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French President Emmanuel Macron during his televised New Year’s address to the nation from the Elysee Palace in Paris on December 31, 2024.
Kiran Ridley | Afp | Getty Images
As France heads into 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 political crisis last summer when early parliamentary elections called by President Emmanuel Macron failed to produce a decisive result, with far-left and far-right parties claiming the victory in the polls.
Amid infighting over who should rule, Macron installed a centrist, conservative government that proved short-lived, with arguments over France’s 2025 budget sowing the seeds of his downfall – at the hands of the extreme left and the extreme right – in a vote of confidence. in December.
A new minority government is now in place, but faces the same challenges as before – how to get political rivals in France’s National Assembly to agree to spending and taxation plans for 2025 that reduce the country’s budget deficit France, expected to reach 6.1% in 2024, and the debt pile of 112% of gross domestic product, with both well above the rules of the EU.
France’s political debacle has continued to rattle financial markets and raise concerns among economists: Credit rating agency Moody’s downgraded France’s credit rating last monthwarning that political fragmentation was “more likely to prevent significant fiscal consolidation” and that the country’s public finances would be “substantially weakened in the coming years”. While most European markets were able to achieve gains in 2024, France CAC 40besieged by political turmoil, fell 2.2% over the year.
Macron admits the mistake
Although Macron has defied calls for his resignation and refused to hold early presidential elections, he appeared to admit on Tuesday that his decision to hold a snap 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 it legitimately worries us,” said Macron in his address of the new year.
“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 | Getty Images
“If I decided to dissolve it was to return the plan, to regain clarity and to avoid the immobility that threatened. But lucidity and humility require that we recognize that at this moment, this decision has produced more instability than serenity and I take full responsibility for that.”
The economy has “a difficult winter” ahead
No one is underestimating the challenge, with new Prime Minister Francois Bayrou saying, as he took up his new role in December, that France faced a “Himalaya” of a task when it comes to fixing its deficit and the debt problems and the healing of political division.
Economists and analysts agree.
“The French economy is in for a difficult winter, with economic activity likely to stagnate and a recession not out of the question,” Charlotte de Montpellier, senior economist for France and Switzerland at ING, said in an emailed analysis last month. .
“While we can hope for a slight recovery when – and if – the political situation becomes clearer, this will not be enough to give a significant boost to French activity in 2025. We therefore still expect GDP to grow by 0 .6% in 2025. compared to 1.1% in 2024 – a lower figure than most of the institute’s official forecasts,” he said, adding that the risks that France is facing are currently on the side.
Andre Sapir, senior fellow at the Bruegel economics think tank, based in Brussels, believes the new government will make slow progress.
“Essentially, the new government has the same task as the previous government very briefly, to try to fill part of the budget gap … this will not be very simple, but I think the life of this government can be longer than the previous one,” he told CNBC.Squawk Box Europe.“
“I think that the only way to understand what is happening in France is not really to use an economic lens. Yes, there are many economic problems that must be attended to, including the budget, but the game that is being played is. on to the next presidential election, and so everyone is preparing for the election is meant to be in 2027, but some parties want earlier, so they push for more than one crisis, and others they are trying to gain time,” he noted.
“In a certain sense, you could say that France is not governable, and really, that’s why I don’t expect much progress in the budget, really the least able to pass. [parliament].”
Early election?
Sapir believes that if the new Bayrou government was brought down in a new vote of confidence, the calls for Macron to resign could intensify.
However, he noted that there is a division among a variety of political parties as to whether an early presidential election would be beneficial to their respective interests.
For the extreme left and the extreme right, however, an election in 2025 could be preferable, said Sapir, along with Jean-Luc Melenchon, leader of France Unbowed (La France Insoumise) and the extreme right Rassemblement. Nationale) Marine Le Pen who imagined her chances in an earlier vote.
“Many others do not want either Le Pen or Melanchon [in power]because they don’t want to have the elections in 2025 so this is really, I think, the game that is being played. For Le Pen and Melanchon, 2025 would be the ideal time.”
