France's New Government Faces Budget Challenges

As France's new government prepares for challenging negotiations over the 2025 budget, the National Assembly remains deeply divided. The European Commission has placed France, along with six other EU nations, under an excessive deficit procedure (EDP), mandating a minimum annual deficit reduction of 0.5%. With a public debt at 110% of GDP and a deficit of 5.5% for 2023, France has failed to meet the Stability and Growth Pact's criteria, which stipulates debt and deficit limits of 60% and 3% of GDP, respectively. The potential for financial penalties looms large, with a possible 0.05% of GDP fine every six months if France does not take corrective measures, translating to approximately €2.6 billion annually. The prime minister's office has indicated that the incoming government will likely revise the draft budget, which must be presented to the National Assembly by October 1. Plans include a €10 billion recovery initiative focused on health, education, and transport, funded by new taxes targeting the ultra-rich. Economists express mixed views on the feasibility of this recovery plan, with some asserting that it can be achieved within the tight timeframe. However, concerns about political stability persist, as the country grapples with the implications of adhering to EU austerity demands. The ability of the government to secure a majority for the proposed austerity measures remains uncertain, especially with the potential for a more conservative EU Commissioner influencing the application of the Stability Pact.