like the site of an election battleground, but why did you decide to go there and not Paris or even Marseille, beyond the cheesy pizza?

Well, I think that it's a mistake sometimes to think of France as either being the city center with the sort of elegant boulevards, or rural France with its, you know, lavender fields and vineyards. You know, most of the French actually live in these kind of in between suburban edge of city places. And that's where I think you need to go in order to try and understand this election. And St. Bris souffore in particular was an interesting example because it's in a region that is run by the main centre right candidate, Valerie Picras, but the mayor belongs to Emmanuel Macron, the President's party. So if you think of those two candidates as the sort of two main or leading mainstream candidates at this election, it's a really interesting place to test how they fare and what people think of them in a way that might exemplify France as a whole. In other words, locals in St Brice might well be torn between voting for the President, Emmanuel Macron, or his center right rival, Valerie Picasse.

If you're a regular listener, you'll know that this is just the kind of electoral scenario that our data journalists love to dig into. They've built statistical models in the run up to elections in Germany, in America, even in France back in 2017. And so far, they've been pretty accurate. They're at it again.

Well, our election model for the French election this April is similar to our previous election models because the model is based on polls.

Our lead polling guru, Eliot Morris, has been deep in the numbers for the forecasting tool the Economist unveiled yesterday.

Indeed, the French model is based exclusively on polls. We don't use any other information, and that's really a historical choice. We couldn't find anything else that's as reliable a predictor as the polls.

And what sort of polls are we talking about here?

We have polls in France going back to 1965, so we can quantify how accurate they've been on any day of historical campaigns. So, for example, 200 days before the election, the polls are on average about 5 percentage points off and on election day, they're about 2 and a half percentage points off. So there's a rough increase in precision as we get closer to the election day. But the French election model this year is different because there's a two round system, not like you have in the US or in Britain, where you have to simulate first which candidates are going to make it to the runoff round, that are going to place in first and second place in the first round, and then sort of chain the simulations together, then see what's going to happen in the second round, repeating this entire process. So instead of having tens or hundreds of thousands of simulations like we would do for the US we actually have 10 million for the French cycle, which is sort of a fun number. It doesn't mean much statistically, but 10 million is a huge number.

Okay, and what have the 10 million simulations revealed so far?

Yeah, so in these 10 million faux elections of sorts, as it stands today, we have Emmanuel macron winning about 7.9 million of them. So a win probability roughly of like 79% now. So that means there's a 1 in 5 chance that he's not going to win. According to this model, the second likeliest candidate is Valerie Pacress, the center right Republican candidate. We give her around a 1 in 10 chance, slightly higher than the chance we would give for Marine Le Pen, the farther right candidate, who of course was in the runoff in 2017 with Macron.

And any caveats here? How confident are you in the forecast so far?

Well, the forecasting model is essentially as good as the polls that go into it. We can't have more accurate predictions of vote share for candidates than essentially what people tell us. That's the truth in France and in other countries. So a lot could still happen in that 1 in 5 chance. We are far away from April. We know, for example, that Macron's support in the polls just ended the fall. Support for progress has increased. And there's a sort of wild card factor too, with Eric Samour, the farther right candidate, who's just sort of invented his own party to run for president. That hasn't happened all that often in French presidential history.

But inventing a party is exactly what incumbent President Emmanuel Macron did back in 2016. And it's a safe bet he'll soon be in the running for the election this April. Our model suggests that the battle to come will be fought on the right, that Valerie Pekres, Marine Le Pen and Eric Zamour will be jockeying for a place in a runoff against Mr. Macron. In the second round. How that would go will depend on how voters reckon he's handled things the first time around.

