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French President Emmanuel Macron delivers a televised New Year’s address to the nation from the Elysee Palace in Paris on December 31, 2024.
Kieran Ridley | Afp | Getty 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 political crisis last summer when snap parliamentary elections called by President Emmanuel Macron failed to produce a decisive result, with both far-left and far-right parties claiming electoral victory.
Amid internal disputes over who should lead, Macron installed a centrist conservative government that proved short-lived and disputes over France’s 2025 budget. sowed the seeds of her downfall — at the hands of the far left and the far right — as a result of the confidence vote in December.
A new minority government is now in place, but it faces the same challenges as before: How to get political rivals in France’s National Assembly to agree to spending and tax plans for 2025 that will reduce France’s budget deficit, which is forecast to reach 6, 1% in 2024, and a debt of 112% of gross domestic product, both well above EU rules.
France’s political disaster continues to rattle financial markets and cause concern among economists: Credit rating agency Moody’s downgraded France’s credit rating last monthwarning that political fragmentation is “more likely to prevent meaningful fiscal consolidation” and that the country’s public finances will be “significantly weakened in the coming years”. While most European markets managed to gain growth in 2024, the French market CAC 40engulfed in political turbulence, decreased by 2.2% over the year.
Macron admitted the mistake
Although Macron has defied calls to resign and ruled out early presidential elections, he admitted on Tuesday that his decision to hold an early vote last year had created more problems than solutions for France.
“We have also faced political instability, this is not typical of France, we also see it among our German friends who have just dissolved their assembly. But it legitimately worries us,” Macron said in his New Year’s address.
“I have to admit tonight that the dissolution (of parliament) has brought, for the moment, more divisions in 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.
Kieran Ridley | Afp | Getty Images
“When I decided to disband, it was to give you back the word, to get clarity back and to avoid the real estate that was threatening. But clarity and humility demand that we acknowledge that this decision has caused more instability than peace at this time, and I take full responsibility for that.”
The economy has a “tough winter” ahead.
No one is underestimating the challenge, and new Prime Minister Francois Bairroux said when he took office in December that France faces a “Himalayan” task when it comes to tackling deficit and debt problems and bridging political divisions.
Economists and analysts agree with this.
“The French economy faces a tough 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 small recovery if – and when – the political situation becomes clearer, it will not be enough to provide a significant boost to French activity in 2025. We therefore continue to expect GDP to grow by 0.6% in 2025, down from 1.1% in 2024, which is lower than most of the institutions’ official forecasts,” she said, adding that risks, facing France are currently aggravating.
André Sapir, a senior researcher at the Bruegel economic think tank in Brussels, believes that the new government will move slowly.
“Essentially, the new government has the same task as the previous very short-lived government, to try to fill some of the budget hole … it will not be very easy, but I think the life of this government can be long. longer than the previous one,” he told CNBC “Squawk Box Europe.“
“I think the only way to understand what’s going on in France is to not use an economic lens. Yes, there are many economic issues that need to be addressed, including the budget, but the game being played is about the next presidential election, and that’s why everyone is preparing for the elections that should take place in 2027, but some parties want it earlier, so they insist on a bigger crisis, while others are trying to buy time,” he said. noted.
“In a way, you could say that France is not governed, and really, that’s why I don’t expect much progress on the budget, in fact the minimum that can get through (parliament).”
Early elections?
Sapir believes that if Bayrou’s new government is ousted in a new confidence vote, calls for Macron to step down could intensify.
However, he noted that there are disagreements between different political parties as to whether early presidential elections would benefit their interests.
However, for the ultra-left and far-right, elections in 2025 may be preferable, Sapir noted, with the participation of both Jean-Luc Melenchon, the head of the ultra-right La France Insoumise, and the far-right National Rally (Rassemblement). Nationale) Marine Le Pen, imagining her chances in the preliminary vote.
“A lot of others don’t want Le Pen or Mélenchon (in power), so they won’t want an election in 2025, so it’s really, I think, a game being played. For Le Pen and Mélenchon, 2025 would be the perfect time.”
