(Bloomberg) — President Emmanuel Macron’s extended deliberations over who to appoint as France’s new prime minister are curbing the time available for lawmakers to make any significant changes to the budget, according to the chair of the National Assembly’s finance committee.
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The shrinking time-line as Macron hesitates may encourage the incoming administration to rely on provisional plans to cut spending, while parliament’s room to debate could end up being squeezed, Eric Coquerel said.
“They want to continue the supply-side policies for competitiveness at the heart of Macronism – they won’t give in on that,” he told journalists at a briefing organized by the AJEF press association.
Uncertainty over France’s public finances is growing as Macron struggles to choose a new prime minister nearly two months after snap legislative elections returned a National Assembly where no group has a majority. French law stipulates the Finance Ministry must present a budget bill to parliament by the first Tuesday of October, though the constitution may allow for a two-week delay.
The left-wing New Popular Front alliance, which includes Coquerel’s far-left France Unbowed party, won the most seats in the ballot, having campaigned for a U-turn in economic policy with vast increases in spending and taxation. Macron has refused to pick a premier from their ranks, however, saying they wouldn’t survive a no-confidence vote in the lower house.
The political upheaval has pushed investors to dump French assets, driving up the country’s borrowing costs relative to Germany’s. The European Union has also put France into a special procedure designed to enforce greater discipline on countries with debt and deficits deemed to be excessive.
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“If the political situation in France remains tenuous, its bond yields are unlikely to fully reflect the effects of lower ECB rates and fall as much as its German peers. So the yield spread will likely widen in 2025.”
—Ana Galvao and Eleonora Mavroeidi (Economists). Click here for full INSIGHT
On Monday, outgoing ministers wrote to lawmakers including Coquerel warning this year’s budget could be further undermined by overspending by local authorities and weaker-than-expected tax receipts.
He said documents he received along with the letter showed the budget deficit is on track to reach 5.6% of economic output this year — instead of 5.1% — and 6.2% in 2025 if measures are not taken, including the application of the outgoing government’s provisional caps on spending and planned cuts to outlays this year.
Based on the documents, he said the worse-than-expected fiscal situation also stemmed from riots in the French overseas territory of New Caledonia and the cost of organizing snap elections. To return to the 4.1% target for 2024 that the government set in April, a total of €60 billion ($66.3 billion) of savings would be required, according to Coquerel.
“All that is a failure of austerity feeding austerity,” he said. “We need a completely different policy, which would instead boost tax receipts and incomes from labor and taxing capital more.”
–With assistance from Caroline Connan and Julien Ponthus.
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