The Strategic Horizon · The Family Constitution that Western States never signed

France now borrows at above 5% and the United States spends more on interest than on defence: sovereign risk has stopped being the backdrop to board decisions and has become one of them.

Few discoveries unsettle a family council quite like learning that the founders have spent years funding their way of life by borrowing against the company. Fraud is not required. It is enough that each year, taken on its own, seemed reasonable: an investment that could not wait, a crisis that justified the effort, a delicate moment when nobody wanted to say no. When the next generation receives the keys, it also receives the bill. We call this, rightly, a failed succession.

This week it is worth applying the same diagnosis to some of the most solid states in the West, because their numbers are beginning to describe precisely that situation.

France, the eurozone’s second-largest economy, now pays more than 5% to borrow for ten years. Its spread over the German Bund is around 170 basis points, the widest since late 2011, and the market already demands a higher premium from Paris than from Rome. French public debt has risen from 98% of GDP in 2019 to more than 119% by the middle of this year, and the deficit has stayed above 5% for four consecutive years. Merely stabilising the debt would require an adjustment of more than €80bn. Moody’s reviews its rating tonight. Whether or not it cuts by a notch, investors have already done the downgrading themselves.

Across the Atlantic, the United States closed fiscal year 2026 with a deficit of $2tn, a little over 6% of GDP. Net interest on its debt now exceeds a trillion dollars a year, more than Washington spends on defence. The world’s leading military power devotes more resources to paying its creditors than to its armed forces, a sentence that twenty years ago would have read as satire.

For half a century, the mental architecture of almost every Western boardroom has rested on an assumption that is rarely examined: the state is the constant. Its debt defines the risk-free rate and its signature is the anchor against which everything else is measured. Valuation models and the very decision about where to domicile family wealth start from there. What this week confirms is that, in several of the great Western democracies, the state has stopped being the backdrop to board decisions and has become one of them. It is no longer the constant in the model. It is a counterparty, with its own incentives and its own electoral calendar.

The consequences for anyone running a business are concrete, because sovereign risk does not stay at the Treasury. It travels. French companies already face an effective interest rate of 6.1%, the highest among their European peers according to Allianz. Vinci, one of the continent’s largest infrastructure groups, has just flagged uncertainty over its refinancing conditions alongside a proposed new tax of around €450m.

When a state needs money urgently, it tends to look in two places: in the market, where it competes with companies for the same savings, and in companies themselves, through taxation. Neither appears in anyone’s strategic plan, and both end up rewriting it.

The opposing argument deserves to be taken seriously, because it is a strong one. Borrowing is not in itself irresponsible. A state that borrows to build infrastructure or to absorb a shock is doing exactly what is expected of it, and this year has not been short of shocks: the Hormuz crisis has pushed Brent above $110, and demanding textbook fiscal discipline in the middle of an energy storm would be naïve. Japan has carried debt well above twice its GDP for decades without the crisis so many predicted. And the United States issues the world’s reserve currency, a privilege that grants it a margin nobody else enjoys.

All of that is true, and none of it resolves the problem. The relevant distinction is not between having debt and not having it, but between debt that builds patrimony and debt that finances current consumption. A deficit above 5% for four years running is not a response to a shock; it is a habit. The Japanese case, moreover, carries a less comfortable lesson than it first appears. Its debt has been sustainable because its creditors have been, above all, domestic savers: patient and, to a large extent, captive. Roughly a third of France’s debt sits with foreign investors, and part of the pressure of recent weeks has come, as it happens, from Japanese investors bringing capital home.

Creditor patience is never an asset one owns. It is borrowed, and it is withdrawn without notice. As for the dollar’s privilege, it is real, which is precisely why it demands more discipline rather than less. Privileges taken for granted tend to be the first to erode.

This is where the governance lens adds something macroeconomic analysis tends to miss. The West’s fiscal problem is, at bottom, a governance problem. In a family enterprise, the most reliable sign of institutional decay is rarely a bad year. It is usually the board’s inability to say no to today’s shareholders on behalf of tomorrow’s: the dividend that could not be cut, the reform always deferred to the next mandate. Democracies suffer from exactly the same asymmetry, only amplified. Today’s voters are seated at the table. The taxpayers of 2045 do not vote, do not protest and have no seat on the board. They are the voiceless stakeholder par excellence, and they are also the ones who will pay. Many of the family enterprises that survive several generations resolved this tension in writing: a family constitution that settles, before temptation arrives, what may be distributed and what must be preserved for those who come after. Western states have constitutions, of course. Just not that kind.

Edmund Burke described society as a partnership “not only between those who are living, but between those who are living, those who are dead, and those who are to be born.” Anyone who has worked with third- or fourth-generation business families recognises the idea at once: wealth is not owned, it is held in custody. Whoever receives it takes on a single obligation, which is to hand it on in better condition than they found it. No fortune survives heirs who treat it as income. I suspect no state does either.

There is also an irony that readers in Latin America will appreciate. For decades, many of the region’s business families learned to protect their wealth from their own governments by moving it to Paris, Madrid or New York. That strategy assumed sovereign risk was a phenomenon of other latitudes. Anyone who has spent three generations managing devaluations and capital controls now holds knowledge that many European and North American boards are only beginning to need. The safe haven, for the first time in a long while, also needs to be underwritten.

For anyone sitting on a board, the practical implication has two sides. The first is analytical: the sovereign risk of advanced economies belongs in the risk matrix with the same seriousness that, for decades, was reserved for emerging markets. That includes fiscal exposure, not only financial exposure, and the question of which jurisdiction holds the family’s wealth and under what rules that could change tomorrow. The second concerns leadership, and it is less comfortable. Many family businesses that rightly criticise public deficits finance their own growth with a strikingly similar logic: they defer the difficult decisions and pass them, with some elegance, to the next generation. The authority to demand discipline from a government begins with exercising it at one’s own table, and, where necessary, in writing.

If a family council approved four consecutive budgets with a 5% deficit and no credible plan to correct it, nobody would call it prudence. We would call it, without too many euphemisms, a badly planned succession. The question boards should be asking this week is a simple one: why do we still call the debt of anyone who behaves exactly like this a risk-free asset?