Struggle over France's public finances

The French government of Prime Minister Barnier wants to present the national budget for next year today. Because finances are increasingly getting out of hand, he wants to impose massive austerity measures on the nation.

It's about nothing less than France's financial stability – many economists agree on this, including many French ones. One of them is Mathieu Plane from the Paris Institute of Business and Economics, one of the most influential economic think tanks in France.

For Mathieu Plane, the matter is clear: France has spent too much money in recent years, pushing the national deficit and national debt to new heights – and now, suddenly, you realize: This cannot work in the long term.

Only Italy and Greece are in an even worse position

France's debt level has now exceeded 110 percent of economic output; in Europe only Italy and Greece are in an even worse position. This is worrying, not just for France. There is no way around austerity measures, otherwise the country could become a financially unpredictable factor in Europe and a worry.

Apparently Michel Barnier sees it that way too. France's new head of government has only been in office for a good two weeks, but he has made it clear: he wants to get the country back on a financially stable course.

Fear of national bankruptcy

What drives him and his government could be sheer fear. For example, the Grande Nation will lose its international reputation, which has so far been largely impeccable when it comes to money matters, that international rating agencies will downgrade France, that doubts will arise about its creditworthiness, and that in the end there may even be a threat of national bankruptcy.

This brings back memories of the Greek crisis for some people. However, there is a crucial difference today: France is the second strongest economic power in Europe, the European country with the second largest population, with a lot of industry, ultra-modern service companies, science, research and development – and not a comparatively small state like Greece Many years ago it was only possible to save with massive financial aid and loans.

Back then, between 2010 and 2015, the European Monetary Union began to falter dangerously on several occasions. It's hard to imagine what it would be like if France found itself in such a situation.

Big mountain of debt

But there's not really any talk of it yet. According to the international French business organization Business-France, for example, the country is still far from being in the same situation as Greece back then. As far as the mountain of public debt is concerned, it is certainly comparable to Italy, which is why the first thing to do now is to get the country back on a financially sound course.

Barnier probably has nothing else in mind when he presents his budget plans to the cabinet today. He knows that not only France's international reputation is at stake, but also the stability of the country's entire society.

Some obstacles

However, one thing is the political goal, the other is the question of how it can be achieved. The French Prime Minister is under considerable pressure. The US investment bank Goldman-Sachs, for example, points out, cautious in tone but unequivocal in substance, that a too slow pace of financial stabilization in France could worry the markets.

On the other hand, there is the strong opposition in the French National Assembly – on the one hand from the far right with Marine Le Pen and on the other hand from the New Popular Front (NFP) on the far left, including the Socialists and the Greens. Neither the far right nor the left camp wants to know anything about the austerity measures.

The problem for Barnier: his government alone does not have a majority in parliament. So he needs support from the right or the left, which will make it difficult for him to implement his plan without making compromises.

Get ready for pensions?

In terms of pure numbers, it is certainly ambitious. Barnier wants to save 40 billion euros in spending in the next French budget. At the same time, 20 billion additional revenue should flow into the state coffers, which could reduce new debt by a total of 60 billion. Sounds like a lot. However, France pays almost 60 billion euros a year just for interest on the mountain of public debt, so it doesn't sound like that much anymore.

When it comes to revenue, Barnier wants to increase taxes for high earners and large companies with high profits, increase social security contributions and double the tax on electrical energy. When it comes to spending, pension increases should, among other things, be eliminated, at least for a while; this is referred to as “freezing” pensions.

Large sections of society are really up in arms against the latter in particular, Marine Le Pen with her Rassemblement National from the right, the New Popular Front is hardly different and even the former French Prime Minister Attal – a member of President Emanuel Macron's liberal party – is demanding that pensions remain untouched become.

In France, pension provision, the still comparatively early retirement and the relatively high pension level are a highly politically sensitive issue. A good year and a half ago, President Macron turned large parts of society against himself with his reform of the system.