France's budget crisis: Gov't unveils austerity measures amid soaring deficit Article by Associated Press

The American news outlet Associated Press has published an article covering the financial crisis in France. Caliber.Az reprints the piece.

France’s new government has unveiled its 2025 belt-tightening budget bill, with plans for major tax hikes and spending cuts aimed at tackling the country’s giant deficit.

Prime Minister Michel Barnier, a conservative, described the massive hole in the public finances as a “sword of Damocles ” that could bring the euro zone’s second-biggest economy “to the edge of the precipice.”

Still, his budget plans have angered many in the country and are expected to be harshly debated in parliament in the coming weeks, with his government’s survival at stake.

France’s debt increased significantly because of the economic slowdown caused by the COVID-19 pandemic. President Emmanuel Macron applied a “whatever it takes” strategy based on state intervention to save jobs and businesses, including a massive partial unemployment program and subsidized childcare leave.

Following the virus crisis, Macron’s former centrist government vowed to put the country’s finances back on track. But budget overruns and lower-than-expected tax revenues instead dug a bigger hole. This year’s budget deficit is expected to reach 6.1% of GDP.

France “is in the situation of a family living beyond its means,” the governor of the Bank of France, François Villeroy de Galhau, said on France Info radio. “Therefore it has to reduce its expenses and increase its income a little.”

The Barnier government unveiled plans for a 60 billion euro ($65 billion) budget squeeze next year. That involves raising taxes -- a risky move in a country already known for its heavy tax burden.

Plans include the creation of new taxes — presented as temporary — on about 24,000 wealthiest households and on the profits within France of hundreds of large companies. The bill also plans to increase taxes on electricity, air travel and polluting cars.

Left-wing opposition lawmakers and labour unions are criticizing the “austerity budget” as unfair, saying it could deeply affect millions of low-income families, apprentices, retirees and small businesses.

“The cuts in public spending and the social safety net have a greater impact on the lives of the working and middle classes,” said hard-left lawmaker Eric Coquerel, head of the Finance committee in the National Assembly.

“Employees and pensioners are once again being asked to pay the bill,” the far-left labor union CGT said.

The CFDT, a more moderate left-wing union, also criticized Barnier’s plans, warning of “a significant deterioration in public services such as education, and a further weakening of our healthcare system.”

Employers’ unions, too, warned against the potential impact of tax hikes on businesses, including possible job losses. The government’s plans “will result in a sharp rise in costs for companies,” the Confederation of Small and Medium Size Firms (CPME) said.

Barnier’s budget approach has angered many, including centrists within his own coalition who see tax reduction as a key requirement for preserving France’s competitiveness in the world.

Left-wing opposition lawmakers will seek to subsequently amend the bill, while some in the far-right have criticized plans for major concessions from the low and middle classes.

With its survival at stake, the government may have to backtrack on some of the planned measures because losing a budget vote would prompt a deep political crisis.

Barnier is forced to rely on the far right’s good will to avoid being ousted by a no-confidence vote.

Another option for the government would be to use a special constitutional power to pass the budget without a vote, but that could also trigger a no-confidence motion, with an uncertain outcome.

The budget bill needs to be approved by the end of the year.

“High political fragmentation and a minority government complicate France’s ability to deliver on sustainable fiscal consolidation policies,” Fitch Ratings agency said last week as it lowered France’s outlook from “stable” to “negative.”

By Khagan Isayev