(Bloomberg) — President Emmanuel Macron’s lengthy deliberations over who to nominate as France’s next prime minister are limiting the time lawmakers have to make key changes to the budget, the chairman of the National Assembly’s finance committee said.
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The increasingly short timeframe as Macron dithers could lead the new government to rely on provisional plans to cut spending, while parliament’s space for debate could actually shrink, according to Eric Coquerel.
“They want to continue the supply-oriented competitiveness policies that are central to Macronism – they will not give in to that,” he told journalists at a briefing organised by the AJEF press association.
Uncertainty over France’s public finances is growing as Macron struggles to choose a new prime minister, nearly two months after snap parliamentary elections left a National Assembly where no group has a majority. French law requires the finance ministry to submit a budget bill to parliament by the first Tuesday in October, though the constitution allows for a two-week delay.
The left-wing New Popular Front alliance, which includes Coquerel’s far-left France Unbowed party, won the most seats in the vote after campaigning for a U-turn in economic policy with huge increases in spending and taxes. However, Macron has refused to choose a prime minister from their ranks, saying they would not survive a vote of no confidence in the lower house.
The political upheaval has prompted investors to dump French assets, raising the country’s borrowing costs relative to Germany’s. The European Union has also placed France in a special procedure designed to impose more discipline on countries with debts and deficits deemed excessive.
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“If the political situation in France remains shaky, it is unlikely that bond yields will fully reflect the effects of lower ECB rates and fall as much as those of German peers. The yield spread is therefore likely to widen in 2025.”
—Ana Galvao and Eleonora Mavroeidi (economists). Click here for full INSIGHT
On Monday, the outgoing ministers wrote a letter to lawmakers, including Coquerel, warning that this year’s budget could be further undermined by overspending by local governments and lower-than-expected tax revenues.
He said documents he received with the letter show the budget deficit is on track to reach 5.6% of economic output this year – up from 5.1% – and 6.2% in 2025 if no measures are taken, including the application of the outgoing government’s provisional spending ceilings and planned spending cuts this year.
Citing the documents, he said the worse-than-expected financial situation also stemmed from unrest in the French overseas territory of New Caledonia and the cost of organising early elections. Returning to the 4.1% target for 2024 set by the government in April would require a total of €60 billion ($66.3 billion) in savings, Coquerel said.
“That’s all a failure of austerity feeding austerity,” he said. “We need a completely different policy, which would instead raise tax revenues and labor incomes and tax capital more.”
–With assistance from Caroline Connan and Julien Ponthus.
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