Some people are unhappy with Emmanuel Macron's performance. I went out in St. Brist to a roundabout on the edge of town where there's a giant hypermarket, and I found there Agnes, Jose Lhors and Eveline. They were standing there in the cold with their hoods up. It was a drizzly day. And next to them there was this yellow painted concrete block where they had painted the Gillet Jaune from Saint Brice. We won't give up. This was the uprising that emerged across France in 2018, not long after Macron was elected, against a rise in motor fuel tax at the time. Their current gripe is a new national rule, which was introduced in January, and it makes vaccination compulsory. Among these three women that I spoke to, only one of them said that she was vaccinated herself. But I think above all, they seem to be indignant at the way that Macron has, in their view, favored the rich and displayed a form of contempt towards ordinary people. But when I sat down with him in his office in the town hall, the mayor of Saint Brice, Nicolas Leloux, was much more hopeful. He told me that he thinks Macron is more popular than it seems and that there's a silent majority that back him and that they shouldn't be ignored. He also said that the people he's spoken to in the town think that Macron has handled the pandemic well.

And do you think it's as simple as that? That for the presidential election, there are essentially two extreme views, satisfaction and dissatisfaction.

One of the things that struck me is that people weren't talking about the presidential election at all. They're much more concerned about daily issues, COVID testing in schools, which has caused quite a lot of chaos. Some worried about the rising energy prices, heating bills, others about petty crime. But if thinking ahead to the election, it seems that the candidates have to address what people really are interested in. And it's those daily concerns, you know, that's what people are going to be voting on when it comes to the election in April. And in the end, what I saw in a place like Saint Brys may well determine who governs France for the next five years.

So it sounds as if we should keep a close eye then, on Saint Grys.

Absolutely.

Sophie, thanks very much for joining us.

Thank you, Jason. Always a pleasure.

We'll be traveling across France as part of our first ever series. Every other Thursday, we'll be discussing key themes and people who will influence the outcome of this election, pivotal for France's future and for Europe's. You can find all of the Economist's coverage, the forecast model and Sophie's reporting at our election hub, which you can find@exterator.com France2022. Central bankers the world over are busy raising interest rates from America, where the Federal Reserve looks set to bump up rates next month.

FUNDS RATE I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming that conditions Norway.

To south korea. To Brazil, which as of yesterday has the highest interest rate in the world at 10.75%. Later today, Central bankers in Britain and Europe are expected to announce hikes of their own, a bid to crimp the inflation that's soared in advanced economies. All those higher rates are going to squeeze lots of borrowers from governments to businesses to households. And some will be hit much harder than others. We've crunched the numbers to figure out just who's on the hook for the biggest interest bills.

Never before has the world really been so indebted.

Arjun Ramani is our global business and economics correspondent.

So right now, the stock of global debt is around $300 trillion. For context, that's about 355% of global GDP. And that number has really been growing for decades. But we're in a world with very, very low borrowing costs. And so what we're calling the global interest bill, which is basically the total stock of debt multiplied by the prevailing interest rate around the world, has not actually gone up much despite debt exploding. But we wanted to basically see what this number looked like and what it could look like if rates start to increase again.

So before we get into the examination of what that's going to look like with rising rates, we also know that everybody that holds debt is paying some interest on it. What is the interest bill on all of that debt?

So we tried to calculate that number, this global interest bill for 58 countries that represent around 90% of global GDP. And our figure for 2021 came to about $10.2 trillion. This would be for households, corporations, the financial sector and governments all across these countries. And that would be about 12% of global economic output. So that sounds like a huge number. It's just a few important points of context to remember. Even though interest is being paid, it's also being received. For example, households that save money in banks. The other thing is the world's interest costs are actually well below their peak in the late 1980s. So, for example, if we look at America, their interest bill was about 12% of GDP last year. But back in 1989, because of the aggressive interest rate rises to fight inflation, at the time, it went to over 27%.

But you quote some numbers there from last year, and we know that rates are beginning to rise. We've heard in particular from America the suggestion that there will be many or aggressive rises coming. What did your calculation suggest about rising rates? What would happen then?

