France is bracing for the unveiling of its 2025 budget on Thursday, a document expected to implement significant austerity measures amid a deepening fiscal crisis. Prime Minister Michel Barnier, appointed after a politically tumultuous summer, is tasked with navigating a precarious path, balancing the demand for fiscal consolidation with the potential for political backlash from both the left and the right wings. His proposed budget, promising €60 billion ($65.9 billion) in fiscal tightening, including substantial tax increases and spending cuts, risks igniting widespread opposition and jeopardizing the fragile coalition government’s stability.
Key Takeaways:
- France’s new government will present a highly controversial “austerity budget” aiming for a €60 billion fiscal tightening.
- The plan includes tax hikes on large businesses and wealthy individuals, along with major government spending cuts.
- Prime Minister Barnier’s minority government faces potential collapse due to opposition from both left and right-wing parties.
- The budget’s success hinges on navigating delicate political alliances and avoiding a no-confidence vote.
- Economists warn that the austerity measures could negatively impact economic growth.
‘Austerity’ Budget: A Risky Gamble for France
The upcoming 2025 budget, described by many analysts as an “austerity” budget, is poised to dramatically reshape France’s fiscal landscape. Prime Minister Barnier’s plan outlines a €60 billion (or 2% of GDP) reduction in the deficit, achieving a significant decrease from the projected 6.1% in 2024 to an aimed-for 5% in 2025. This ambitious target hinges on a two-pronged strategy: €40 billion in spending cuts and €20 billion in increased tax revenue. The proposed spending cuts are far-reaching, impacting both central and local government operations. One notable measure includes a six-month delay in pension indexation, a move certain to be heavily contested. The tax increases will target, according to Barnier, “wealthy individuals” and “large companies,” a detail that has already sparked significant unease among business groups.
Economic Projections and Concerns
Andrew Kenningham, chief Europe economist at Capital Economics, highlights the potential economic ramifications of the austerity measures. While the budget is reportedly based on a forecast of 1.1% GDP growth for both 2024 and 2025, Kenningham cautions that such “a large dose of austerity” might severely hinder the achievement of even this modest growth target. Furthermore, he emphasizes that even if the budget passes without significantly impacting growth, France’s financial position will remain precarious. The projected 5% deficit in 2025 still falls far short of the EU’s 3% target, requiring further, potentially even more politically challenging, austerity measures in subsequent years.
Political Tightrope Walk: Barnier’s Fragile Government
The proposed budget represents a high-stakes political gamble for Prime Minister Barnier. His government, a coalition formed after a hung parliament resulted from inconclusive snap elections in June and July, lacks a majority. This tenuous position exposes his administration to constant risks of political maneuvers and challenges from parties on both sides of the spectrum. The left-wing New Popular Front (NFP), which secured a plurality in the second round of the elections in July, has already filed a no-confidence motion against Barnier. While this motion failed recently, it underscores the government’s vulnerability.
The National Rally’s Strategic Ambiguity
Adding to the complexity is the stance of the far-right National Rally (RN), led by Marine Le Pen. While abstained from the recent no-confidence vote, the party’s position appears strategic and cautious. Le Pen, aiming to maintain a responsible political posture before the 2027 presidential election, has declared a wait-and-see attitude, labeling Barnier’s government as “a prime minister under surveillance.” This unspoken threat implies that the RN may yet use its ambiguous position to destabilize the government. This deliberate uncertainty keeps Barnier’s government perpetually on edge.
Article 49.3: A Potential Nuclear Option
Carsten Nickel, deputy director of research at Teneo risk consultancy, points out the possibility that the government might resort to Article 49.3 of the French Constitution. This controversial provision allows the government to force a bill through Parliament without a vote, provided a no-confidence motion fails to pass. President Macron utilized this mechanism earlier in his term for passing the pension reform, but the situation is quite different now. The absence of the possibility of dissolving Parliament until next summer, following the June and July snap elections, removes a key deterring factor. Forcing the budget through Article 49.3 would be extremely risky and could further exacerbate the already tense political climate.
A Precarious Balance of Power
The precarious balance of power between the left and the far-right significantly influences Barnier’s ability to maintain control. While both parties could potentially cooperate to bring down the government, their historic aversion to collaboration might give Barnier’s administration a temporary reprieve. For the RN, actively participating in a government downfall potentially leading to further political chaos could backfire in the long run, potentially harming Le Pen’s own electoral prospects. Similarly, the NFP’s commitment to thwarting the far-right’s rise might deter them from aligning with the RN against a moderate, even if center-right, government. This unlikely, but crucial, cooperation between these opposing forces might prove to be the unexpected lifeline that Barnier’s government needs to survive.
