Why France's financial woes are pushing its govt to the brink

By Liz Alderman

 

Italy was once Europe’s emblem for political instability, with a mounting debt and deficit and few options to fix the mess. Now, it’s France’s turn, and the situation is about to get worse. 

On Monday, President Emmanuel Macron’s government is expected to fall for the second time in just nine months after a confidence vote in Parliament. 

The French Prime Minister, François Bayrou, called a vote to shore up support for his plan to mend the country’s finances with 44 billion euros (a little over $51 billion) in spending cuts. If the vote goes against him, Bayrou will be forced to resign and Macron will have to name yet another prime minister, who will have to immediately return to the task of fixing France’s Budget. 

The country’s economy, the second largest in Europe after Germany’s, appears strong at first glance. Before President Trump’s tariff war, growth was slow but steady and employment was picking up. Behind the scenes, outsize government spending and falling tax receipts strained finances. The European Commission, the EU’s executive branch, reprimanded France last year, and Macron’s government raced to fix a surging debt and deficit with cuts to the welfare state and tax increases. 

But the efforts were sidelined last summer when Macron unexpectedly dissolved the lower house of Parliament, the National Assembly, in a gamble that was intended to prevent a Far-Right party, the National Rally led by Marine Le Pen, from gaining more power. 

That maneuver backfired, leading to a deeply divided Parliament and a new prime minister, Michel Barnier, whose government was ousted after only three months in power. Bayrou was appointed shortly afterward and made attacking the deficit the central plan of his government. Recently, Bayrou warned that the country faced a financial crisis if it did not act decisively. He proposed a new array of drastic spending cuts and tax increases, as well as scrapping two French holidays, which set off nationwide fury. 

Bayrou has been trying to shrink government spending, long the highest in Europe, for a reason: Much of it goes toward financing a generous social welfare system.

 

France’s budget deficit reached 168.6 billion euros, or 5.8 per cent of its economic output in 2024, the largest since World War II and well above the 3 percent limit required in the eurozone. The government collected 1.5 trillion euros in revenue but spent 1.67 trillion euros on national and local government operations and the social safety net. 

Part of the overspending comes from the unexpected twin shocks of the Covid pandemic and a European energy crisis unleashed by Russia’s invasion of Ukraine. France is a too-big-to-fail economy and is not about to go bankrupt. It is hardly on a par with Greece, which nearly broke up the eurozone more than a decade ago after failing to rein in its finances. And France can still borrow on financial markets, unlike Greece, which was shut out.

 

 

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