French President Emmanuel Macron delivers his televised New Year’s address to the nation from the Elysee Palace in Paris on December 31, 2024.
Kiran Ridley | AFP | fake images
As France enters the new year, there is little hope that the political and economic uncertainty that has plagued the euro zone’s second-largest economy for months will disappear in 2025.
France was plunged into a political crisis last summer when early parliamentary elections, called by President Emmanuel Macron, failed to produce a decisive result, with both far-left and far-right parties claiming victory at the polls.
Amid infighting over who should govern, Macron installed a centrist, conservative government that turned out to be short-lived, with arguments over France’s 2025 budget sowing the seeds of his downfall (at the hands of the far left and the far right) in a vote of confidence. in December.
There is now a new minority government, but it faces the same challenges as before: how to get political rivals in France’s National Assembly to agree on spending and tax plans for 2025 that will reduce France’s budget deficit, which is expected to reach 6, 1% in 2024. and a debt accumulation of 112% of gross domestic product, both well above EU standards.
France’s political debacle has continued to shake financial markets and raise concerns among economists: credit rating agency Moody’s downgraded France’s credit rating last month, warning that political fragmentation was more likely to “prevent meaningful fiscal consolidation.” and that the country’s public finances would be “substantially affected.” weakened in the coming years.” While most European markets managed to eke out profits in 2024, France’s CAC 40Besieged by political turbulence, it fell 2.2% during the year.
Macron admits mistake
Although Macron has defied calls for his resignation and refused to hold an early presidential election, he appeared to admit on Tuesday that his decision to hold an early vote last year had created more problems than solutions for France.
“We are also facing political instability, it is not specific to France, we also see it among our German friends who have just dissolved their Assembly. But we are legitimately concerned,” Macron said in his New Year’s speech.
“I must admit tonight that the dissolution (of parliament) has brought, for the moment, more divisions to the Assembly than solutions for the French,” he added.
French President Emmanuel Macron delivers a televised New Year’s address to the nation from the Elysee Palace in Paris on December 31, 2024.
Kiran Ridley | AFP | fake images
“If I decided to dissolve, it was to give them back the word, to regain clarity and avoid the immobility that threatened. But lucidity and humility demand that we recognize that at this moment this decision has produced more instability than serenity and I assume full responsibility for that.”
The economy has a “difficult winter” ahead
No one is underestimating the challenge, and new Prime Minister Francois Bayrou said upon taking up his new role in December that France faced a “Himalayan” task when it came to solving its deficit and debt problems and healing the political divide. .
Economists and analysts agree.
“The French economy faces a difficult winter, with economic activity likely to stagnate and a recession not ruled out,” Charlotte de Montpellier, senior economist for France and Switzerland at ING, said in an emailed analysis last month.
“While we can expect a slight recovery when the political situation becomes clearer, this will not be enough to give a significant boost to French activity in 2025. We therefore continue to expect GDP to grow by 0.6% in 2025. compared to 1.1% in 2024, a figure lower than the forecasts of most official institutes,” he noted, adding that the risks that France currently faces are to the downside.
Andre Sapir, senior researcher at the Brussels-based economic think tank Bruegel, believes the new government will move slowly.
“Essentially, the new government has the same task as the previous very short-lived government, trying to fill part of the budget hole… this is not going to be very easy, but I think the life of this government can be longer.” longer than the previous one,” he told CNBC “Squawk Box Europe.”
“I think the only way to understand what is happening in France is not to use an economic lens. Yes, there are many economic problems that need to be addressed, including the budget, but the game that is being played is about the upcoming presidential elections, so everyone is preparing for the elections that are scheduled for 2027, but some parties “They want them sooner, so they are pushing for more crises, and others are trying to buy time,” he said.
“In a certain sense, you could say that France is not governable and, in fact, that is why I do not expect much progress on the budget, really the minimum capable of passing.” (parliament)”.
Early elections?
Sapir believes that if Bayrou’s new government were toppled in a new vote of confidence, calls for Macron’s resignation could intensify.
However, he noted that there is division among a variety of political parties as to whether an early presidential election would be beneficial to their respective interests.
For the far left and far right, however, an election in 2025 might be preferable, Sapir noted, as both Jean-Luc Melenchon, leader of the far-left France Insoumise (La France Insoumise) and the far-right National Rally (Rassemblement Nationale), figurehead Marine Le Pen imagining her chances in an earlier vote.
“Many others do not want either Le Pen or Mélanchon (in power) so they will not want to have elections in 2025, so I think this is really the game that is being played. For Le Pen and Mélanchon, 2025 would be the ideal time.”
