France is ‘dancing on a volcano’ of debt
Fixing the problem will be a bumpy ride
Bringing France’s deficit in compliance with European Union budget rules this year is not an immediate economic necessity, as the Financial Times writes, but the long-term task of making the country’s public finances sustainable is essential for the future. It is also President Macron’s greatest challenge.
Macron’s Prime Minister, Edouard Philippe, was tasked with delivering the message that some painful reforms were necessary. The country is “on the ropes” and “dancing on a volcano”, in urgent need of a detox to cure its “addiction” to debt. In terms of fiscal policy for the short term, this means a public sector pay freeze, pricier cigarettes, and delays to tax cuts.
But the long-term reforms will be the most painful. Of OECD developed economies, France ranks number one in public spending as a percentage of GDP. Public spending accounts for more than 56% of the country’s gross domestic product.
If the new administration is really serious about takling this problem, get ready for a rough ride that will test the Macron government’s resolve. Budget cuts are coming in autumn, and they will no doubt come along with strikes.