Can France study from Italy to beat its fiscal disaster? – DW – 10/09/2025 | EUROtoday

France’s political disaster exhibits no signal of abating. The resignation of Sebastien Lecornu as prime minister this week, after simply 27 days in workplace, means the nation is about to have an eighth prime minister within the house of 5 years.

Although President Emmanuel Macron now seems to be set to call one other prime minister earlier than the week is over — probably heading off the necessity for brand spanking new elections — the political turmoil comes with main penalties for the EU’s second-largest economic system.

As occurred in 2024, it means the 2026 funds might not be agreed in time to be debated and handed by the top of the 12 months. Last 12 months, the funds was “rolled over” into 2025 on account of political instability, that means the previous funds was used till a brand new funds was lastly agreed in February.

Although that short-term answer prevents the chance of a US-style authorities shutdown, it does nothing to take care of France’s long-term financial issues, specifically its debt and public funds.

The debt drawback

In the aftermath of the most recent prime minister resignation, score businesses issued recent warnings about France’s underlying fiscal issues.

Fitch, which dropped France right into a single A score final month, stated the political scenario meant a decision of the nation’s fiscal issues regarded unlikely.

Meanwhile S&P Global emphasised the necessity for France to implement a funds which enabled it to adjust to its EU treaty obligations, particularly referring to the truth that France has flouted the strict borrowing and debt guidelines from the EU’s Stability and Growth pact for a while.

During Macron’s interval in workplace since May 2017, public spending has climbed considerably whereas he additionally introduced in deep tax cuts. The nation’s nationwide debt has elevated by greater than €1 trillion ($1.17 trillion) because of this, though that has been offset by a 30% enhance in GDP progress in that point interval.

A most popular measure by economists is debt as a proportion of GDP. France’s has elevated to 114% of GDP from a 101% determine in 2017. That’s the third highest charge within the EU, behind Greece and Italy.

France has not balanced its budgets for many years and sometimes outstrips different OECD nations with regards to public spending. However, latest crises such because the COVID-19 pandemic, Russia’s warfare in Ukraine and a collection of power value shocks has led to a surge in spending which has led to ever wider funds deficits.

The deficit was 3.4% when Macron got here into workplace however is now at 5.8% and has been rising. The ongoing political instability, which got here after Macron known as snap elections in the summertime of 2024 in an try and stave off the right-wing National Rally (RN), has made grappling with the fiscal issues more durable nonetheless.

Those elections led to an much more divided nationwide parliament, with no political bloc holding an absolute majority — cementing the current instability.

Alexandra Roulet, an economist with INSEAD Business School, says the spending throughout the latest crises, mixed with the tax cuts, are the primary causes behind the debt surge.

“These policies have proven disappointing in terms of their effects on the French budget,” she informed DW. “The hope was to spur investment and boost the economy in such a way that it would lead to a growth in fiscal revenue despite the decrease in the tax rate but we haven’t seen this happening.”

The Italian job

Yet if the French political scene does ultimately stabilize, some consultants do see a mannequin for it to comply with by way of getting its fiscal home so as — Italy.

Although its neighbor nonetheless has the next debt-to-GDP charge than France, at 138%, Melanie Debono, senior Europe economist with Pantheon Macroeconomics, says the nation’s “fiscal situation has improved significantly in recent years,” highlighting that its funds deficit has fallen to three.4%, near the prescribed EU charge of three%.

Italian Prime Minister Giorgia Meloni not too long ago introduced that she anticipated Italy’s deficit to fall to three% of GDP this 12 months, which might permit Rome to exit the EU’s program for nations with extreme deficits sooner than anticipated.

Speaking with DW, Debono stated the Meloni authorities has been “prudent,” slicing development bonuses and making efforts to gather unpaid taxes, whereas nonetheless managing to chop earnings taxes and enterprise taxes.

She sees similarities within the Italian and French fiscal conditions “in the sense that both suffer from structural challenges related to chronically high, and rising spending and future liabilities, and a weak supply side in the economy which is struggling to raise enough revenue to cover committed spending.”

However, whereas the Italian scenario has been bettering, France’s has been getting worse. “The French deficit has been widening alarmingly due to a continued rise in spending, and weakness in tax revenues,” she stated.

In phrases of direct issues France can study from Italy, she thinks the totally different political programs do not permit for simple comparisons.

“It is not clear to us that the relative stability in Italy can be used as a guide for what France should do,” stated Debono. “France is not being helped here by the setup of the Fifth Republic in which the president and parliament easily can end up fighting each other when the latter does not have a majority to support the policy of the former.”

However, she highlights how Italy has managed pensions because the sovereign debt disaster within the early 2010s, elevating the age by three months each two years, besides in sure particular years when the rise has been frozen.

France might comply with this instance, argues Debono, however highlights that Paris wants much more than pensions reform to get nearer to the EU 3% goal. “France needs radical spending cuts and/or tax increases.”

Italy a mannequin of reform?

For years after the eurozone debt disaster, Italy was seen because the potential drawback baby which might set off the following monetary catastrophe in Europe. Back in 2018 and 2019, its mixture of perennial political instability and dizzying debt ranges was a harmful cocktail now acquainted to French ears.

At that point, forces close to the political extremes, such because the populist Five Star Movement (M5S) and Lega, overtly flirted with the thought of pulling Italy out of the euro or the EU as a complete.

In the top, it was Meloni and her Brothers of Italy celebration who cemented energy and have been in place since October 2022. Meloni’s authorities is being praised for its fiscal self-discipline, shocking many with how they’ve upended the nation’s picture for monetary administration.

France has additionally had a serious drive of the appropriate attempting to get into energy for years now. Yet Debono says that if the National Rally had been to ultimately get in energy, there is no such thing as a assure that they may apply fiscal self-discipline.

“RN are tax/spending cutters as per their program, but they’re likely to mostly cut taxes and find it very difficult to cut spending,” she stated.

Edited by: Uwe Hessler