Keeping a government favorable to austerity throughout the summer will have significant consequences on the economic policy of the year 2025. Although the government is resigned and cannot issue decrees or pass laws, it has directed the preparation of the 2025 budget. This entails a lot of work from administrations over the summer to develop detailed options that will later be discussed in Parliament. This preliminary work will constrain the new government, which will have little time to influence the budget project.
The leaked information throughout the summer, from positions on the excessive public deficit procedure initiated by the European Commission, to the “ceiling letters” sent by Gabriel Attal, indicate an austerity budget. Beyond the democratic question of a defeated government making significant financial choices, this austerity budget will not be necessary or beneficial. Being serious about the budget does not require austerity. Being serious means being able to finance public spending. The budget overrun in the current year led the government to issue a decree canceling 10 billion euros in credits in February, a correction through expenses rather than revenues. The rise in the public deficit in 2023 was already due to a decrease in revenues of over 2% of GDP, reaching a level lower than the pre-Covid period, while expenses decreased by 1.5% of GDP.
The lack of seriousness included uncontrolled tax cuts, such as the value-added tax on businesses, which funds local authorities. The progressive elimination since 2021 weighed an additional 4.2 billion euros on the 2023 budget and 1.4 billion euros on the 2024 budget. Therefore, a serious budget for 2025 must focus on finding funding for essential public spending rather than jeopardizing the overall functioning of the country through further budget cuts. Descending into austerity does not bode well for the years to come. At a time when Western economies are showing signs of slowing down and households have not yet recovered from the recent period of inflation, budget austerity could push the economy into a recession. This would lead to production declines, job losses, and income reductions for households, much like the austerity policies starting in 2010 that plunged the global economy into a second phase of crisis.
In summary, maintaining a government favorable to austerity in place over the summer will impact the economic policy of 2025. The leaked information and indications suggest an austerity budget, which is not deemed necessary or beneficial. It is argued that being serious about the budget does not require austerity and should instead focus on finding funding for essential public spending. This course of action is necessary to avoid pushing the economy into a recession, which could have negative consequences for households and the wider economy.
