French Prime Minister Francois Bayrou last week called for parliament to hold an earlier-than-expected vote of confidence in him. Next week’s ballot could lead to the collapse of his centrist government and prompt a period of further instability in the European Union’s second biggest economy.
The vote on Monday in the National Assembly, the lower house of parliament, will see Bayrou not only try to secure approval for himself and his government but also for his unpopular budget. But opposition parties have said they will vote against him and cut short his government’s time in office. At first blush, France’s economy appears to be doing relatively well. The government’s debt pile is lower, relative to the size of its economy, than in Italy. And the cost of financing the annual interest on its debt is well below that of the United Kingdom’s.
But Paris is struggling to keep a lid on its spending. Last year, France’s budget deficit reached 5.8 percent (168.6 billion euros, or $196bn) of its gross domestic product (GDP). The official EU target is no more than 3 percent. Investors worry that France’s persistent deficits will cause ever higher debt ratios and undermine its credit score. For his part, Bayrou is trying to lower the government’s borrowing to 4.6 percent of GDP in 2026 and to 2.8 percent by 2029. In turn, that would lower the overall debt-to-GDP ratio to 117.2 percent in 2029, compared with 125.3 percent if no changes are made.
His plan includes 43.8 billion euros ($51bn) in savings for 2026, 80 percent of which would come from spending cuts, such as reductions in public sector hiring, suspending pension indexation to inflation and scrapping two public holidays. Greater taxes on high earners are among other proposals that have been considered.
The prime minister’s proposals come on top of Macron’s unpopular 2023 move to raise France’s retirement age by two years to 64. At the time, the president argued that excessive pension payments were a drag on the country’s finances. Before the confidence vote, the French leadership has again tried to shape the debate around the country’s future.
“The issue, the question, is not the fate of the prime minister or… even the fate of the government. The question is the fate of France,” Bayrou said.
On August 26, Finance Minister Eric Lombard warned that unless France gets its debt under control, interventions from the International Monetary Fund, the global lender of last resort – typically for emerging market countries – “is a risk that is in front of us”.
Source: Here