The European Commission has recently taken action against several EU countries, including France, for running excessive budget deficits. This move comes as a response to the economic challenges faced by these nations, which have been compounded by the COVID pandemic and the energy price crisis resulting from Russia’s invasion of Ukraine in 2022. The countries targeted by the EU executive arm for disciplinary steps are Belgium, France, Italy, Hungary, Malta, Poland, and Slovakia.
France, as the EU’s second largest economy, has been particularly scrutinized for its budget deficit and public debt levels. Despite efforts to reduce the deficit, France had a budget deficit of 5.5% of GDP in 2023, well above the EU deficit limit of 3% of GDP. Additionally, the country’s public debt was 110.6% of GDP in 2023, projected to increase further to 112.4% this year and 113.8% in 2025, nearly twice the EU limit of 60%.
The European Commission is set to engage in discussions with France on how to address its deficit and debt levels, proposing a seven-year plan to put the country on a path towards fiscal sustainability. However, the looming political turmoil in France, with the far-right National Rally party leading in polls, raises concerns about the country’s commitment to fiscal consolidation. The National Rally party’s agenda includes lowering the retirement age, increasing public spending, and adopting a protectionist economic policy, all of which could further strain France’s public finances.
The uncertainty surrounding France’s political landscape has already had repercussions on the country’s economy. Last week, investors reacted by dumping French assets, leading to a significant increase in French bond yields and a decline in bank stocks. The lack of clarity on France’s future fiscal policies has created unease in the markets, with concerns about potential deviations from the EU’s fiscal rules.
The European Commission’s decision to impose disciplinary measures on countries with excessive budget deficits highlights the challenges faced by EU member states in the aftermath of the COVID pandemic and ongoing geopolitical issues. As countries like France navigate political transitions and economic uncertainties, finding a balance between addressing budgetary concerns and sustaining economic growth will be crucial for their long-term stability within the European Union.