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France’s outgoing finance minister Bruno Le Maire has warned of a worsening of the public finances, threatening a further increase in the budget deficit at a time when the country is stuck in political limbo.
In a letter to parliamentarians on Monday and seen by the Financial Times, Le Maire pinned the slippage on lower than expected tax revenues and extra spending recently uncovered at local department and regional level.
“The main risk is linked to an extremely rapid rise in spending by local authorities which alone could affect 2024 accounts by €16bn compared to the 2024-2027 stability programme,” the letter said, in reference to spending plans sent earlier this year to Brussels.
The public deficit could rise to at least 5.6 per cent of economic output this year as a result, according to an updated forecast from the French treasury shared separately with parliamentarians, and confirmed by a person familiar with the document.
The fresh slippage comes as President Emmanuel Macron struggles to name a new prime minister and form a viable government, two months after a snap legislative election that delivered a hung parliament.
The president’s hand was weakened in the vote as his own centrist party lost seats, while no other single force won an outright majority. The impasse is only making it harder to draft a budget for 2025, which normally has to be sealed by the autumn, and which would signal to the European Commission and rating agencies how France plans to rein in spending.
At 5.6 per cent of gross domestic product, the 2024 deficit would overshoot the 5.1 per cent goal for the year, and surpass the 5.5 per cent level from 2023 — already a blot on Macron’s economic credibility, as it widely missed a 4.9 per cent target.
The required French spending cuts under revised fiscal rules would not change, an EU official said, and “a greater effort” would be needed to bring the French deficit below 3 per cent of GDP.
Macron and his government until now had pledged to bring the deficit under an EU target of 3 per cent of GDP by 2027, though this may now have to entail deeper spending cuts. Brussels has already put France in a so-called excessive deficit procedure to nudge it into tightening its fiscal policy.
Macron has so far ruled out creating an entirely leftwing government, as pushed by a coalition of leftwing parties including the far-left France Insoumise (France Unbowed) which came first in the election by number of seats but would struggle to find lasting support in parliament.
That prospect worried financial markets, as the left campaign included a number of public spending pledges. But efforts to cobble together a coalition of moderate forces have also been unsuccessful so far.
Even if Macron starts by naming a new prime minister as expected this week, there is little certainty that a new cabinet will be able to face down parliamentary votes or be able to pass a 2025 budget, a process normally scheduled for October.
Opposition parties laid into the new deficit warning.
“They give the whole world finance lessons and accuse us of wanting to impoverish France. But they’re driving the country into the wall,” Manuel Bompard, a senior France Insoumise politician, said on X.
Under caretaker finance minister Le Maire, the outgoing government has been trying to put in place the bare bones of a 2025 budget and rein in spending, including by freezing some ministerial budgets.
But these steps could be reversed by whatever government comes in next, while additional measures to the €25bn in spending cuts put in place in 2024 could be needed to keep the deficit on track, Le Maire said in the letter to parliamentarians.
Additional reporting by Paola Tamma in Brussels