Macron Wins Breathing Room With EU Set to Approve French Budget
(Bloomberg) -- President Emmanuel Macron’s government will get a lift next week with the European Union poised to approve France’s 2025 budget despite its lingering deficit problems.
Most Read from Bloomberg
Trump Promises Could Have Seismic Impact on Washington Economy
Tokyo’s Scorching Summers Focus Public Anger Against Tree Cutting
NYC Mayor Adams Names Jessica Tisch to Lead Police Head Amid Probes
The European Commission believes that the French government is on the right track to cut its deficit in 2025 after it presented a draft budget bill with €60 billion ($63.2 billion) of tax increases and spending cuts, according to people familiar with the matter.
The EU’s executive arm is still seeking more clarity on certain reforms aimed at expanding the fiscal adjustment period from four to seven years, said the people who spoke on condition of anonymity because the discussions are private.
The commission will issue opinions next week on the draft budgetary plans for euro-area countries, and a separate view for the first time under new rules on medium-term fiscal plans. In addition, the commission will also validate the expenditure limits proposed by some member states under strict watch given their high deficit levels, including France, Italy and Poland.
The green light for France’s 2025 plans will help Prime Minister Michel Barnier as he struggles to get the budget through a restive parliament where he has nowhere near a majority to support him. The premier will almost certainly need to resort to using a constitutional measure to bypass a vote on the bill, exposing his government to the risk of being toppled in a no-confidence vote.
France’s fiscal difficulties are also closely scrutinized by investors who dumped the country’s bonds after Macron gambled on snap elections in June and as the budget deficit swelled more than expected. The 2025 plan is designed to reduce the gap to 5% of economic output from an expected 6.1% this year.
Issuing a negative view on France’s 2025 budget would have been a surprisingly risky move from the commission given the size of the planned fiscal adjustment and the possibility such a view would fuel market tensions.
The commission is expected to consider satisfactory the net expenditure ceiling proposed by France to balance its public accounts.
EU officials however are still discussing with their French counterparts details on some proposals made by Paris that could help keep its budget under control, including ways to improve the efficiency of its tax system and clarity on how they will conduct spending reviews, the people said. France has the highest public expenditure relative to its GDP in the bloc at around 56%.
Some of the details the commission is seeking are related to the impact assessment of such measures on the growth potential and the debt sustainability of the country, the people said. A French official said the talks with Brussels are very constructive.
At the end of October, Barnier’s government presented a plan to bring the budget deficit to 2.8% of economic output in 2029, with the largest share of the adjustment in 2025. To meet the conditions for such an extension of the period to repair finances, Paris also presented reforms it said would improve its economic prospects, including the already-adopted increase in the retirement age and further changes to unemployment insurance.
A commission spokesperson said the body will offer its views on member states’ medium-term plans on Nov. 26, along with proposals for relevant countries to put an end to their excessive deficit situation.
The EU suspended its deficit and debt thresholds in 2020 to cope with the additional expenditure required to weather the Covid pandemic and the fallout of Russia’s invasion of Ukraine. This year, the bloc agreed on new rules that would give more ownership to national governments to decide their fiscal paths together with more agile sanction mechanism in case they breach the agreed path.
The emergency measures approved by the capitals to cope with the crises inflated the debt levels across the region, which would lead the commission next week to support an overall slight cut in public expenditure across the euro area, the people said.
(Updates with additional political context in the first paragraph.)
Most Read from Bloomberg Businessweek
An Airline’s Florida Resort Dreams Look More Like a Nightmare
Why ‘Premiumization’ Has Made Flying So Much Better—and Worse
©2024 Bloomberg L.P.
