President Macron is gambling to save his support, Europe correspondent Anna Karismo writes. France would have to significantly tighten its belt if it wanted to fix its economy.
Anna KarismoEurope correspondent
BERLIN The leadership of France is now experiencing a fateful moment, and the reason is the economy.
At stake are the country’s credit rating, support for Ukraine, and the president Emmanuel Macron international reputation and political future as well. There has not been such a difficult situation during Macron’s seven-year reign, for example, the economic magazine estimates Les Echos.
The problem is that after the pandemic years, France has lived well beyond its means. Now would be the time for strict saving. The country has already committed to that through EU agreements.
Spending has ballooned
The French economic outlook threw a bullseye a couple of weeks ago.
Throughout the beginning of the year, the ratio of the country’s public revenues and expenditures was expected to improve. The official figures were surprising: the deficit had jumped to as much as 5.5 percent.
Tax revenues had accumulated 21 billion euros less than expected. Now, of the EU countries, only the economic situation of Italy and Greece looks weaker than France.
The deficit is almost twice as much as the EU agreements would allow. The debt mountain grows when expenses are greater than income year after year.
On Wednesday, it became clear that despite the large deficit, Macron is not ready for major belt-tightening. Also this year, according to the government’s estimate, France’s deficit will reach five percent, while initially the deficit was estimated to be “only” 4.4 percent of the gross national product.
The Treasury minister Bruno Le Maire has demanded bigger cuts and the right-wing party LR is threatening the government with a vote of no confidence. Macron’s future is at stake because his government does not have a majority in parliament.
Macron is also gambling with France’s credit ratings. If the international credit rating agencies weaken their assessment of France, the state will have to take debt from the market at higher interest rates than before.
Investors demand a higher yield on French debt securities as compensation for increased risks in the country’s solvency.
Voters are ruthless
One thing above all motivates Macron to take risks. Next June, the EU elections will be held, in which the party of the sitting president already seems to be badly outnumbered.
The popularity of the far-right is growing steadily. The national coalition has led the polls for a long time, but during this year the party has only narrowed its neck to Macron’s group.
If the government decides to save money and cut health services, for example, the French will go to the barricades very quickly. Angry protesters took over the streets just in time for the election campaign.
The weakening of public services would backfire in the elections.
This graphic shows the development of the parties’ popularity since the beginning of last May:
Macron’s reputation suffers
Paris is also preparing for the summer Olympics. It wouldn’t look good if the protesters shouted slogans against Macron and the cuts during them in front of the sports crowd.
In recent years, France has been able to boast of a nicely grown economy. Just a year ago, the economy was developing better than that of other large EU countries, but the pace has since slowed down.
With the latest news, i.e. the revealed budget deficit, Macron’s prestige in international arenas may very well weaken and erode France’s power in the EU.
For example, Germany, the EU’s largest economic power, is unlikely to take a favorable view of acquiring a joint debt with a partner that cannot keep its own debt under control. France is currently pushing for a new European collective debt to support the defense industry in the EU.
Ukrainian regulations at risk
France is a centrally managed economy. Since the beginning of the year, Macron and his ministers have directed French arms factories to switch to a military economy.
The president and the government want France to be better able to respond to Ukraine’s war needs than at present. Until these days, France has been accused of supporting Ukraine less than other Western countries.
Minister of Armed Forces Sébastien Lecornu just announced, that if necessary, the government will force companies to prioritize military orders. If the arms manufacturers cannot reach the production rate desired by the rulers, the state can take over warehouses, other facilities or labor to ensure public procurement.
France’s goal this year is to deliver, among other things, 78 Caesar field guns and 80,000 rounds of ammunition to Ukraine. During the past two years of the war, it has delivered only 30,000 pieces of ammunition, according to media reports.
Bottlenecks exist, for example, with subcontractors that supply parts to both the automotive and defense industries. They often give priority to cars, because car factories order more supplies and services.
When the budget is badly in deficit, the pressure to compromise on supporting Ukraine grows.