Equipping France with a “responsible” budget for 2027 is the goal announced by the French government as bad economic news continues to mount.
Ratings agency Fitch has kept France’s sovereign debt rating at A+, but has cut its outlook from “stable” to “negative”, citing weaker growth, higher borrowing costs and a bigger deficit than at its previous review last August.
This verdict comes after figures published by Insee on Friday morning showed that French gross domestic product fell by 0.1% in the third quarter, after stagnating in the second quarter and shrinking by 0.2% in the first.
To justify its decision (source in French), Fitch notably highlighted that “the persistence of political fragmentation” and “a difficult social climate”, with the mass protests shaking the country, “further complicate the implementation of a lasting fiscal consolidation”.
France’s rating is nevertheless supported by “the size, wealth and diversification of its economy, the strength of its institutions, its membership of the euro area and the resilience of its banking sector”.
“The absolute need to adopt a budget”
In a statement sent to the media on Friday evening, Economy and Finance Minister Roland Lescure said he “takes note” of the US agency’s decision to lower France’s outlook.
“This assessment confirms the absolute need to adopt by the end of the year a responsible budget that aims to restore the public finances by reducing our deficit to 5%”, he continued, adding that the government was “determined to stay on a path of fiscal consolidation”.
“In an uncertain international environment, it is imperative to give economic players visibility”, the finance minister concluded.
Earlier in the day, reacting to the fall in GDP on Franceinfo, Roland Lescure had described the French economy as “at a standstill”. He had also warned that the country would be heading “into the wall” if the “recovery” budget were not adopted.
“I am saying it, I repeat it and I will repeat it to the end: we need a budget, we need a budget deficit of 5% or less”, he hammered home.
But the chances of the text being adopted by a parliamentary vote look more than uncertain, given the lack of a majority in the National Assembly and the approaching presidential election.
49.3, ordinances: Fitch expects a push-through
The political debates taking shape six months before the vote “have not significantly increased Fitch’s confidence in the possibility of a lasting reduction in the deficit that could stabilise the debt”, the agency notes.
“We believe that the budget should be adopted, thanks to the constitutional mechanisms available to the government despite the lack of a parliamentary majority”, the Fitch analysts say.
In the event of deadlock in Parliament, Roland Lescure has indicated that the government does not rule out resorting to article 49.3 of the Constitution, which allows a bill to be passed without a vote unless a motion of no confidence is adopted. Another option would be to use ordinances, a procedure that has never been used to pass a budget since the creation of the Fifth Republic in 1958.
Speaking to Euronews, Jérôme Mathis, professor of economics at Paris-Dauphine University, believes that a budget adopted by ordinance could reduce uncertainty in the short term, but would not restore long-term fiscal credibility.
“Markets generally prefer a contested decision to a prolonged absence of decision. But if a budget adopted by ordinance is seen as fragile, liable to be called into question after the presidential election or as revealing a lasting inability of the political system to build majorities, the positive effect on [investor] confidence could be limited”, the researcher explains.
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