French Economy and Energy Minister Bruno Le Maire declared that he had “saved the French economy” after the COVID-19 and the war in Ukraine, according to Euractiv.
The French minister’s statement followed Standard & Poor’s Global Ratings downgrading the country’s credit rating on Friday from “AA” to “AA-.” The agency cited “deterioration [of the] budgetary position.”
Contrary to our previous expectations, France’s general government debt as a share of GDP will increase due to larger-than-expected budget deficits over 2023-2027.
However, under Le Maire, France’s GDP deficit in 2024 stood at 5.1 per cent. This is lower than the original target of 4.4 per cent. The rating agency also warns that public debt could rise to 112% of GDP in 2027, compared to the expected 108.1%.
Meanwhile, the government assures that the deficit will fall below the 3% threshold by 2027. But S&P is concerned that this now seems unlikely. In 2023, France was the third most indebted EU country after Greece and Italy at just over 111 per cent of GDP. The country also had the fourth largest budget deficit after Italy, Hungary, and Romania.
[We] believe political fragmentation adds to uncertainty regarding the government’s ability to continue implementing policies that increase economic growth potential and address budgetary imbalances.
However, Le Maire stated that he had “saved the French economy [by] avoiding a recession, social destruction and citizens’ concerns over gas price increases.”
I protected them.
Cutting public spending
France introduced one of the EU’s most extensive “energy shields” to curb energy prices at the start of the war in Ukraine. However, it was abandoned in favour of more targeted state aid.
Earlier this year, Le Maire announced it would implement an additional 20 billion euros in budget cuts in 2024. Economic growth forecasts have fallen from 1.4 per cent to 1 per cent, making it impossible to meet France’s 2024 budget targets.
Half of the money would come from cuts in public spending and general ministry budgets, Pierre Moscovici, president of France’s Court of Auditors, announced on Sunday.
The gravity of the situation our public finances are in is obvious, and we have our backs to the wall.
France’s financial situation is under the scrutiny of the European Commission. The country may face an excessive deficit procedure (EDP) in the coming weeks. The European Commission can reportedly initiate an EDP to force member states to reduce deficits deemed to be too high.
