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November 22, 2024 - 7:00am
If Rachel Reeves thinks she’s getting a rough ride at the moment, she should spare a thought for the French Prime Minister, Michel Barnier. It’s his responsibility to get the 2025 budget through the French parliament, and if he fails it could be much more than his job on the line.
France has got major money problems. While the British state spends 43% of UK GDP, the equivalent French figure is 58%. Even worse, the difference between what the French government spent last year and what it raised reached 5.5% of GDP. This year the deficit will be 6.1%. That’s simply unsustainable — not least because the European Union requires member states to keep their deficits below 3% of GDP.
Hence the importance of the budget. If it doesn’t pass, then the country’s financial embarrassment could turn into a full-blown debt crisis — of which we’ve already seen warning signs. Furthermore, if the second largest economy in the European Union stops playing ball, then the EU’s fiscal rules will lose credibility, with knock-on effects for the single currency.
Therefore the budget must pass — even if, as seems likely, a majority of deputies in the French National Assembly are against it. As luck would have it, there’s a clause in the French constitution that allows the Prime Minister to force it through anyway. It’s a bit of a nuclear option, but Michel Barnier has indicated he’s willing to use it.
The catch is that the National Assembly has a nuclear option of its own. It can pass a motion of censure that would force Barnier to resign, bringing down the entire government. That, in turn, might cause President Macron to resign, with destabilising consequences for both France and the EU.
The Left-wing parties are ready to press the red button, but they won’t have the numbers unless Marine Le Pen and her National Rally (RN) party join in. Remember, it was her who essentially chose Barnier as Prime Minister — and it is her who could send him packing.
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SubscribeIf the second largest economy in the European Union stops playing ball with the EU’s fiscal rules? If? Since the launch of the Euro, France has only complied with the 3% limit in 1999, 2000, 2001, 2006, 2007, 2018, and 2019. That’s 18 years out of 25 when it hasn’t complied and not faced any sanctions whatsoever. The fiscal rules clearly do not apply to France.
The current budget presented by Barnier doesn’t make the budget compliant with Euro rules this year. Or next year. Or the year after that. Or the year after that. The Barnier budget projects to cut the deficit to 3% in 2029. Economic forecasting being no better than reading tea leaves, a plan to reduce the deficit to “only” 3% five years from now is no plan at all. And a 3% deficit is still a huge deficit when the debt pile is already 112% of GDP and rising.
Barnier’s budget doesn’t save France from financial oblivion. Barnier and the politics he represents are the cause, not the cure. Managerialism may turn out to be the most dangerous 13 letter word in history.
And before UK citizens get a case of schadenfreunde, the UK deficit is over 4% and debt to GDP is just below 100% only after some heroic revisions by the ONS. We are only a few years behind the French curve.
US not exactly in great shape either.
If managerialism is the most dangerous word in history then ‘central bank groupthink’ might well be the most dangerous phrase.
Big difference being that the USA is the worlds biggest and still most entreprenurial economy with the worlds reserve currency.It is energy self sufficient and under the Donald will be a major energy exporter and even under the economically illiterate sleepy joe managed to achieve real growth rates that would make Barnier & Scultz weep if they could achieve them/The USA is a supertanker and when it turns the ramifications are huge.
And the net worth of US households is $160 trillion vs $40 trillion in debt. Growth and a bit higher taxes will keep the debt situation sustainable. Tech leadership, energy leadership and the deepest financial markets will also play a role
Besides countries like France never complying to the fiscal rules, I’m also wondering how seriously we are supposed to take those rules. Has there ever been a Western- or advanced economy that actually got into seriously trouble because of their national debt? Post-WW II, I mean. According to fiscally conservatives, insolvency is always around the corner and countries like Japan and, in fact, the US should have been doomed many times over, but it never really happens. Greece got into trouble because the EU demanded austerity and now they are supposedly doing better, even though their debt never improved. If you look into it, it seems austerity rarely actually works. Private debt usually has an inverse relationship with public spending, which seems more dangerous. Once the recession becomes too serious governments usually start spending and printing money like never before and only then the economy recovers. And so we could wonder how seriously policymakers are taking this 60%/3% rule as a fiscal measure in the first place.
Time to replenish the popcorn supplies 🙂
I’ve been saying it for some time – vive la 6eme republique. France could be the first domino to fall in the SDC as fiat borrowing overwhelms her, but that will give way to a new system. The fact that we are in a 4th turning is increasingly apparent. As tough as that is, a new fiscal/political settlement will be painful, but I continue to focus on whether we can avoid large-scale war and particularly what system might win on the other side. Difficulties are relative.
“Remember, it was her who essentially chose Barnier as Prime Minister – and it is her who could send him packing.”
Hm. Written by one of the UnHerd team. How do you get a job with UnHerd? Even if you argue about the syntax, you could still rewrite without a problem. How about, ‘Remember, she essentially chose Barnier as Prime Minister and she could send him packing’.
No thanks. Job application rejected.
How about some insightful thoughts on the content …..
Couldn’t read past that. The sign of an amateur trying to write like a professional, but failing at the first hurdle.
Can you imagine France imposing on itself the austerity it imposed on Greece in 2015?