France’s Deficit Spirals as Public Spending Surges

France’s public finances are in a worse state than anticipated, with spending rising sharply, according to outgoing Finance Minister Bruno Le Maire. The country’s deficit is projected to reach 5.6% of GDP this year, far exceeding the EU’s 3% target and surpassing the government’s initial 5.1% forecast.

Le Maire attributed the growing deficit to lower-than-expected tax revenues and significant spending increases by local authorities, which could impact the 2024 accounts by €16 billion. The finance minister acknowledged the gravity of the situation in a letter to parliamentarians, admitting that the deficit threatens to spiral out of control.

The deteriorating financial situation poses a challenge to President Emmanuel Macron, who campaigned on promises to reduce the public sector and boost investment. The worsening figures suggest Macron may have to implement severe public service cuts or raise taxes to meet his goal of bringing the deficit below the EU’s target by 2027.

France has already planned a €20 billion reduction in spending next year, following similar cuts this year. However, implementing such measures could prove difficult in a politically gridlocked environment, with the French public’s strong attachment to social benefits and frequent strikes.

The fiscal crisis has led to credit rating downgrades for France and scrutiny from the EU, which has placed the country under its excessive deficit procedure. As Macron prepares to appoint a new prime minister, questions remain about the government’s ability to navigate the ongoing financial turmoil.