What we did is we basically wanted to look at a scenario where the interest rate faced by firms, households, and governments rose by about a percentage point over the next three years. And we assume that this increase in rates basically feeds through over the next five years to governments and household debt and over the next two years to company borrowing. And the reason for that is basically because the interest rate doesn't always change instantaneously. So we wanted to work that reality into our simulation. And so our calculation basically found that the interest bill would grow to about 16 trillion in 2026. That's about 6 trillion higher than the current level. And that would be about 15% of global GDP in that year, which is also greater than the current level of 12%. But it is possible that scenario is actually too tame. Some central bankers might say dovish. Let's say that inflation persists for the next couple years and central banks have to be very, very aggressive about interest rate hikes. In that scenario, let's say interest rates across the world rose by 2 percentage points. Then the global interest bill would grow to 20 trillion by 2026, which would be nearly a fifth of GDP.

So somewhere between, say, 16 and $20 trillion. These are big numbers. And it's hard to understand who's going to be footing the bill and how it will be footed.

That's a great point. So so far we've been talking about the world as a whole, but it turns out that some parts of the world and some actors are more exposed than others. So we broke our analysis into three groups looking at countries, companies, and households in each of our 58 countries.

So let's take those in turn. Then let's start with the countries which are most exposed, which would be hurt most by these rising rates.

Yeah, so let's start with Lebanon, who were at the top of our rankings by a very, very long shot. In the government's case, they have an interest bill that's nearly half its revenues. Another part of the world that seems relatively strained is the West African countries of Nigeria and Ghana. In Nigeria's, case, their revenues only just cover their interest costs. But by and large, when we looked at governments, we noted that a lot of these emerging world countries tended to borrow during COVID in the last several years in their own currencies. And what that means is it's much easier, easier for them to be able to pay off their debts because they control the currency that their debt is denominated in. So despite these pockets of stress, I think the broad picture is a little bit more sanguine.

Okay, and what did your analysis say about the impact on households?

Yeah, so households are really interesting because at the top of our list were a number of rich world economies. That's where debts are highest relative to incomes. If you look at South Korea, Norway and Switzerland, they have the most debt relative to household income in our sample of countries. Zooming in on Sweden as an example, in Scandinavia, their mortgage debt is quite high and a significant portion is in variable interest rates, which means that when the interest rate that the government controls increases, mortgage bills will increase much more quickly than they would in other countries. Say for the United States, where lots of people borrowed with fixed mortgages. A couple other countries that look particularly troubled include China and Russia, where the debt to income ratio is actually doubled. The important context to keep in mind here though is because we are in a world with a lot of inflation that can actually kind of cut the other way on debt. It can make it easier for people to service their debts because they might be seeing rising incomes. That's not true everywhere. But if we look to America, for example, incomes have risen very, very fast over the past year.

And what does that balance look like in, in the case of companies, the, the third category you looked at, like.

With households, I would say the biggest borrowers for companies are also in Western Europe. So France tops their list. They have debts that are about 10 times their income. Switzerland is, and Sweden are, are very close behind in, in the emerging world. China and Russia are also quite indebted here and they also face higher interest bills because they have higher interest rates.

So given all of that and all the number crunching you've done, what do you think is likely to play out? What do you see happening over the course of this year?

Yeah, so I think one important thing to keep in mind looking forward is that we are going to see short term interest rates rise. They already have in many parts of the world. But it's important to keep in mind that longer term borrowing costs have not actually gone up nearly as much. How debt and interest play out is a very complex picture. When households, corporations, governments feel a squeeze from their debt burdens, it's very possible that policymakers react to that and stop increasing interest rates as much. All this being said, I think we are going to see significant increases in interest rates in 2022. That there's a lot of consensus around that. But how much further beyond that it'll go is certainly a big question. So that suggests that this big borrowing bonanza that we've seen and the risk that come along with it could have a long road ahead.

Arjun, thank you very much for joining us.

Thank you so much, Jason.

In most countries, the pandemic led to the postponing of all kinds of events, perhaps most of all weddings, places of worship were shut, few could travel, few could gather, and few wanted all of their elderly relatives packed into one room. But there's one part of the world where wedding traditions meant that the rate of knot tying actually went up.

