French Court of Audits demands harsh spending cuts
The EU Commission is conducting a procedure against France due to its high national debt. Both the Central Bank chief and the President of the Court of Auditors are urging for a quick government formation to reduce the significant economic deficit.
Amidst the political deadlock in France caused by the parliamentary elections, calls for fiscal consolidation are growing louder. The Central Bank chief has now joined the chorus, as the Court of Auditors raised the alarm. For France, it is crucial to reduce its deficit. The situation is concerning. "The situation in France stands in stark contrast to that of its major European partners, who have managed to stabilize or even significantly reduce their deficits by 2023," the office stated in its annual report on public finances in Paris.
France must make difficult efforts to regain control over its public finances to meet EU requirements and secure growth and social cohesion for future generations, it was stated. The EU Commission is currently conducting a deficit procedure against France due to its high new borrowing.
Deadlines for reducing these deficits are expected to be set in November. France had a budget deficit of 5.5% of its Gross Domestic Product (GDP) in 2023. The deficit limit of the EU is 3% of the GDP. The national debt is almost double the EU-prescribed limit. It amounted to 110.6% of the GDP in the previous year, and the EU Commission expects it to reach 113.8% by 2025, exceeding the EU limit of 60%.
Interest rates are squeezing the state more and more
The Macron government hopes to maintain the deficit limit by 2027. The prospects for fiscal consolidation have been clouded by the elections, which have led to unclear situations in the parliament. Rating agencies Moody's and S&P Global have warned of negative consequences for the French economy due to the political stalemate, as none of the political factions secured an absolute majority and coalition governments in the country are largely untested.
Central Bank Governor Francois Villeroy de Galhau hopes that the political deadlock in the parliament caused by the elections will be resolved by September. "Regardless of which decision is made: We must reduce the deficit," he recently stated on the radio. The new parliament is expected to vote on the country's budget in September.
"Whoever governs France tomorrow, the next government will have to deal with this situation of public finances," the President of the Court of Auditors, Pierre Moscovici, warned the France Inter radio station. "They will have to reduce our debt," regardless of whether it is a left or right-wing government. This should not harm growth or significantly increase tax burdens. Growing repayment obligations and interest rates are increasingly limiting the state's ability to act.
- Despite the European Commission's deficit procedure against France, Germany, historically known for its fiscal discipline, has offered support in the form of recommendations for fiscal consolidation.
- Emmanuel Macron's government is under pressure to adhere to the EU's deficit limit of 3% GDP, with the German debt reduction experience serving as a potential guiding principle for France's domestic policy.
- The upcoming meetings with the European Commission in November are significant for France, as the Commission is expected to set deadlines for reducing the country's budget deficit and debt, aligning them with EU requirements to ensure economic stability and avoid penalties.
