France cannot get its budget problems under control. The budget deficit rises to 5.5 percent and the national debt to around 111 percent. This puts the country in a top position in the EU. So what to do?
For Pierre Moscovici, the head of the French Court of Auditors, it is 5 past 12. He has been ringing the alarm bell for months: France’s high debts threaten to paralyze the country. Now the government has it in black and white. The budget deficit rises to 5.5 percent and the national debt to almost 111 percent of gross domestic product.
This makes France the most indebted country in the EU after Greece and Italy. That morning, Moscovici warned of the consequences on France Inter radio station and asked how France should invest in the future with this debt burden – in ecological and digital change, in education, innovation and research. And last but not least, in defense: “How are we supposed to finance aid for Ukraine when we are so deeply in debt?”
According to Moscovici, France’s room for maneuver is in danger of dwindling dramatically. This year alone the country will pay 57 billion euros in interest. The load has more than tripled since 2021.
France has its back to the wall and must now act wisely, demanded the head of the Court of Auditors, must reduce the deficit and debt without endangering growth.
Increase taxes?
While Moscovici does not want to completely rule out targeted tax increases and the opposition demands that large companies or the super-rich be taxed more, Finance and Economics Minister Bruno le Maire categorically rejects this.
On the RTL television channel this morning he repeated that he was “absolutely against tax increases for our compatriots.” Le Maire is instead relying on spending cuts. He has already put together a savings package worth ten billion euros. It envisages less spending on development aid, budget cuts in promoting ecological building renovations and less aid for further training. Next, another 20 billion euros are to be cut.
The Court of Auditors estimates 50 billion euros in savings in order to achieve the declared goal and to comply with the deficit limit of three percent set by the EU in 2027. Finance Minister le Maire is calling for a broad social debate: “We must finally decide which government spending is good and which is not. What promotes innovation, investment and growth, full employment? And what can be cut without endangering the development of our country?”
High expenses
In general, the French state has significantly higher expenditure than all of its European partners. They make up 56 percent of the gross domestic product. That’s why the minister is bringing up a reform of unemployment insurance – more incentives, less help. A suggestion that doesn’t make him particularly popular.
Le Maire has now been in office for seven years. Did his house do poorly? The minister weighs it down. Growth is “about” at the level he predicted, at less than one percent. That is “comparatively good”.
The problem lies on the revenue side: “We may have underestimated the fact that inflation is falling so quickly. So we have less revenue from VAT, less revenue from the bulk of salaries, less levies from companies. Overall, it all amounts to 21 billion euros less tax revenue.”
For the government and President Emmanuel Macron, the development of public finances is not only a major problem, but also embarrassing. Because Macron always wanted to be measured by the economic data.
Julia Borutta, ARD Paris, tagesschau, March 26, 2024 2:58 p.m