A difficult economic agenda awaits a complex government

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A difficult economic agenda awaits a complex government

Social unrest is worsening after some of the priorities outlined by the executive committee before the election call, such as labor reform or an adjustment of up to 10,000 million.

The seventh largest economy in the world and the second in the Eurozone, FranceA new assembly begins with this The big priority should be the economy. The complex situation that emerged from this Sunday’s vote reveals some Complex alliances. But LEconomic rights are important. In 2023, The deficit was higher than expected (5.5%). And this year, Debt will breach the 111% of GDP threshold. These are the challenges

The seventh largest economy in the world and the second in the Eurozone, FranceA new assembly begins with it The big priority should be the economy. The complex situation that emerged from this Sunday’s vote reveals some Complex alliances. But LEconomic rights are important. In 2023, The deficit was higher than expected (5.5%). And this year, Debt will breach the 111% of GDP threshold. These are the challenges facing the executive committee arising from yesterday’s second phase of the Legislative Assembly elections.

  • Increase in deficit. The deterioration of public finances has worsened, and the government responded with an adjustment plan, unveiled in March. Its aim is to save 10,000 million this year and 20,000 million in 2025, announced after it was announced in 2023 that the deficit was larger than expected. That was 5.5% of GDP, six-tenths more than forecast by the administration, which has centrist Gabriel Atal as acting prime minister. The latter wants this figure to be 3% by 2027, but rating agency S&P considers these objectives too difficult to achieve. For this reason, it has downgraded its rating by one step, from AA to AA. In contrast, Fitch and Moody’s maintained their ratings. An element that could be important in controlling public expenditure is the end of social bonuses for electricity and gas for households. Electricity price. José María alvarez de Lara, professor at Esade and professor at the Business School in Paris, is convinced that in the new legislature, the situation of the public treasury will be reversed. “We’re going to be very careful that we’re talking about a country that’s responsible, even if the chaos is announced in this campaign,” he says.
  • Layer of debt. The public debt will not continue to grow in the summer when Paris hosts the XXXIII Olympic Games, where up to 5,000 million euros have been spent. This year, it will issue bonds worth 285 billion euros, a record figure, and the debt-to-GDP ratio reached 3.15 trillion euros in March, 110.7% of GDP, eight-tenths more than in December, according to the National Institute of Statistics ( INSEE ). By the end of 2024, it is forecast to exceed 111%. Based on these forecasts, some analysts are predicting a French debt crisis, and by extension the Euro, but at this point, Professor Alvarez de Lara disagrees with these predictions. “France still has room to go into debt, especially domestically,” he maintains. The risk premium, an index that measures the premium an issuer must pay to place its debt on the market, will be thoroughly analyzed “by investors or future lenders, especially in relation to Germany,” the expert said. Last Friday, it was 68 points, down from 54 a year ago.
  • Prohibition notice. From Cidob, a think tank dedicated to foreign policy, on economic policy, he highlights that both the extreme right and the extreme left share “a skeptical, hostile attitude” towards coordination in Brussels on economic matters. Precisely, the European Union announced this June that it would ban France, along with Italy and five other countries, for failing to comply with financial rules.
  • Weak growth. The government has also revised downwards its forecasts for this year. The 2024 budgets are prepared on the assumption of GDP growth of 1.1% and public deficit of 4.4%. In March, the administration cut the economy’s growth to 1%. In this context, Finance Minister Thomas Cazeneuve opened the door to tax increases in March, with the aim of controlling the deficit, although they have not yet materialised. His aim was to raise “at least 1,000 million euros” extra, which is why he suggested increasing the surcharge on energy companies’ exceptional profits. About 300 million euros were collected last year through this tax. A third labor reform? The state’s financial situation and slowness of growth have added to deep social unrest. “The culture of resistance is very deeply rooted,” Álvarez de Lara highlights. “Living costs have increased, there is a sense of distance between the feelings of citizens and the discourse of elites trained at the National School of Administration (ENA),” explains Guilès regarding the institution. It has been a great breeding ground for senior officials in the public sector for decades, and in 2021 the president, the centrist Emmanuel Macron, reclaimed it. In 2023, the retirement age has been delayed from 62 to 64 years and the contribution period to receive full benefits has been extended, from 42 years to 43 in 2027. It is a very competitive activity on the street. In March, Attal announced his intention to promote the third labor reform since Macron arrived at the Elysée in 2017. His aim is to reduce the duration of unemployment benefits by “several months”, which is now 18 months. “The unemployment rate is between 7% and 8%, compared to 3%-4% in Germany,” Alvarez de Lara says.
  • Defense, Aeronautics and Nuclear Power: The Strategic Challenge. They are three sectors closely linked to “national security”, a fundamental principle, Alvarez de Lara explains. In energy, compared to Germany, it has managed to avoid EU guidelines, maintain “its commitment to nuclear power with the aim of achieving self-sufficiency” and maintain its commitment to renewables. Although it is a European conglomerate, Airbus Aeronautics has its headquarters in Toulouse and, as the expert explains, “it is the world leader in its field.” The military industry carries a strong weight and “after the UK left the EU, it was the only country with nuclear weapons,” he adds. On security, the country is reducing its military presence in a region where it considers its influence, the Sahel: in 2022 it will leave Mali, and in 2023, Niger and Burkina Faso. However, continuing in Africa is a priority, hence its deals with Zambia, Mozambique and Malawi.
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