Budget: no panic for France, but what path for the left?

In the current political situation, the key words of which seem to be “confusion”, “uncertainty”, “blockage” and “impasse”, economic and public finance issues hold, as we know, a more central place than ever.

It was in fact on the vote of the PLFSS (Social Security finance bill) that article 49.3 of the Constitution was triggered, sparking the motion of censure and the fall of Michel Barnier’s government.

It is public finances, if we are to believe Emmanuel Macron, which would have played a major role in his decision to dissolve the National Assembly. “This decisionhe said in his address to the French on December 5, was in my eyes indeed inevitable. (…) [Car] many political leaders were already announcing censorship for this fall”censorship which was to relate to the vote on the budget.

Finally, aren’t his desire not to give up his economic policy of “competitiveness” and the “taboo” of tax increases the main motivation for his refusal to appoint a Prime Minister from the leading political force of the new hemicycle, the New Popular Front (in accordance with the practices of the V^e Republic), and his choice of a man belonging to a party – the Republicans – which is only the fourth political force and who had not called for the Republican Front, the only real winner of the European elections?

A Greek scenario?

Threats of an economic and financial “storm” were also brandished by supporters of the government, led by the former Prime Minister, in an attempt to prevent the vote on the motion of censure. A vote however made inevitable by Michel Barnier’s refusal to negotiate with the left and by his search for a “compromise(sion)” with the extreme right, thus bringing down a new dike.

Without fear of ridicule, many have asserted that in the event of censorship, the absence of a budget would condemn us to shutdown in the American style, threatening the salaries of civil servants, pensions, social assistance and even blocked Vitale cards – when the constitutionalists, very quickly, explained to us the mechanisms of the “special law”, of the orders of article 47 and even article 16.

Many, too, were those who explained to us that the increase in spreads observed on the financial markets (difference with Germany in rates on ten-year public debt) inevitably led France to a fate similar to that of Greece in the 2010s.

A scenario all the more credible, they said, as French rates over ten years had exceeded those of Spain and even, for a moment, reached those of the Greek debt. But they forgot to say that at the height of the crisis, Greece was paying more than 20% of GDP in debt interest and that the interest rates it was experiencing then amounted to more than 35%!

However, the censorship passed, no collapse was observed. Certainly the spread has further progressed a little (exceeding 80 points), and some see the hand of the European Central Bank (ECB) behind this market restraint. However, ten-year rates have resumed the decline they have experienced since the beginning of November (going from 3.2% to 2.9% today, far from the 3.6% reached at the end of 2023), driven by the reduction in ECB key rates.

Above all, such an increase in spreads was incommensurate with that caused by the dissolution (since they then went from 50 points to 80 points in a few days). The coverage rates of the auctions made by the Treasury on December 6 were greater than 2.5. As for the CAC40, it has almost stopped climbing since the end of November…

A nevertheless difficult situation

No clouds of locusts on the horizon, then. But does this mean that the economic situation is good? Far from it! Growth is weak, unemployment has been rising since 2023 (contrary to what is happening elsewhere in Europe), social plans and bankruptcies are increasing.

We also know that the public accounts have deteriorated significantly, with a deficit which should stand at 6.1% for 2024 according to the end of management bill presented by the outgoing government, and a debt which reaches 112%. of GDP, increasing again since the end of 2023 (with the end of inflation).

And political uncertainty can only worsen the economic situation, as recent work by the OFCE has shown. If many of us doubted the growth hypothesis adopted by the outgoing government to construct its 2025 budget (at 1.1%), it now appears even more unrealistic.

This hypothesis in fact assumed that households would give up their oversaving behavior – which they have never abandoned in reality since the health crisis – and that businesses would return to the path of investment. Not to mention the threats that the election of Donald Trump poses to the entire European economy.

What strategy for the left?

The left must therefore, today, do everything to modify the economic policy pursued by Emmanuel Macron since 2017. The “trickle down” did not occur.

Coupled with the health crisis and the inflationary crisis, this socially unjust policy has weakened public services and significantly deteriorated the situation of public accounts, depriving the State of revenue through uncompensated tax cuts, which the former ministers interviewed by the Senate commission on the drift in public accounts absolutely refused to admit: neither responsible, nor guilty!

The left must do everything to modify the trajectory outlined in the budget presented by Michel Barnier. Indeed, the proposed brutal restoration of public accounts (2 points of GDP) actually risked, by breaking growth, further widening the deficit and further increasing the debt, as numerous studies have shown (notably from the Fund international monetary policy and a recent synthesis), or as Olivier Blanchard explicitly said in a debate with Gabriel Zucman.

As the latter affirmed, a budgetary path exists which sacrifices neither our social model nor our public services, which would allow major investments for the future (health, education, research and ecology) and those imposed by new tensions geopolitics. But this path requires lifting the “taboo of tax increases” on large fortunes in particular.

The left must also try to convince Europe that the trajectory followed by a too rapid recovery of public accounts, not only weakens its social model, at the risk of amplifying the populist wave which is sweeping through it, but prohibits it from the investments essential to prepare for the future.

Its participation in a government must only be at this price. Will she succeed in convincing the supporters of Emmanuel Macron and the so-called Republican right? Nothing seems less certain. If this is not the case, it will then have to work tirelessly to chart a political path other than the one that will be followed.

The reminder of principles and values, the enunciation of red or green lines cannot in fact be enough, and it is only in this way that it will be able to regain the confidence of our fellow citizens who every day turn away from the parties in what Vincent Tiberj calls it a “great resignation”.

The risk, otherwise, is that of a further strengthening of the extreme right.