After decades of spending beyond its means, France must in the coming weeks show how it will avoid a budget crunch that is putting its credit ratings at risk and could even lead to the downfall of President Emmanuel Macron’s government.
The timing could not be worse: cherished public services are being eyed for cuts just as Macron and his allies campaign for June’s European Parliament elections and as Paris gears up to host the Olympics – a possible target for angry street protests.
“This irresponsible financial management of the nation’s accounts must stop now,” conservative leader Eric Ciotti wrote to the government at the end of March in a letter seen by Reuters.
Ciotti has demanded the government pass emergency legislation to revise the 2024 budget – a perilous prospect for a government with no working majority in parliament. If the government were to ram it through without a vote, a no-confidence motion with broad opposition support could follow.
Ministers acknowledge the €10 billion in emergency spending cuts already proposed to this year’s budget will not be enough and that new measures will need to be legislated.
But even with state spending that over the years has reached 57 per cent of national output – the highest of any developed economy – finding places to make the cuts will be painful.
Among the services singled out by Finance Minister Bruno Le Maire is medical transport, including the privately-run taxis that each day ferry thousands of French patients to and from appointments – with the state paying the bulk of the fees.
Le Maire says France can no longer afford such largesse, putting the overall cost of medical transport for the country’s ageing population at an annual €6 billion – nearly twice the culture ministry’s entire budget.
But taxi drivers, furious that state-regulated tariffs for medical transport have been frozen since 2018, are fighting back. They have already blocked roads in major cities this year in protest, and plan more disruption ahead of the Olympic Games.
“The government is once again disconnected from reality and it’s going to hurt the French people’s rights when it should be looking for savings elsewhere,” said Emmanuelle Cordier, president of the French national taxi federation.
Paris will send a revised deficit reduction plan to Brussels in the next few days.
The government has other spending areas in its sights – from corporate tax breaks and state support for professional training to a possible clampdown on long-term illness benefits and cuts to state grants for the prestigious home-grown film industry.
Although it missed last year’s deficit target by a wide margin and this year’s is also at risk, the government refuses to abandon hope of shrinking the fiscal shortfall to less than an EU limit of 3 per cent by 2027, the end of Macron’s five-year term.
The deficit in 2023 was 5.5 per cent of GDP, overshooting the government 4.9 per cent target. Several other EU countries, notably Italy, are also running deficit’s above the 3 per cent limit.
Ratings agency Moody’s said meeting this year’s deficit target of 4.4 per cent would require a reduction of 1 percentage point of GDP – around 28 billion euros – which has only been achieved once since 2000, setting aside the exceptional circumstances of the COVID pandemic.
“We would probably expect that they might make some significant fiscal adjustments this summer. We’ll see,” S&P Global Ratings senior director Frank Gill told Reuters.
While Fitch and Moody’s both have a stable outlook on France’s €2.46 trillion of sovereign debt – which has steadily risen to 112 per cent of output – S&P has a negative outlook on its AA rating for a downgrade.
It is scheduled to update its rating on the eurozone’s biggest debt issuer on May 31, days before European Parliament elections in which the hard-right is comfortably leading polls.
While government cost-cutters are scrutinising expenses, Macron and Prime Minister Gabriel Attal alone will decide where the axe falls, one senior government source said.
“We have to be careful not to get hysterical and give the extremists reasons to beat up on us,” the source said.
Left-wing lawmakers and even some members of Macron’s party are pushing for higher taxes on the wealthy or the most profitable companies as a solution to France’s fiscal dilemma.
While Attal is willing to consider a levy on outsized profits, broader hikes would fly in the face of the government’s “no-new-tax” mantra that has underpinned its supply-side economic reform drive since Macron was first elected in 2017.
For central bank governor Francois Villeroy de Galhau the root problem is that successive governments have let spending grow faster than inflation for decades.
“I deeply believe in the European social model. But it costs us in France 10 percentage points of GDP more than our neighbours,” he said in a recent speech, calling for an approach that kept spending constant in inflation-adjusted terms.
Even to achieve that, a delicate balance has to be found on where the burden of the cost-savings falls – for example by promoting ride-sharing among the patients in medical taxis.
Some regular users such as 82-year-old Jean-Pierre Narduzzi, who relies on the taxis to get to and from his retirement home near the west coast city of Nantes, say such sacrifices may now be unavoidable given the state of public finances.
“If we really want to be fair, then everyone must participate as a nation in the effort, at least everyone who can,” said Narduzzi.
