The main problem is not just a budgetary one, but a structural one. Should we wait for the situation to deteriorate further before taking action, when the public deficit has already reached 5.6% of GDP? In France, we have been witnessing a drift in public finances that has been going on for several months, with worrying forecasts for the future. Last year, the deficit was 5.1%, while the European rule requires a deficit of less than 3%. This year, it is 5.6% and should reach 6.2% or even 7% next year, perhaps even 8%. This is worrying for France and for Europe, because the European average is well below 3%. France thus risks becoming the “bad student” of Europe.
It is in no one’s interest for France to be weak in terms of public finances. How can this situation be corrected as quickly and effectively as possible? Bercy (the Ministry of Finance) points out that the main factor in the deficit is the increase in local government expenditure. In particular, staff costs in municipalities are increasing much faster than economic growth (which is at 1%). But this is not the only problem, because the State, in order to reduce its own budget, transfers costs to local authorities without providing them with additional resources. This worsens the country’s financial situation.
The European risk and the confidence of financial markets
At the European level, Brussels depends on France. The real risk does not lie in Europe itself, but in a possible loss of investor confidence in France. Indeed, France is not financed only by its citizens, but also by foreign funds, such as pension funds that buy French public debt. This is where the problem lies. If Brussels detects a lack of investor confidence in France, this could have a contagious effect throughout Europe. If France becomes perceived as a risk, this could lead to a crisis of confidence for the entire eurozone, which would be catastrophic, especially in a context of growing geopolitical tensions, notably with the United States.
Currently, more than 50% of French debt is held by foreign investors. This is because France spends more than it generates in tax revenues. Of course, French citizens, notably through life insurance, finance a large part of the debt, but this is not enough. This is why France must call on foreign investors to finance its debt. This works as long as the eurozone as a whole has a relatively healthy budgetary situation, with a deficit below 3%, which inspires confidence. This is what allows European debt to remain attractive, but this scenario could change.
The danger of distrust towards France and the fracture of the eurozone
The greatest danger lies in the growing distrust towards France within the eurozone. This could lead to a fracture of the Eurozone, and France could become the weak link, which is particularly risky. France is at a critical point, on a knife edge, with a first deficit that could cross the “red line” and lead to economic destabilization – a more than worrying situation.
The latest projections of public spending for the next three years show that France’s budgetary trajectory is deteriorating. This explains the current tension within Parliament. It is therefore urgent to reform the major public services. As the Court of Auditors points out, massive savings are necessary, but this is difficult to achieve, especially in sectors already in difficulty such as hospitals or education.
Structural reforms rather than simple budgetary savings
The problem is not simply a question of budgetary cuts, but of profoundly reforming the functioning of public services. Investing in public services that do not work will not help. It is imperative to rethink the very structure of these services, not for political or electoral reasons, but to find sustainable solutions. Unfortunately, this topic is constantly postponed, despite the deterioration of public services and the growing discontent of citizens, especially the middle classes, who fear falling into poverty.
The “it is not the time” is an excuse that can no longer last. If we continue to postpone reform, the crisis will eventually become a reality. It is not only about the financial future of France, but also the stability of the entire eurozone.
The necessary political courage
The real challenge is no longer just economic, it is a question of real political courage. It is essential to restore the confidence of citizens, especially the middle classes, who feel left behind, and who perceive public policy as a system constantly throwing money into a bottomless pit. This discontent was already expressed during the « yellow vest » movement. However, the situation is not improving, quite the contrary, and the deterioration of public services continues.
It is therefore urgent to thoroughly rethink the organization of public services, in order to make them more efficient and more adapted to the real needs of citizens. If this reform continues to be delayed, the crisis, which still seems far away, will become inevitable – not only for France, but also for the whole of Europe.
©2024 – IMPACT EUROPEAN
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