by Leigh Thomas
PARIS (Reuters) – At French service stations near the border, cars registered in Belgium can refuel by taking advantage of the bonus financed by the French budget, one of the instruments that allows France to limit the impact of soaring inflation on households.
The capping of energy prices and the amortization of prices at the pump thus made it possible to limit the deterioration in household confidence and that of economic growth.
But the cost of these measures is increasing day by day, which makes their extension increasingly difficult to justify politically and some economists fear that it will only postpone inevitable price increases.
“At the end of the day, it’s the state that pays, so we made the choice to have a little less inflation and more public debt, summarizes Sylvain Bersinger, economist at the consulting firm Asteres. The consumer there wins, but the taxpayer loses, there is no magic wand.”
Presenting the draft 2023 budget on Monday, Economy Minister Bruno Le Maire said “too high inflation is poison for democracies” and said tackling rising prices was the main challenge. of the moment for France as well as for Europe.
While France is not the country that has spent the most to limit the impact of inflation, it was one of the first to do so by freezing gas prices nearly a year ago and by limiting the increase in those of electricity to 4% this year, decisions for which the State limits the effects on suppliers by compensating them.
“Since autumn 2021, we have adopted an energy shield which has kept electricity and gas prices at reasonable levels. This has allowed us to maintain the lowest level of inflation among eurozone countries. “, recalled Bruno Le Maire.
INSEE estimates that without this cap, French inflation would have been 3.1 percentage points higher than its current level (6.6% over one year in August compared to 8.8% in Germany and 9.9% in Britain).
UP TO 3.5% OF GDP SPENDED TO CURE INFLATION IN 2023?
Including this ceiling, the “energy vouchers” distributed to millions of low-income households, the revaluation of the minimum wage and the salaries of civil servants and that of social benefits and retirement pensions, the additional public expenditure linked to inflation since the onset of the crisis are expected to exceed 85 billion euros in 2023, or 3.5% of gross domestic product (GDP), according to Reuters calculations.
At the Ministry of Finance, however, it is stressed that limiting inflation also makes it possible to reduce public spending since a large part of social benefits are indexed to the rise in prices.
The more the cost of this policy increases, however, and the longer the international crisis lasts, the more the government’s room for maneuver to reduce the scope of its measures is reduced.
For 2023, Bercy plans to limit the rise in gas and electricity prices to 15%, a cap which alone will cost the State 16 billion euros.
The discount on prices at the pump should in principle disappear on January 1, but Bruno Le Maire has not completely ruled out reactivating it (in a more targeted manner) in the event of a new surge in oil prices.
The French approach, massive and broad, is very far from the recommendations of the International Monetary Fund (IMF) and the President of the European Central Bank (ECB), Christine Lagarde, on the need for anti-inflation measures as targeted and temporary as possible.
The think tank Terra Nova estimates that for 100 euros spent to limit the rise in energy prices, only eight euros benefit the 10% of the poorest households while 13 euros go to the richest 10%.
Reducing public aid also risks causing an inflationary outbreak, in a way catching up with the gap with neighboring countries, such as Germany or Great Britain.
“There is a deficit-inflation trade-off in France. There is the choice of maintaining a tariff shield”, explains Mathieu Plane, economist at the OFCE, the French Office for Economic Conditions, but in terms of price increases, “it is not at all clear that we will be below other countries in 2023: it will depend on the measures taken in other countries.”
(Report Leigh Thomas, French version Marc Angrand, edited by Matthieu Protard)