{"id":409548,"date":"2025-09-09T04:39:15","date_gmt":"2025-09-09T04:39:15","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/409548\/"},"modified":"2025-09-09T04:39:15","modified_gmt":"2025-09-09T04:39:15","slug":"why-frances-political-crisis-isnt-yet-an-economic-one","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/409548\/","title":{"rendered":"Why France\u2019s political crisis isn\u2019t (yet) an economic one"},"content":{"rendered":"

\nFrance, many claim, is on the brink of economic collapse. Just ask its own government.<\/strong>\n<\/p>\n

\nPrime Minister Fran\u00e7ois Bayrou<\/a> \u2013 who is set to resign after losing Monday\u2019s confidence vote over his deficit-slashing budget \u2013 warned last month that \u201cover-indebtedness\u201d poses an \u201cimmediate danger\u201d to the country\u2019s prosperity. Finance Minister Eric Lombard<\/a> has even suggested that soaring national debt could force Paris to request a bailout from the International Monetary Fund.\n<\/p>\n

\nExacerbating the sense of impending doom, France\u2019s government borrowing costs are now higher than Greece\u2019s<\/a> \u2013 sparking fears that Europe could suffer an economic meltdown far worse than the one triggered by Athens\u2019 financial collapse in 2009.\n<\/p>\n

\nAnalysts, however, note that the imminent risks posed by France\u2019s rising bond yields and debt levels are mostly exaggerated.\n<\/p>\n

\n\u201cTo be sure, France is facing a political crisis \u2013 but not a financial crisis,\u201d Nicolas V\u00e9ron, a senior fellow at Bruegel and the Peterson Institute for International Economics, told Euractiv.\n<\/p>\n

\nExperts point out that the \u2018inversion\u2019 in Greek and French bond yields is overwhelmingly due to a sharp improvement in market confidence in Greece, rather than a deterioration in investors\u2019 attitudes toward France. The 3.41% yield on 10-year French<\/a> government bonds is also well below the 3.50% interest rate paid by Italy<\/a>, which is not in any immediate financial peril.\n<\/p>\n

\nLombard\u2019s claim that Paris could soon require an IMF intervention also \u201cmakes absolutely no sense\u201d, V\u00e9ron said. He added that, in the unlikely event that the EU\u2019s second-largest economy did require a bailout, it would be the European Stability Mechanism (ESM), and not the IMF, that would come to France\u2019s financial rescue.\n<\/p>\n

Weak economy, fragile politics<\/strong>
\nRather than imminent economic danger, experts warn that France\u2019s intractable political crisis risks dampening investment and growth over the long term.<\/p>\n

\nThe National Assembly is split three ways between far-left, centrist and far-right blocs that will likely remain deeply hostile to one another regardless of who succeeds Bayrou. Surveys also suggest that no faction will command a parliamentary majority if, instead of appointing his fifth prime minister in two years, Macron calls fresh parliamentary elections.\n<\/p>\n

\n\u201cEither path would inject fresh uncertainty into an already fragile political landscape,\u201d Charlotte de Montpellier<\/a>, a senior economist at ING Research, recently noted, adding that the collapse of Bayrou\u2019s government will \u201cweigh heavily\u201d on France\u2019s \u201calready weak\u201d economy.\n<\/p>\n

\nFrance\u2019s GDP is set to grow by just 0.6% this year, according to the IMF<\/a> \u2013 less than half the 1.4% forecast expansion of the world\u2019s advanced economies.\n<\/p>\n

\nFrance\u2019s pace of growth is also projected to remain below the eurozone\u2019s anaemic rate of expansion until 2027, with global trade tensions and geopolitical uncertainty inflicting severe damage<\/a> on the country\u2019s manufacturing and services sectors.\n<\/p>\n

\nIn addition to hampering growth, France\u2019s political instability is making it harder to bring the country\u2019s deficit and debt levels under control, said Maria Demertzis, who leads the Economy Strategy and Finance Centre at The Conference Board Europe.\n<\/p>\n

\nFrance is expected to run a budget deficit of 5.6% of annual GDP this year, according to the European Commission\u2019s<\/a> latest forecast, which is almost twice the bloc\u2019s official 3% limit. France\u2019s debt-to-GDP ratio of 114.1% is also nearly double the bloc\u2019s 60% threshold.\n<\/p>\n

\n\u201cOne has to ask whether the debt path can remain sustainable,\u201d Demertzis said, noting that Bayrou\u2019s predecessor, Michel Barnier, was deposed after failing to pass a similar deficit-busting budget last year.\n<\/p>\n

\n\u201cYou need to have a credible path in both economic and political terms. Economics is what will get it there, but the politics will sustain the path,\u201d Demertzis said. \u201cBut if you\u2019re going to have this political crisis every year and a half, this isn\u2019t an easy problem to solve.\u201d\n<\/p>\n

A silver lining?<\/strong>
\nSome analysts, however, suggested that there may be a silver lining to France\u2019s political crisis, insofar as the country\u2019s high debt and deficit levels are now a topic of serious political discussion.<\/p>\n

\n\u201cEssentially, you’ve got more than 20 years \u2013 you could say a generation, at least \u2013 of French fiscal laxity. There has never been a real moment of fiscal consolidation or course correction,\u201d said V\u00e9ron. \u201cSo the fact that the fiscal situation is front and centre of the current French national conversation is, I think, a good thing, not a bad thing.\u201d\n<\/p>\n

\nDemertzis also noted that the current moment underscores just how critical it is for France to get its fiscal house in order, given that the EU\u2019s own financial institutions, particularly the ESM and the European Central Bank, arguably lack the clout to rescue France\u2019s economy. At \u20ac3 trillion, it is roughly twelve times larger than Greece\u2019s.\n<\/p>\n

\n“The French problem, if I may call it this, is also not a small problem: it exposes the inability of the EU to pick up the slack in the event of a genuine crisis,” Demertzis said.\n<\/p>\n

\n(vc)\n<\/p>\n

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