UIn French public finances, things are apparently worse than previously known. According to consistent media reports, new debt was likely to have been 5.5 to 5.6 percent last year, and this year there is a risk that the target will be missed again. France’s Budget Minister Thomas Cazenave did not want to confirm these figures on breakfast radio on Thursday. However, like Finance Minister Bruno Le Maire recently, he admitted that the 2023 deficit was “significantly” above the planned 4.9 percent.
As justification, Cazenave referred to the weaker economic environment, for example in China and Germany. This has a negative impact on growth and therefore on tax revenue. The official deficit for 2023 will be announced on Tuesday by the national statistics agency INSEE.
The failure to achieve the goal may not seem dramatic at first glance. But in the Élysée Palace people are increasingly concerned about the poor indicators. A significantly higher level of new debt increases doubts about the fiscal policy reliability of this government and narrows the scope for distribution even more than it already does. This makes painful budget cuts unavoidable, while the prospect of tax cuts for the middle class becomes a distant prospect.
Against this background, President Emmanuel Macron summoned the responsible ministers, Prime Minister Gabriel Attal and the party and parliamentary group leaders of the government majority to a discussion on public finances on Wednesday. This shows “how serious the situation is,” analyzed the business newspaper “Les Echos”. The daily newspaper “Le Monde” spoke of a “crisis meeting”.
Urgent appeals
Politically, the timing of the debt debate is extremely bad. Two and a half months before the European elections, the opposition is relishing the government’s failings. “These people have to admit that they can no longer teach anyone on the planet a lesson, neither in budgetary nor in economic respectability,” commented right-wing populist Marine Le Pen on France Inter radio.
“The dramatic situation of public finances is the greatest threat to the future of our country,” said the head of the right-wing Republicans, Éric Ciotti, in “Les Echos”.
In the weeks before the European elections, all three major rating agencies are assessing the creditworthiness of the French state, which, with more than 3 trillion euros in absolute figures, is already groaning under the highest debt burden in Europe.
At the end of April it will be Fitch and Moody’s, and at the end of May it will be S&P Global Ratings. The latter had recently maintained their rating, although in the case of S & P with a negative outlook and doubts about the government’s planned debt reduction path. Fitch downgraded France’s credit rating from “AA” to “AA-” last spring.
Negative ratings from rating agencies could make borrowing on the bond markets noticeably more expensive and ultimately upend the government’s budget plans. Urgent appeals for more budgetary discipline have recently come from the French Court of Auditors and central bank governor François Villeroy de Galhau.
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