The circus is over, France has a government, and the government has presented its budget. It is a budget of harsh austerity, which seeks to cut expenditure by 80 billion euros in response to an unexpectedly large deficit for the past fiscal year (-6.2%). As Prime Minister Barnier did not fail to note in his acid response to a provocative question about proposed tax increases from his predecessor Gabriel Attal, this deficit was not his doing: it was bequeathed to him by his Macroniste partners Attal and Bruno Le Maire, the outgoing finance minister, who had previously boasted of having saved the French economy. Was Le Maire’s boast a bit of parting esbroufe, or was it something more serious, a deliberate concealment of the failure of Macronomics? Eric Coquerel, who chairs the Finance Committee, has announced an investigation into the “variability” of Bercy’s economic forecasts during Le Maire’s tenure–a polite way of asking why the finance ministry’s economic forecasts often deviated by considerable amounts from the economy’s actual performance.
The matter is of no small importance, since the reforms of the Macron era were always justified by their expected future results. It is now seven years since the first of those reforms were initiated, with great fanfare, in 2017. The promised improvements are hard to discern. Of course, the economy suffered a number of unforeseen adverse shocks in the interim, most notably Covid and the slowdowns in Germany (France’s most important economic partner) and China (another major customer). French government consumption, though down since 2020, remained at a breathtakingly high 58.3% in 2022. This is the situation that Barnier’s austerity budget is intended to correct, but the contractionary effects of such drastic cuts in government expenditure remain to be seen–and one wonders how carefully they could have been calculated, given the haste with which the FY 2025 budget had to be prepared.
Indeed, the uncertainty of the lost months between June’s dissolution and the ultimate installation of a precarious government dominated by two groups with incompatible economic philosophies (Macronistes and LR) and subject at any moment to the veto of the RN extends well into the future. This instability will discourage foreign investors and attract heightened scrutiny from the European Union. In any case, Macronism as an economic program is now as spent a force as the Jupiterian presidency. It will not be easy to find a new way forward, and it will not be easy even to imagine what that way might be until Bercy’s credibility as a reliable and competent observer of the economy can be restored.
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I noted in early September that producing a decent budget in due time would be essentially impossible and this is what happened. The present budget is quite ridiculously blunt and unsophisticated and Barnier clearly hopes that Parliament will be able to turn it into something workable and fit for the times so-to-speak. I will only mention one issue but there are so many: the retrenchment compared to the spontaneous evolution under existing forecasts of the budget is close to EUR 60 billion, and it is likely to alter the GDP path notably. Yet the economic forecast associated has not been altered.
I also noted on September 4th that my personal best article of the LOLF (organic law relating to budget laws) for a good laugh was Article 1G which states : “La loi de programmation des finances publiques présente de façon sincère les perspectives de dépenses, de recettes, de solde et d’endettement des administrations publiques. Sa sincérité s’apprécie compte tenu des informations disponibles et des prévisions qui peuvent raisonnablement en découler.” Nice and short in English: the budget must be sincere as well as associated forecasts.
It had already been quite obvious for quite some time that any notion of the budget being sincere had gone out the window. The rot started in 2023, not 2024 and the extent of the rot is only now being revealed and it simply did not occur because of bureaucratic incompetence or poor staff quality in the forecasting divisions. I was very close for quite a long time (in other times to be sure but still…) to the Trésor while not being part of it at all. These people know their jobs, know what they are doing and the one reproach that we can make of them is that they are too dogmatic and sure of themselves. The responsibility for these “mistakes” which started with the 2023 budget lies almost certainly and entirely with the political decision makers, first and foremost with the Elysée which almost certainly made the conscious decision to throw article 1G in the bin. As it becoming clear to mostly everyone now though maybe not to politicians (but I always argued that) the François Hollande presidency was extraordinarily good compare to this one.
Wow! —It looks as though the would-be saviors of France were engaged in chicanery to conceal how bad the economy was and avoid blame.
Michel Barnier is appropriately acid about what he inherited from Le Maire and Attal, who are scrambling to save their political futures. In Attal’s case, he had to mention that Barnier did not support gay marriage —a cheap shot in face of the problems Barnier is. confronting.
France is going to have a very hard time —even under Barnier’s cool-headed leadership— to avoid having EU do to France what it did to Greece in 2008. —At which time France and Germany were keenest to impose draconian sanctions on the country for being unable to pay interest on bonds issued by their bankers. Turnabout is fair play, many will say if Brussels takes over after October 31.
I see real estate doing poorly, alongside the other economic indicators. Of course this is, as a whole not good for the EU model either. With more members balancing out the previously untouchable Franco-German alliance, that Germany might look away from France’s failure to meet EU rules on deficits, doesn’t guarantee other members will.
I have often disagreed with you, Art, as to Macron’s pro-business policies (e.g., his efforts to spur “le French tech” which I endorsed). However, assuming all you assert is true, I must agree with you that as the news of the deviousness of his appointees as regards the true condition of France’s economy and budget comes out, Macronism as a dynamic force is a spent fuse.
The question is, “What will follow?”. If Marine Le Pen is acquitted of the charges against her, she will only be stronger —and of course, her proposed policies are anything but a solution to France’s long-term problems.
Finally, I find the fact that Bruno LeMaire found the time in between his duties as Minister of the Economy to write a novel, astounding. —His head should be displayed on a pike if he presents himself as a candidate for the Presidency! What vanity!