The number of marriages has jumped by 9% in Saudi Arabia since COVID took hold. And it's been a trend that you're seeing across other Gulf states, too.

Nicholas Pelham is our Middle east correspondent.

The number of weddings are increasing in Kuwait, in Pata, in the United Arab Emirates. And this comes at a time when weddings have been plummeting elsewhere in the world.

And so what's behind it? Why are they going up?

I think to understand why so many more couples are now getting married, you really have to understand just how much it costs to hold a wedding. In pre Covid times, they really were kind of enormously extravagant events. There were multiple ceremonies for the bride and for the groom. There's the cost of the diary which the man has to foot. Even for a relatively sort of modest diary that could be sort of 45,000 riyal, which is over $10,000. On top of that, you've got to foot the bill for the swordsmen and the cheerleaders and the musicians and then you've got the honeymoon. If you foot the bill for each of those, that can easily exceed 200,000 real or sort of $50,000 for a fairly low key wedding. And if you're better off, then you'd be expected to invite hundreds of guests and perhaps have a popular singer. And they can cost sort of $200,000 a piece of just for a few hours. These really are immensely lavish events and remarkably sort of COVID has put a stop to a lot of that restrictions are brought in which limited gatherings to 50 people and that's attracted a lot of couples to get married on the cheap, as it were, rather than stack up years of debt for what could be a few hours of celebration. You're seeing a whole sort of rash of much more modest events.

But the lavishness you describe sounds like the preserve of really rich families. Is that the case?

There's really a lot of pressure on families across the social strata, and very few family members want to miss a good party. They had to do it. They don't see why younger couples should get out of it. So, no, there's kind of pressure across the board. I spoke to a teacher who just started his career in Medina. He was on a pretty low salary, and to pay off the debts that he'd incurred as a result of his wedding, he had taken on another job as a taxi driver. And seven years on, he still hadn't finished paying off his debt. And then he added just how delighted so many societies were that these Covid restrictions had come in. They didn't really want them to end because it meant that they could do marriages on the cheap. They could save on honeymoons because of lockdown and travel bans. And it was really just a way in which couples could get married in a much more affordable way.

But the insistence on opulence and high numbers of guests is a problem elsewhere in the world. Is that the only thing that drives these things to such numbers?

I think certainly it's fair to say that weddings in the Gulf tend to be a lot more extravagant than elsewhere in the world. You're talking about sort of hundreds of guests rather than just dozens, as maybe more common in the West. You've got to remember as well that costs of living in Saudi Arabia have soared dramatically. People are now starting to pay indirect taxes. A lot of people in Saudi Arabia are now really struggling to maintain the lifestyles that that they had in the past. On top of that, morays are changing substantially in the Gulf. Divorce rates are soaring in parts of the Gulf. You're seeing, you know, marriages collapse after two or three, four years. I think in the United Emirates, the figure is over 60% of marriages don't last more than four years. And in many cases, you're really getting quite a small return on your investment. You pay this a huge amount of money and then see the marriage collapse a few years down the line and maybe have to go through that all over again.

So it's another one of those things where the pandemic accelerated a trend that was already slightly underway.

I think it's absolutely the case that Saudi Arabia is in a state of social flux. Lifestyles are rapidly changing. You've seen this kind of clipping of the wings of the clerics. They've been hubbled. They don't have the powers of controlling public space that they had in the past. And as a result of that, you're actually seeing couples find other ways of getting together. You've got a greater sense of permissiveness, both from sort of top down and bottom up when it comes to how people live their personal lives. Women are less dependent on men because they're going out to work. And so perhaps the value of marriage has diminished somewhat as well.

Thanks very much for joining us, Nicholas.

Jason, always a pleasure. Thank you.

That's all for this episode of the Intelligence. If you like us, leave us a rating and a review and you can subscribe to the economist@examiner.com intelligenceoffer. The link is in the show Notes. See you back here tomorrow.