Finally some good budgetary news for the government! While it seems to be having difficulty gathering a majority to pass its 2025 budget, the French government saw its medium-term stability plan (PSMT) validated on Tuesday, November 26, by the European Commission.
However, nothing has been acquired for the new government team of a country in excessive deficit procedure, which asked for European indulgence by postponing to 2029, instead of 2027, the return to a budget deficit below 3% of GDP.
France's multi-year plan “meets the requirements and defines a credible trajectory” to reduce or maintain debt “at prudent levels”, said the European Commission on Tuesday, which is judging the 2025 draft budget ” according to “ to this trajectory. While in the process scratching the budgets of Germany or the Netherlands, usually good budget students…
The 2025 budget, first step
“It’s rather comforting,” we confide in Bercy where we note that Brussels also validates the PSMT as “correction trajectory” under the excessive deficit procedure. In short: if France follows this plan which allows it to obtain a period of seven years (instead of four) to get back on track, it will avoid sanctions.
The other side of the coin is that this Brussels satisfaction is only valid if the measures proposed by Paris are applied. In addition to the implementation of reforms already voted on (such as that of pensions, the repeal of which will be requested on Thursday in the National Assembly by LFI parliamentarians), it is firstly the approval by Parliament of its draft budget providing a deficit of 5% in 2025 which is expected. This is in fact the first step of the PSMT towards the 2.9% deficit in 2029 (read benchmarks).
However, for a week since the Barnier government's ability to resist a motion of censure has been in doubt, the markets have been worried. THE spreadthe rate gap at which France borrows in relation to Germany, has suddenly tightened in a few days, even reaching 0.817 points on Tuesday morning, beyond the “record” (0.808) reached just after the dissolution in June .
Market concern
“We are not speculating on hypotheses: we are on the idea of having the budget adopted”, assures Bercy. But at what cost? “There is no point in being completely stuck to 5.0% if it allows us to have more collective agreements,” sketched Monday on Public Senate the Minister of Public Accounts, Laurent Saint-Martin, estimating that the deficit “maybe a little bit beyond” of 5%.
However, what is questioning the markets and rating agencies is precisely the capacity of the Barnier government to remain firm on the recovery of the accounts. “Our baseline scenario is that the finance law will be enacted before the end of the year, but the government may have to make concessions to secure the support of opposition parties”commented the Fitch agency in mid-October, leaving France's rating at AA-, but placing it under “negative outlook”.
On Friday, it will be the turn of Standard & Poor's, which in May had already lowered France's rating to AA-, to comment on the French debt. A downgrade to A would be expensive, because it would mean moving to “second category” countries, with investors therefore having to hedge their bets better in the event of purchasing French debt that had become less attractive.
“The ambition to recover the accounts is still relevant”
For Éric Dor, professor of economics at the Ieseg Business School in Lille, censorship by the Barnier government would therefore be “the disaster scenario”even if he does not fear “a Greek scenario” : “What awaits France is a rate differential with Germany of the level of Italy, around 1.5 points, compared to around 0.7 points today, he explains. This could be expensive. »
Hence the assurances given by France on its desire to maintain the trajectory proposed to the European Union, and its first step, the 2025 budget. “The ambition to recover the accounts is still relevant, Bercy insists. The government's objective is to maintain the consistency of the budget presented while knowing that its copy can be improved and that there are possible adjustments. »
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Next steps for the budget
The Senate adopted, Tuesday, November 26, the Social Security financing bill.
The text will be the subject, Wednesday, of a joint committee (CMP) bringing together seven senators and seven deputies. If they agree on a common text, it will have to be approved by each of the two chambers: in the National Assembly, the government should be obliged to use article 49.3 to have it approved without a vote , exposing himself to a motion of censure.
The finance bill has been examined since Monday by the Senate which must complete the first part (revenues) Saturday November 30 or Sunday 1is December, and the second part on December 12. If it is voted on by the Senate, this text will also have to be the subject of a CMP and a vote by each of the two assemblies.
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