​​French public debt: trouble brewing​

In light of yesterday's announcements by the French prime minister, we are re-sending this report (first published in January) warning that France’s public finances are likely to continue deteriorating. A few additional points are worth making about yesterday’s announcement:

• First, at 1.5% of GDP, the planned scale of fiscal tightening seems implausibly high. We think the government will ultimately achieve only a fraction of these savings as the proposals will be strongly opposed when parliament re-convenes in the autumn.

• Second, most of the proposed measures are temporary in nature so will not deliver a sustained reduction in the deficit. For example, they include a one-year freeze on some items of expenditure; “under-indexation” of pensions next year; and an unspecified “solidarity contribution” from wealthier households.

• And third, the political situation means there is little chance of a successful medium-term fiscal adjustment. The government does not have a parliamentary majority, the large right- and left-wing parliamentary groups are opposed to fiscal consolidation, and after the 2027 presidential elections a new government may attempt to reverse any fiscal cuts made in the coming year or two.

The bottom line is that we continue to expect the public debt burden to rise steadily, eventually converging with that of Italy. There is also a growing risk of a big jump in France's government borrowing costs at some stage, and that could force a future government to implement the cuts which are being discussed today.