Former IMF economist predicts market crash for France without urgent reforms

France is facing an impending economic crisis and must take immediate action to address its finances, warns one of the world's leading economists.

Olivier Blanchard, former chief economist for the International Monetary Fund (IMF), told Politico that consecutive French governments have pushed the country to the brink by failing to make tough, politically unpopular decisions necessary to balance the national budget, per Caliber.Az.

“We are absolutely not doing what is needed, that’s for sure,” Blanchard stated bluntly.

Back in France after a distinguished 50-year career at the Massachusetts Institute of Technology (MIT), Blanchard acknowledges that while a market crash is not imminent, he believes it is on the horizon unless France acts decisively.

For the first time in its modern history, France entered the new year without a proper budget. Lawmakers ousted Prime Minister Michel Barnier, rejecting his plans to address the country's alarming budget deficit, which reached 6.2 per cent of GDP in 2023. Barnier's successor, François Bayrou, has put forward a less aggressive plan for deficit reduction, with tax hikes and spending cuts designed to gain more support in a divided parliament.

Blanchard critiqued Bayrou's approach, saying, “The government has done more or less its best, but its best is not much, and is not sufficient.” He also pointed to the current political gridlock, where no party holds a majority, as a significant barrier to progress. “For now, French parties are not ready to accept something that is necessary,” Blanchard remarked. "It will take a budget crisis, maybe a financial crisis, for parties to sit down and say we’re going to do something.”

Blanchard also questioned the role of the European Union in influencing France's fiscal policies, particularly after the EU placed France under an excessive deficit procedure for overspending in 2023. He pointed out that Brussels lacks the power to force the French government to take more drastic action. "Brussels doesn't have the practical tools to force France to make a bigger effort, only markets can do that," he concluded.

By Tamilla Hasanova