Valéry Giscard d’Estaing, a renowned French politician from the 1960s, famously coined the term “exorbitant privilege” to describe the benefits that America enjoys as the issuer of the world’s reserve currency. This privilege allows the United States to comfortably run high deficits without facing significant economic consequences. However, in stark contrast, France currently finds itself in a precarious position as it grapples with a substantial deficit and escalating debt levels. As the country prepares for parliamentary elections scheduled for June 30th and July 7th, the pressing issues of deficit reduction and debt management have taken center stage in the campaign discourse.
Amidst mounting concerns about France’s fiscal challenges, the European Commission is poised to initiate an excessive-deficit procedure (EDP) against the country on June 19th. This punitive measure, akin to the EU’s fiscal torture chamber, will compel French policymakers to formulate a comprehensive plan to address the economic strains plaguing the nation. The urgency of this intervention is underscored by France’s sizable deficit, currently standing at 5% of its GDP, a figure that both the central bank and the International Monetary Fund (IMF) project to decrease at a gradual pace. Furthermore, France’s debt-to-GDP ratio has reached 111%, mirroring the levels witnessed in Italy before the eurozone crisis of the early 2010s, with projections indicating a continued upward trajectory.
The gravity of France’s fiscal predicament was underscored by S&P Global, a prominent ratings agency that downgraded the French government’s sovereign-debt rating from AA to AA- on May 31st. This downgrade occurred against the backdrop of President Emmanuel Macron’s decision to call for snap elections, a move fraught with uncertainty as it may potentially result in the ascent of either the hard-right National Rally (RN) or the left-wing New Popular Front (NPF) to power, while Macron retains his position as president.
The looming specter of an excessive-deficit procedure casts a shadow over France’s political landscape, serving as a stark reminder of the urgent need for decisive action to address the country’s fiscal woes. The forthcoming parliamentary elections have assumed greater significance against the backdrop of this fiscal turmoil, with voters anxiously awaiting the policy prescriptions of competing political parties to navigate France out of its economic quagmire. The stage is set for a contentious electoral battle, with the future trajectory of France’s economy hanging in the balance.
As France grapples with the formidable challenges posed by its mounting deficit and escalating debt levels, the imperative for prudent fiscal management and effective policy measures becomes increasingly apparent. The specter of an excessive-deficit procedure serves as a sobering reminder of the harsh economic realities confronting France, necessitating bold and decisive action to steer the country towards a path of sustainability and fiscal responsibility. The outcome of the upcoming parliamentary elections holds profound implications for France’s economic future, with the stakes higher than ever as the country confronts a pivotal juncture in its fiscal journey.
