Without a
new budget, the country is facing a deficit of up to 6.6% of the GDP in 2025,
more than double the European Union's standard.
No matter
what the French government had warned about, neither domestic nor international
turmoil followed immediately after Prime Minister Barnier's cabinet's downfall
and his resignation. But without a valid budget, the public deficit may rise
further, as well as the uncertainty that is pushing up the refinancing costs of
the country's already enormous debt.
President
Macron will now need to appoint a new Prime Minister, who will be tasked with
forming a new government. But the chances of adopting a new budget before the
year's end are very slim.
If no budget
is voted on by December 20, one of the possibilities is to extend the 2024
budget to 2025.
"A
rollover of the 2024 budget to the entire 2025 fiscal year would likely deliver
a government budget deficit of c.6.3-6.6% of GDP, up from an estimated 6.1% of
GDP in 2024," reads a fresh analysis of the British multinational Bank
Barclay's.
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France is
already under a considerable amount of pressure for overspending, the EU's
fiscal rules require each eurozone member state to keep its deficit below 3% of
the GDP.
Barclay's
added in their analysis that the political landscape is too fluid to change
their forecasts just yet, leaving the door open to a new government and quick
approval of a 2025 budget by the first quarter of 2025 "that would deliver
some fiscal adjustment", read the analysis adding that: "In that
case, we think that our general government deficit forecast of 5.8% of GDP,
which already includes a looser fiscal stance and lower nominal growth
forecasts than Mr. Barnier's budget, would still be broadly achievable."
Could there
be a US-like government shutdown in France?
No, France
has a legal framework, that prevents the government from shutting down.
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To provide
the necessary funds for the already approved commitments in the new year, the
most likely scenario for any new or currently caretaking government appears to
be to "introduce a special law to the Parliament before 19 December to
ensure the continued collection of existing taxes," notes the analysis.
As for the
Social Security funds, the legislation isn't clear as to what happens if the
Social Security financing bill gets rejected. (The social security budget was
forced through the National Assembly without a vote, by activating Article 49.3
of the Constitution, thus triggering the no-confidence vote against the
government.)
French
social benefits would not be ceased and contributions would be continuously
collected. The most urgent issue appears to be the lack of authorisation to the
operator behind the social security system, which usually raises funds on the
financial markets up to an approved ceiling.
"The
French Senate's social security financing Rapporteur suggested earlier that the
borrowing ceilings could be incorporated into an ad-hoc legislative vehicle,
allowing social security funds to continue operating under the provisions set
in the social security code," says the analysis.
Local
governments are left to be "self-governing", according to article 72
of the constitution, so they set freely the amount and breakdown of their
expenses in a no-budget scenario, according to Barclay's expectations.
The bank's
analysis leaves room for the possibility of the 2025 budget being adopted in
the early months of next year, "in which case we think that our fiscal
forecasts would still be broadly achievable."
Even with
the current budget, Barclays expects no significant deficit reduction in 2025
and has been forecasting a deficit of 5.8% of GDP next year, well above the
government's target of 5%. The bank calculates with 0.7% economic growth, while
the government counts on 1.1%.
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