'In the medium term, AI will force states to fundamentally rethink their tax systems'

Is artificial intelligence (AI) a threat to public finance? It might be, judging by recent trends in the bond markets. To fund the construction of data centers, chip factories and servers, tech giants such as Google, Meta, Amazon and others have been issuing debt at unprecedented levels. Since January, they have already borrowed $500 billion, and AI now accounts for 25% of total private bond issuance, up from 4% two years ago, according to estimates from Chris Della Fave at investment bank Post Oak Group, reported by Agence France-Presse (AFP).

This surge is putting pressure on companies in other sectors, which now face greater challenges in attracting lenders and investors. But that is not the only consequence. By absorbing so much available capital, the AI giants are now overshadowing governments themselves, starting with their own. As the law of supply and demand dictates, the greater the number of borrowers, the higher the interest rates lenders demand. If US 10-year borrowing costs currently exceed 5.3%, it is not only due to energy inflation caused by conflict in the Middle East but also because the US Treasury is now competing with Big Tech.

This crowding-out effect has had less impact in Europe so far. Since the start of the year, "hyperscalers" (cloud computing giants) have accounted for 7% of euro-denominated bond issuances with 10-year maturities or longer, notes Huw Van Steenis of US asset manager Apollo Global Management, in a report on the subject. Yet this share keeps increasing, even as European sovereign rates are already under pressure. France, in particular, is seeing its 10-year rates approach 5%. Markets are worried about the political situation in France, a country weighed down by debt nearing 120% of gross domestic product (GDP) and a deficit exceeding 5% of GDP. Paris has not been able to provide a credible budgetary path for years. One of the main tasks for the incoming government in mid-2027 will be to restore confidence.

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