The French government is working on plans to find €40 billion in savings for next year’s budget to rein in a deficit projected to hit 5.6 percent of gross domestic product this year. Most agencies have already slapped France’s credit rating with a negative outlook due to its public finances and the political instability crippling the country, which has worsened since President Emmanuel Macron’s decision to call snap elections last summer, leading to a hung parliament.
Scope Ratings analyst Thomas Gillet said the conclave’s outcome will be “a good way to assess the feasibility of structural reforms, which are obviously much needed to reduce the deficit.”
If the centrist prime minister’s initiative lands, he’ll have scored an important victory both politically and to assuage financial markets for now. But the issue of pension solvency will very likely rear its head again in the future due to the underlying demographic issues at play.
A former senior official involved in the 2023 reform, granted anonymity to speak candidly, said France would need “a progressive transition” to a different kind of public pension system to ensure its solvency. Some politicians, including former prime minister and 2027 presidential candidate Edouard Philippe, have proposed introducing some form of capitalization to solve the issue.
The conclave’s failure, however, would significantly raise the prospect of a government collapse. The Socialist Party had agreed not to vote to topple Bayrou’s minority government as the conclave offered a chance to revise the 2023 reform, which they opposed. That could push the center-left party to join other members of the opposition, including the far right, to topple Bayrou’s government — as they did to his predecessor, Michel Barnier, in December.
Clea Caulcutt contributed to this report.
