Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
France’s budget deficit widened to 5.6 per cent last year, significantly missing the 4.9 per cent forecast in a blow to Emmanuel Macron’s credibility on managing the public finances.
Finance minister Bruno Le Maire said the budget hole was caused by tax revenues falling as inflation slowed, but argued that spending was not out of control and growth had been maintained.
“I am calling for a collective wake-up call to make choices in all of our public spending and make choices to keep useful, effective programmes, and abandon anything that is not,” he said on Tuesday.
The widening deficit is a setback for Macron and calls into question his long-held strategy for cleaning up public finances by boosting growth with business-friendly reforms.
In contrast with many of his predecessors, Macron’s government hit deficit targets for the first four years of his first term that began in 2017. But that discipline was abandoned first during the Covid-19 pandemic and then during the energy crisis, when France spent heavily to shield consumers and business from price rises.
That has left the eurozone’s second-largest economy on a much degraded trajectory on deficits and debt and trailing nearly all other eurozone countries that have brought down deficits more quickly.
Fitch downgraded France’s credit rating last year. The government is braced for the risk of further downgrades when reviews come from Moody’s in April and Standard & Poors in May.
Le Maire said he would with opposition party leaders on Thursday to ask them for proposals on cuts. He also put them on notice that he would accept no new spending and was personally against raising taxes despite their calls to do so.
The government already imposed €10bn in emergency spending cuts in February, and was aiming for deeper cuts of at least €12bn in the next budget for 2025. Some experts have warned that the government may need to find up to €50bn.
“For fifty years, France has not had balanced budgets . . . public spending is seen as the answer to every problem, when it is not,” Le Maire warned.
The national statistics agency Insee said on Tuesday that debt as a share of GDP fell slightly to 110.6 per cent at the end of last year, versus 111.9 per cent in 2022. Le Maire vowed that France would still aim to hit the EU’s 3 per cent deficit target by 2027, at the end of Macron’s second term, although experts consider that this will be very difficult to do.
Pierre Moscovici, the head of the Cour des Comptes, the national auditor, criticised the government for letting the situation degrade last year. “It’s a slip-up in execution that is significant and not unprecedented, but very very rare,” he said on France Inter radio.
He warned that its weak public finances were imperilling France’s ability to invest in its future, such as on fighting climate change or rebuilding its military.
“The cost of servicing the debt every year is €57bn, twice what it was three years ago, and it will rise to €87bn in 2027 if nothing done,” Moscovici said. At that level interest costs would be more than the spending on national education or the military.
“We’re being slowly strangled in our ability to carry out public policies that are needed,” he added.
Read the full article here
