France’s budget deficit will exceed 6% of GDP this year – Prime Minister Michel Barnier will try to cut it to 3% in the medium term
“A Damocles sword is hanging over us and it is possible that it will bring us to the edge of the cliff,” warned the Michel Barnier in his first speech as prime minister to the French National Assembly, last Tuesday, October 1, 2024. The reason for the prime minister’s statements is the extraordinary excessive deficit procedure against France, which the EU launched this year. The French government is required to submit to Brussels a strategy for the limiting the fiscal deficit.
In 2024 the deficit in France will exceed 6% of GDP. That is, it is twice what the euro stability rules allow. In fact, it corresponds to 110% of the French Gross Domestic Product, with the permitted limit being 60%.
According to Michel Rumi, Professor of Economics at the Paris Institute of Political Studies (Sciences Po), the inflation of the deficit is mainly due to two factors: First, “the government has supported households and businesses with large amounts during the pandemic since 2020 and beyond,” he tells DW. And secondly, “he used the subsidy measure to keep electricity prices artificially low when they skyrocketed with the Russian invasion of Ukraine in February 2022.”
Deficit reduction to 3% by 2029
Prime Minister Michel Barnier intends to present to the National Assembly on October 10 a plan to reduce the deficit to 5% next year and to 3% by 2029. He aims to achieve two-thirds of the savings through public spending cuts. At the same time he plans higher taxes for the wealthy, highly profitable companies, as well as capital gains. For economist Michel Rumi, the strategy proposed by the prime minister is the appropriate one. “Expenditure cuts are more certain when e.g. vocational training subsidies are being cut, as Barnier announced,” he says. “It is never certain that money from taxes that have been imposed will actually flow into the public coffers. It is possible, for example, that the wealthy, who have been taxed extra, will move their tax headquarters abroad.”
For Barnier, the problem is that his government does not secure a majority in Parliament. We remind you that the government consists of members of the Republicans, to which the prime minister belongs, and of the centrist Ensemble alliance of President Emmanuel Macron. Together the two parties have about 230 of the total 577 MPs.
It is therefore expected that the prime minister will link the vote on the budget to paragraph 49, paragraph 3 of the French Constitution, which allows the government to pass laws without having a majority. The only way for the opposition to stop the law is a motion of no confidence, which entails the fall of the government.
Barnier does not want a conflict with the Commission
The left-wing New People’s Front alliance, which is made up of the far-left Insubordinate France party, the Socialists, the Environmentalists and the Communists, has already announced it will table a motion of no confidence. It should be noted that the alliance was the surprise winner of the elections, but did not participate in the formation of the government.
Jerome Chettelmeier, head of the Bruegel think tank in Brussels, who previously worked at the International Monetary Fund, is more optimistic. “A vote of no confidence against the government has a chance of success only if the far-right National Alarm participates, which is not realistic,” he tells DW. And indeed Marine Le Pen’s National Alarm has announced that it will not vote against the government, at least for now. “I am sure that Michel Barnier will present to Brussels a good plan to reduce the budget deficit. He is well aware that investors are watching France and in no way seeks a conflict with the Commission.”
Editor: Stefanos Georgakopoulos
Source :Skai
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