The new French Prime Minister, Michel Barnier, is facing pressure from the European Commission regarding the country’s excessive public deficit. The Commission had given France a deadline of September 20th to present a plan to reduce its deficit, but due to the lack of a government at the time, France requested an extension until the end of October. This additional time will be crucial for Barnier, as France is not the only EU member breaching the treaties that require public deficits to remain below 3% of GDP since 1992.
The deficit for all levels of government in France is expected to increase further by 2024, reaching 5.6% of GDP and exceeding 6% in 2025. The official objective of less than 3% by 2027 seems unattainable, with suggestions to aim for 2029 instead. The government faces the challenge of proposing measures that are both sufficient to truly improve the accounts and acceptable to a fragmented Assembly. The new Budget Minister has promised ‘strong choices’ to reduce public expenses. Barnier has hinted at potential tax increases for the wealthy and large companies, which were met with conditions by the president of the Medef, such as not hindering investment and job creation.
The situation poses a challenge for the government in terms of timing, as the budget proposal should already have been sent to the High Council of Public Finances by September 13th to meet legal deadlines. France is not alone in facing EU scrutiny for breaching deficit rules, with six other countries, including Belgium, Hungary, and Italy, also under similar procedures. The government must come up with credible measures to stabilize debt and reassure Brussels and financial markets. The government must navigate between measures that will effectively improve public finances and gain approval from a divided Assembly.
The EU’s pressure comes as the deficit in France remains a significant concern. The government must find a balance between measures that can meet EU requirements and be acceptable to various political factions in the Assembly. The potential for tax increases on the wealthy and large businesses has been discussed, but conditions have been set to ensure they do not hinder investment and job creation. This tightrope act is crucial for France to address its deficit issues and maintain stability in its finances. The situation highlights the challenges faced by the new Prime Minister and his government in navigating EU requirements and domestic political realities.
