2023-07-17 19:15:15
With the summer break still in sight, Bruno Le Maire can already prepare for a hot autumn. Then the French finance and economics minister will have to be measured by his promise to consolidate the budget despite spending requests from all sides and at the same time to provide the announced funds for new “future investments”. If the debate in Paris between the government and parliament is tough, the negotiations on the reform of the European Stability and Growth Pact are likely to be adversely affected. In French government circles, however, it was recently asserted that the remaining points of contention with Berlin could be resolved by the end of the year.
Le Maire and his assistant budget minister, Gabriel Attal, have now set the first peg for more budget discipline with their draft spending for 2024. For the first time since 2015, this provides for a reduction in expenditure compared to the current budget – by 4.2 to 428.8 billion euros. Taking inflation into account, that was a drop of 3.5 percent, Attal calculated in an interview with the business newspaper Les Echos on Monday. In it, he promised a “green debt reduction budget” and called the spending draft “historic, especially since massive investments are being made in ecological conversion”.
The latter means 7 billion euros more across departments than in 2023, which should flow into energy-efficient house renovation, among other things. As an individual item, however, the absolutely largest increase in funds is planned for school education. Your budget is to increase by 3.9 to 64.2 billion euros. Above all, this means an increase in teacher salaries, which are significantly lower than in Germany. The government is planning the absolute second largest increase in funds in the defense budget, which is expected to increase by 3.3 billion euros to 47.2 billion euros. Otherwise, more money should flow into higher education and research and into the judiciary, among other things.
Tax cuts increasingly unlikely
So that the total expenditure still falls, the government is relying on smaller savings here and there, but above all on the gradual end of the costly electricity and gas price caps. If 21.7 billion euros are still earmarked for this in the current budget, costs of only 7.7 billion euros are expected for 2024 – i.e. savings of 14 billion euros. This magnitude makes it clear that the success or failure of budget consolidation will probably decide whether the aid decided at the beginning of the energy crisis actually expires. In the past they had been extended repeatedly.
The consolidation pressure on Paris has increased noticeably in recent months. The rating agency S&P confirmed the creditworthiness of the French state in June after it had previously been downgraded by Fitch. But at the same time she formulated a negative outlook. For example, while Le Maire calculates with a budget deficit of 4.9 percent this year and a gradual reduction to 3.2 percent in 2026, S&P only expects a decline to 3.8 percent over this period. According to the rating agency, the government debt ratio will then still be above the 110 percent threshold, contrary to what Le Maire thinks.
Even the government in Rome currently has more ambitious budget targets than France, whose total debt was the first in Europe to exceed the 3 trillion euro mark in the first quarter. In view of the fact that interest rates for government bonds with a term of ten years have risen to around 3 percent, the debt burden is increasingly restricting the political scope for action. “The latest forecast assumes an increase from 41 to 49 billion between 2023 and 2024,” Attal said on Monday about debt service in the state budget. An additional burden is the fact that France recently issued more than 11 percent of bonds with an inflation-indexed interest rate than Germany with around one percent.
Michaela Wiegel and Niklas Záboji Published/Updated: , Recommendations: 19 A comment by Niklas Záboji, Paris Published/Updated: , Recommendations: 4 Michaela Wiegel, Paris Published/Updated: , Recommendations: 4
To make matters worse, the French government’s forecasts for economic growth are likely to prove overly optimistic. So far, she has calculated with an increase of one percent this year and 1.6 percent in the coming year, but is now alone with this confidence. The Banque de France, for example, recently forecast 0.7 percent this year and 1 percent next year.
It is becoming increasingly unlikely against the background that the course of tax cuts that has been initiated will continue. Attal remained vague about this in an interview with “Les Echos”. He neither confirmed that the €2 billion tax cut announced by President Emmanuel Macron after the pension protests would come to the middle class, nor did he promise to cut the non-profit-related production tax for companies as planned.
#High #national #debt #France #making #cuts