Home Economy News Analysis-French budget squeeze has only just begun

Analysis-French budget squeeze has only just begun


Analysis-French budget squeeze has only just begun By Reuters

Breaking News



Published Mar 07, 2024 01:06AM ET
Updated Mar 07, 2024 01:11AM ET

© Reuters. Price tags are seen on fruits as a woman shops at a local market in Nice, France, April 26, 2023. REUTERS/Eric Gaillard/File photo

By Leigh Thomas

PARIS (Reuters) – France’s mid-February emergency budget cuts to keep its deficit-reduction plans on track are unlikely to be the last, leaving the government struggling to strike a balance between financial imperatives and political realities.

The timing for any more cuts could hardly be worse, with annual European Union budget-vetting, credit rating agency updates and EU parliamentary elections that the French far right is likely to do well in all due in the next three months.

French Finance Minister Bruno Le Maire delivered bad news on Wednesday, saying last year’s public sector budget deficit would likely be worse than expected when the accounts are finalised.

That follows his announcement in mid-February – not even two months into the fiscal year – of 10 billion euros ($10.9 billion) of budget cuts needed to keep the government’s deficit-cutting plans on course in the face of weaker than expected growth.

“For a long time, public spending has been the solution to all of our problems. Now it risks becoming a problem for all of us,” Le Maire told the lower house of parliament’s finance committee on Wednesday.

“We need to take decisions to improve our public finances.”

The ministry now expects the euro zone’s second-biggest economy to grow only 1% this year instead of the 1.4% on which it had based its budget planning, targeting a budget deficit of 4.4% of economic output this year.

Le Maire told Le Monde newspaper on Wednesday that the 2023 public deficit would be “significantly above” the 4.9% target due to lower tax revenues, making this year’s target a stretch without a bigger budget squeeze.

“There are two possibilities: either revising the deficit-reduction plans or coming up with additional budget savings. Bruno Le Maire is dropping hints that it will be new savings,” said economist Charles-Henri Colombier with the Rexecode think tank.


Le Maire told lawmakers the overriding objective remained to cut the deficit to less than an EU limit of 3% of output by 2027, at the end of President Emmanuel Macron’s five-year term, and even target a balanced budget by 2032.

The timing of the next steps is key as France must send annual deficit-reduction plans to its EU partners next month and ratings agencies are due to update their ratings in April and May.

The government will also be loathe to announce new cuts just before EU parliamentary elections in June, with the far right polling comfortably ahead of Macron’s party.

Far-right leader Marine Le Pen criticised the government last week in Les Echos business daily for lacking deeper structural efforts to rein in spending, calling for expenditures on immigration and welfare fraud to be targeted.

But the government will also want to avoid a ratings downgrade, especially from S&P which has France on a negative outlook and next updates its rating on May 31, days ahead of the vote.

“The recent announcements make a downgrade more and more likely,” Colombier said.

The first wave of budget cuts are wide-ranging, hitting subsidies for energy-efficient home renovations, development aid, public research and job training to name a few targets.

However, the 10 billion euros in cuts risk being partially offset by unbudgeted spending to benefit protesting farmers and extra support for Ukraine, said former public auditor Francois Ecalle, who also runs a public finance website.

That might make it necessary to pass new 2024 budget legislation as early as mid-year, just as the government is trying to find new savings for its 2025 budget.

Budget minister Thomas Cazenave told lawmakers on Wednesday that the savings needed for the 2025 budget were probably now closer to 20 billion euros rather than the 12 billion planned previously.

Any future waves of budget cuts are likely to hit welfare spending and local government, which so far have been largely spared.

Le Maire is pushing for unemployment benefits to be tightened. Economists say that raising pensions payouts less than the inflation rate might also be necessary despite being politically unpopular.

“We need to leave behind the French exception of being incapable for the last half century to reduce spending,” Le Maire said.

($1 = 0.9190 euros)

Analysis-French budget squeeze has only just begun

Our Apps

Terms And Conditions
Privacy Policy
Risk Warning
Do not sell my personal information

© 2007-2024 Fusion Media Limited. All Rights Reserved.

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Related News