France Faces Political Turmoil as Goverment Hangs in the Balance
PARIS – October 15, 2024 – Europe is bracing for potential political upheaval in France as President Emmanuel macron’s government teeters on the brink of collapse following a failed vote of confidence. The crisis stems from a bid to secure parliamentary support for the government’s 2025 budget, leaving Macron with limited options: appointing a new Prime Minister, dissolving parliament and calling for fresh elections, or, though considered unlikely, resigning.
The immediate trigger for the crisis is the struggle to rally support for Macron’s economic agenda, notably as concerns mount over France’s fiscal health. Investors are increasingly wary of the country’s lack of fiscal discipline, a sentiment underscored by a recent ratings downgrade from Fitch last month. Moody’s is widely expected to follow suit at the end of October, further tightening the screws on France’s borrowing costs.
Economists warn that regardless of the outcome, important progress in reducing france’s deficit or debt is unlikely, with a growth slowdown anticipated. “whatever the scenarios are we won’t have a proper budget by year-end,” stated Hadrien Camatte, senior economist for France, belgium and the euro zone at Natixis, on Tuesday. He added that the deficit is “likely to remain close to the current level of 5.4-5.5% level for this year, and probably for next year, depending on the budget and macro data,” in an interview with CNBC’s “Europe Early Edition.”
The bleak outlook is shared by Goldman Sachs, which on tuesday raised its 2025 budget deficit forecast to 5.5% of GDP, citing likely “budget slippage.” The bank’s economists noted, “First, we continue to expect growth to run below trend… Second, we still expect to see little progress with reducing the government deficit.” They also anticipate France will begin 2026 with a frozen or partially implemented budget. Goldman Sachs has lowered its 2026 growth forecast for France to a modest 0.8%.
This latest crisis adds to a pattern of political instability in France, where Macron has faced increasing challenges in pushing through his reforms. The situation highlights the delicate balance between Macron’s centrist policies and a fragmented parliament, and raises questions about France’s ability to address its economic vulnerabilities amidst a challenging global landscape. The coming days will be critical in determining the future direction of France and its role within the European Union.
