Lhe announcement, at the end of March, of a public accounts deficit significantly higher than expected (5.5% of GDP in 2023, compared to 4.9% retained in the finance law) signified the end of “whatever costs” and marked France’s entry into a budgetary crisis that is set to last. The 10 billion euros in savings announced in February will obviously not be enough to plug the gap, and for the 2025 budget Bercy is already considering 20 billion additional cuts.
At this stage, however, the shock is more political than financial. The gap in financing costs between France and Germany remains around 50 basis points (0.5 rate points) and if nervousness is high as the rating agencies’ verdict approaches, the consequences of A possible deterioration of the French rating would undoubtedly remain limited: the cost of sovereign borrowing for Spain, which is less well rated than France, is only 80 basis points higher than that of Germany. The danger is therefore not immediate.
If there is no need for irritation, three serious questions arise for the years to come: that of the objectives to be retained, that of possible redeployments and that of the financing of priorities.
What should you aim for? As Olivier Blanchard rightly says, the objective for France over the next five to ten years should be to reduce the deficit to zero excluding interest charges, so as to stabilize the public debt ratio and eliminate the risk of an explosive development. However, this so-called “primary” deficit was 104 billion in 2023, or 3.7% of GDP.
Bad signal
Accepting that part of this figure was the result of a bad economic situation, the structural part – which must therefore be corrected – was of the order of 3% of GDP. Added to this are the new priorities of defense, climate transition and education: in total, around 2% of GDP, to which we could add health, which benefited from an extension in 2020. substantial (12 billion, according to the latest figures) but apparently insufficient. In 2025 value, 150 billion must therefore be found in the years to come to clean up public finances and finance new priorities.
Five points of GDP is obviously a lot, and it is not by wielding a plane alone that we will create such room for maneuver. In the short term, what matters above all is equity in the sharing of efforts. In this light, the reform of unemployment insurance is a bad idea, because it hits the weakest at the very moment when they are vulnerable, and the refusal to consider the option of a revision of taxation or that of a temporary under-indexation of the highest pensions is a bad signal.
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