what consequences for the French economy?

The censorship of the Barnier government, this Wednesday, December 4, would de facto mean the rejection of the Social Security financing bill (PLFSS), for which the Prime Minister took responsibility by using 49.3. And the entrance in a big blur. “No constitutional or organic provision provides for what happens in the event of rejection of the PLFSS”noted the project's rapporteurs in the Senate in November. Provided for by the social security code, the collection of social contributions can be made. But, according to the government, the rejection of the planned savings provisions could lead to a Social Security deficit of 30 billion euros in 2025, instead of the 18 planned.

However, this is where the problem lies: only the PLFSS can authorize Social Security to borrow. For 2025, 65 billion was planned. “In the absence of such provisions, certain benefits could therefore not be paid”warn the senators, raising the possibility of an emergency law, “hoping that the Constitutional Council does not censor it”…

The absence of PLFSS would nevertheless be good news for retirees who will see, on January 1, their pensions automatically increased in line with inflation (around 1.6%), instead of the increase in two stages for only small ones. pensions provided by the government. But also for businesses, which feared the planned increase in social security contributions.

2024 taxes, good news for the rich

Things would be different for the finance bill, which a censored government will have difficulty bringing to fruition, or which would be rejected. The Constitution expressly provides for the possibility that, in the absence of a budget that can be promulgated before January 1, “the government urgently asks Parliament for authorization to collect taxes”. This would then involve renewing the 2024 tax collection rules in 2025. Good news, this time, for the richest, who will thus escape the minimum taxation promised by the Barnier government, as well as for large companies, which will not pay the corporate tax surcharge.

Less good news for the middle classes, particularly the lower classes: in the absence of an increase in the income tax scale, 380,000 taxpayers not subject to tax in 2024 will then be in 2025, according to Bercy. And 17 million tax households will see their taxes increase mechanically.

On the expenditure side, the Constitution authorizes the government to open, by decree, “the minimum credits” that he judges “essential to continue the execution of public services under the conditions which were approved the previous year by Parliament”. Which excludes all exceptional expenses for 2024…

Furthermore, emergency law and decrees are provisional measures, giving Parliament time to vote, even late, on a finance law for 2025. But what majority will be able to agree on a budget? Will we have to wait until June and the possibility of dissolving again for a majority to emerge?

An additional debt cost of 20 to 30 billion per year

Until then, we will have to reckon with the markets. According to Natixis economists, the deficit could be contained to around 5.3%, a little above what was forecast in the finance bill. Morgan Stanley is more pessimistic, expecting 6.3%.

However, the fact that France is not able to meet its budgetary commitments will have effects on the debt. THE spreadthe rate gap at which France borrows compared to Germany, is widening: 0.5 percentage points before the dissolution, 0.7 points after, then 0.8 and even 0.9 since the threat of censorship . Morgan Stanley believes that, in the event of special law, the spread would rise to 1 point, or an additional debt cost of 20 to 30 billion per year. And this, without taking into account a possible deterioration of the French rating, damaging to the economy.

Already, bosses are sounding the alarm. “In good conscience, no one has an interest in weakening an already fragile French economy. Households and businesses would immediately pay the price. Let us instead consolidate our country”wrote on X the president of the French Business Movement (Medef), Patrick Martin.

Suffering economic activity

The French activity is already suffering greatly “the instability and lack of visibility caused by the dissolution of last June, testifies to The Cross François Asselin, head of the Confederation of Small and Medium Enterprises (CPME). Companies have put all their investment projects on hold, payment terms are starting to lengthen and cash flow is decreasing, like order books.” According to the barometer from the consulting firm EY, almost half of foreign investors in France (49%) declared last month that they had reduced or postponed their investment projects following the dissolution.

The new construction sector, which is in a slump, says it is particularly worried. If the 2025 budget is not voted on, the timid prospects for recovery noted during the parliamentary discussion will go by the wayside. This is the case of the extension of the zero-rate loan (PTZ) to the entire territory for all types of housing and to all first-time buyers.

Same tone in the old one. «We could find ourselves with a legal vacuum for the 600,000 G-rated housing units currently rented, which will be subject to “energy indecency” from January 1, 2025. underlines Loïc Cantin, president of the National Real Estate Federation (Fnaim). A bill intended to relax the timetable was to be debated in the Assembly… Wednesday December 4.

Without forgetting, adds François Asselin, that “the absence of a budget would also collapse public investment”. In his eyes, “the risk is real that this vicious circle will strengthen if the government falls”with cascading impacts, on the unemployment rate in particular.

Decline in household consumption

The lack of visibility could also lead the wealthiest households to consume less and postpone property purchases. “All it takes is for the richest 10% of households to ask themselves this question for there to be a macroeconomic effect,” observes Xavier Timbeau, principal director of the OFCE economic institute.

Does this mean that the political context would have a major effect on household behavior? No, essentially replies the economist, recalling that the French manage their spending above all according to their purchasing power. The announced deterioration of the job market under the effect of repeated social plans could also slow down consumption in the run-up to Christmas, with some households fearing losing their jobs.

A vicious circle widely denounced by U2P, which represents local businesses, according to which “the absence of budgetary texts would plunge the country into total unknowns”. For François Asselin, the thing is understood: “Under these conditions, we are heading straight into recession. What a waste! »

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The French and censorship

53% of French people are in favor of the motion of censureaccording to a Harris Interactive-Toluna survey for LCI (1),

Unsurprisingly, the most enthusiastic are the supporters of the opposition parties : 71% of those close to LFI and 58% of those of the PS, but also 59% of those of the National Rally, confirming Marine Le Pen's choice to vote for censorship.

Among supporters of the suspended government coalition parties : 40% of supporters of the Macronist center are in favor, and only 27% of those close to the Republicans, the party of Michel Barnier.