France risks a public deficit of up to 6.6% of GDP in 2025, double the EU’s 3% limit. Without a new budget, uncertainty and rising debt refinancing costs loom large. Prime Minister Michel Barnier’s resignation left the government without a plan to address fiscal challenges.
President Macron must appoint a new Prime Minister to form a government. However, passing a new budget before year-end seems unlikely. If no budget is adopted by December 20, France may extend its 2024 budget into 2025. Barclays predicts such a move would result in a deficit of 6.3-6.6% of GDP.
Barclays’ analysis expects minimal changes to deficit forecasts without swift action. France’s overspending remains under EU scrutiny, and a fiscal adjustment seems unlikely soon.
France Avoids US-Style Shutdowns
France’s legal framework prevents government shutdowns. To fund existing commitments, the government may introduce a special law by December 19. This law would allow continued tax collection.
For social security, contributions would persist, but borrowing ceilings may need ad-hoc legislation to maintain operations. The social security budget, forced through via Article 49.3 of the Constitution, triggered Barnier’s downfall. Despite political turmoil, social benefits and contributions will not stop.
Local governments remain self-governing under the constitution and can set their expenses freely. Barclays sees room for a 2025 budget approval in early 2025. This scenario could align with fiscal forecasts, predicting a deficit of 5.8% of GDP, higher than the government’s 5% target.
Economic growth estimates differ, with Barclays forecasting 0.7% growth, while the government expects 1.1%. Current policies offer little hope for significant deficit reduction next year.
