Last Tuesday, the French National Assembly rejected with the votes of the government (!) MPs, but also those of the far-right “National Rally” the budget plan for 2025, which had been amended at the initiative of the left opposition, foreseeing significant tax increases: property tax for billionaires, a tax on the super profits of big business groups, higher taxes on digital technology companies.

Despite this, French Prime Minister Barnier can still hope for a timely adoption of the budget. By contrast, for German Chancellor Olaf Scholz, it is now clear that his country is entering 2025 without a regular budget. In the best case – and only if the support of the Christian Democratic opposition is secured – the Federal Parliament will approve a supplementary budget for 2024 before it is dissolved and early elections are called.

This budget is absolutely necessary, as the Solz government is faced with additional new spending of 3.7 billion euros to pay social benefits and another 10 billion euros for renewable energy. If this money is not found, the only alternative will be a temporary and horizontal “freeze” of government spending.

“Sick” Europe vis-à-vis the USA

When Donald Trump officially takes office in the White House on January 20, the German parliament will have dissolved and the country will be preparing for an election, which will likely be held on February 23. The post-election ferments for the formation of the new coalition government also require some time. The new government will hardly take office before spring.

In Brussels, this wait causes concern. But perhaps some relief, as in recent years the three-party “co-government” of Berlin has been a difficult partner for the EU. With the so-called “German Vote”, i.e. by choosing to abstain from critical votes, the Scholz government had avoided taking a position on difficult decisions and to push forward important legislation at European level, such as the Directive on the security of supply chains and the Regulation on the reduction of pollutants from heavy commercial vehicles.

However, political instability and economic problems also threaten France. After the defeat of the presidential majority (“Renaissance”) in early parliamentary elections, President Emmanuel Macron chose a new prime minister from the ranks of the conservative Republican party. However, “Renaissance” and Republicans still do not have a sufficient parliamentary majority to support the 73-year-old Michel Barnier in the National Assembly. They don’t even have a common government program after two months in office.

Constitutional maneuvers and massive cuts

As far as the 2025 budget is concerned, however, tactical maneuvering probably favors Barnier. Because, since the National Assembly voted against the modified plan that bore the stamp of the Left, the original plan that bears the signature of the Left is back for discussion and foresees cuts of 60 billion euros for 2025. The policy of austerity is considered necessary, as in France the state budget deficit has exceeded 6% of the Gross National Product (GDP) and the public debt has exceeded 113%. The European Commission has launched an “excessive deficit procedure” against France, while the country is now in the “crosshairs” of rating agencies.

In the days when the German Parliament will be asked to (not) give a vote of confidence to Olaf Scholz, the future of the French government is also being judged. Of course, it is not excluded that Barnier will invoke a specific clause of the Constitution, which will allow him to pass the budget without a majority in the National Assembly. In this case, however, the opposition will have the right to submit a motion of censure, which, if approved, will lead to the collapse of the current government.

The result will be political paralysis in the two largest economies of the eurozone, with all that entails. An interim or supplementary budget may cover the basics, such as the payment of salaries and pensions, but will not allow the approval and financing of development expenditure. Soltz and Barnier will have plenty to say in their first special meeting next week in Berlin. It’s supposed to be an introductory meeting. However, it is not excluded that it will develop into a farewell meeting.

Edited by: Yiannis Papadimitriou