Reduction of the French deficit: Brussels is just not satisfied | EUROtoday

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DObviously, the deficit discount trajectory offered by Bercy continues to come back underneath criticism. After being crushed by the High Council of Public Finances final month, the situation is taken into account too optimistic by the European Commission. In its “spring macroeconomic forecasts” printed Wednesday May 15, the European establishment estimates that France's public deficit ought to attain 5.3% of GDP in 2024 and 5% in 2025 in comparison with 5.1% in 2024 and 4, 1% in 2025, in response to Bercy forecasts.

In each circumstances, France stays very removed from the European goal, set at 3% of GDP most. This summer time, Brussels will formally evaluation France's deficit discount trajectory and is more likely to impose an “excessive deficit procedure” on France.

This measure, which has already been utilized to France between 2009 and 2018, requires the Member State to comply with a trajectory of lowering spending and its debt, negotiated with the European Union. In principle, international locations threat monetary sanctions, though these have by no means been carried out. France has all the time benefited from relative indulgence “because it’s France” declared Jean-Claude Juncker, then president of the European Commission, in 2016.

Deficit discount results offset by debt curiosity

In its opinion, Brussels observes that in 2025 “the revenue ratio is expected to increase only marginally, the expenditure ratio is expected to increase by 0.5 percentage points, mainly due to the rebound in growth”. In its calculation, the Commission contains a few of the “sufficiently detailed” financial savings measures introduced by the federal government in addition to the “withdrawal of most energy-related measures”.

Nevertheless, “these deficit reduction effects should be partly offset by the expected sharp increase in interest payments on the public debt, which should reach around 2% of GDP,” estimates the European establishment. According to Bercy calculations, this burden ought to attain a minimum of 54 billion euros in 2025.

For its half, the Ministry of the Economy is defending itself. “We do not share this analysis at all, the European Commission does not take into account the savings that we will make in the PLF (finance bill) 2025,” says the ministry which additionally explains that it doesn’t wish to give figures relating to these budgetary efforts: “it will depend on growth”.

Risk of a recessive impact

Concerning development, exactly, the Commission is, this time once more, barely extra pessimistic than the federal government by relying on development of 0.7% in 2024, then 1.3% in 2025. For its half, the Ministry of the Economy is banking on development of 1% in 2024 – in opposition to the consensus of economists, nearer to that of Brussels – and 1.4% in 2025.

The European establishment additionally highlights the possible rise in unemployment, rising from 7.1% within the first quarter of 2023 to 7.7% in 2024 then 7.8% in 2025. Far, due to this fact, from the full-time goal. employment – ​​lower than 5% unemployment – ​​continued by Emmanuel Macron. “Employment growth would slow in 2024 and 2025 […]with the reduction in the effect of apprenticeship contracts on employment growth, the return of hours worked to their 2019 levels and labor productivity,” justifies the Commission.

The European establishment can also be extra cautious in regards to the trajectory of lowering public debt. Bercy shows the target, though not very bold, of reaching 112.3% of GDP in 2024, then 113.1% in 2025. The Commission expects 112.4% in 2024 and 113.8% in 2025 in as a consequence of “high primary deficits and (the) rise in interest rates”.

Finally, Brussels is anxious that “the deficit reduction measures announced by the government […] should weigh on growth. This reservation had already been formulated by the High Council of Public Finances, an independent body attached to the Court of Auditors. “The implementation of the planned structural adjustment will necessarily weigh, at least in the short term, on economic activity, so that the government's high growth forecasts […] appear inconsistent with the extent of this adjustment,” the High Council wrote in an opinion printed on April 17.

Bercy, as soon as once more, defends itself from any calculation error. “On the recessive effect, we do not share this analysis at all. We think that in 2025 and 2026, there will be a strong rebound in France, a strong growth dynamic. Our strategy is clear: we want to spend well, there will be investment expenses that will remain,” justifies the ministry. It stays to be seen whether or not this technique will persuade the Standard & Poors score company, which should ship its verdict on France's capability to fulfill its debt on May 31.