France at a Financial Crossroads: Saving Billions to Survive

Frankfurter Allgemeine Zeitung France at a Financial Crossroads: Saving Billions to Survive Niklas Záboji • 7 hours • 3 minutes read French Prime Minister François Bayrou and members of his government at a press conference in Paris. While Germany is planning new debt in the hundreds of billions, France is increasingly striving for fiscal consolidation. At a "Conference on Public Finances" on Tuesday, Prime Minister François Bayrou implored his compatriots to pursue austerity measures. He didn't use drastic language. "Today, we are on the verge of an unsustainable over-indebtedness situation," Bayrou said. In 2020, France's and Germany's national debt was on par at around 60 percent of economic output. Today, Germany's debt is still around 60 percent, while France's is at more than 110 percent. Bayrou warned that a further increase in this burden is unacceptable, not only in terms of intergenerational equity. He pointed to the dangerously rising debt service burden in the national budget, which is increasingly limiting political action – and this at a time when, not least, significantly increased defense spending is necessary. Already, more than €62 billion is spent annually on interest and principal payments, roughly the same amount being spent on defense and education. By the end of this decade, debt service is expected to rise to €100 billion. This threatens the country's independence. Appeal for austerity also directed at the financial markets Bayrou invited representatives from politics, trade unions, and social security funds to the conference, with which he wanted to set the stage early for the upcoming debate on the new budget. However, his appeal for austerity was also directed at the financial markets. Rating agencies have recently become increasingly critical of the creditworthiness of the EU's second-largest economy. The French government already has to pay significantly higher interest rates on new bonds than the German government. Although Italy has a higher debt burden compared to other European countries, it also has lower new borrowing and a primary surplus, meaning higher revenues than interest-free expenditures. This is considered a key criterion for debt sustainability. New borrowing to return to the European target value The Prime Minister reiterated the goal of reducing new borrowing from the recent 5.8 percent to the European target value of three percent by 2029. This was the only way to stabilize the debt burden. He made it clear that the French government's budget problems lie on the expenditure side. "France is already the country with the world's highest rate of compulsory contributions, taxes, and levies of all kinds," he said. According to him, the tax ratio last year was almost 43 percent of economic output, six percentage points higher than in Germany. While Bayrou appealed to the French to work harder, he opposed even higher taxes for citizens and businesses – and saw it as the responsibility of politicians, above all, to save. However, given the fragile domestic political situation, the success of the consolidation efforts remains uncertain. Like Michel Barnier's government, which was brought down in December over its austerity budget, Bayrou also lacks a majority in the National Assembly. With the votes of all four left-wing opposition parties and the right-wing populist Rassemblement National (RN), the prime minister could therefore suffer the same fate as his predecessor. Left-wing spokesman Jean-Luc Mélenchon has already denounced spending cuts as unreasonable and once again called for the government's downfall. "The people of France are being treated like Greece in 2010," he complained on the "X" platform. The RN also threatened Bayrou with its downfall. "We will not allow any measures against the French to go unchallenged when there are so many abuses and mismanagement of public finances!" Marine Le Pen wrote on "X" on Tuesday. Finance and Economy Minister Eric Lombard had already made clear over the weekend that considerable budgetary efforts are needed to stabilize France's public finances. For example, simply reducing the deficit from the planned 5.4 percent this year to 4.6 percent next year will require approximately 40 billion euros in additional savings. The deteriorating economic situation due to the trade conflict is further complicating consolidation. The government expects growth this year to be only 0.7 percent, down from 0.9 percent, and the renowned economic research institute OFCE expects only 0.5 percent.