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ECONOMY

EU says debt-ridden France needs ‘fiscal adjustment’

France and other European Union countries with high debt levels "need a fiscal adjustment", the EU economy commissioner, Paolo Gentiloni said on Monday, ahead of a meeting of the bloc's finance ministers.

EU says debt-ridden France needs 'fiscal adjustment'
European Commissioner for the Economy Paolo Gentiloni during a press conference at the European Commission headquarters in Brussels, on May 15, 2024. (Photo by Kenzo TRIBOUILLARD / AFP)

“It’s a need and it is something quite possible,” Gentiloni said, as the ministers were about to hold two days of talks on EU excessive deficit procedures against seven countries, including France.

“Of course we’re aware of the institutional difficulties coming from the fact that in France we’ll have, starting tomorrow, a caretaker government with more limited powers,” Gentiloni said.

He added that, while the European Commission “will be able to address problems” such arrangements cause, “it’s clear that there is a need for fiscal adjustment in France and in the other countries with high debt”.

France is under pressure from Brussels to get its finances back within EU rules, which demand a deficit below three percent of a country’s GDP, and public debt under 60 percent.

Currently France’s deficit stands at 5.5 percent of GDP, and its debt at 110 percent of GDP.

Prospects of Paris working to bring those levels down have been thrown into uncertainty by the results of a snap election called by President Emmanuel Macron that was won by a leftwing coalition demanding much higher public spending.

Talks are ongoing on the formation of the next French government, leaving Macron’s outgoing Prime Minister Gabriel Attal in place in the meantime.

READ MORE: What happens now in crunch week for French politics?

The commission said last month it would propose an “excessive deficit procedure” be launched this month against France and the six other countries with deficits above three percent: Belgium, Italy, Hungary, Malta, Poland and Slovakia.

Romania, also, is already under such a procedure since 2019.

The procedures, which would require the countries to take corrective measures to come back under the rules, was initially expected to be formally launched on Tuesday, at the ministers’ meeting in Brussels.

But they have been pushed off to later in the month because of technical reasons. EU ambassadors are to adopt them on July 24th, with formal validation on July 26th, according to EU officials.

Going into Monday’s meeting, German Finance Minister Christian Lindner said: “I expect every member state to be compliant with our fiscal rules… And I think any future French government will have to follow these rules as well.”

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POLITICS

French PM says new government names will be revealed ‘before Sunday’

France's long-running political deadlock finally reached a conclusion on Thursday night as newly-appointed prime minister Michel Barnier travelled to the Presidential palace to present his new government.

French PM says new government names will be revealed 'before Sunday'

Prime Minister Michel Barnier’s office said on Thursday that he would “go to the Elysée to propose to the president a government that is ready to serve France”.

After a meeting earlier on Thursday afternoon with the heads of political parties, Barner then travelled to the Elysée Palace on Thursday evening to meet president Emmanuel Macron.

Their meeting lasted for just under an hour and at the end journalists saw Macron showing Barnier out saying Merci beaucoup, à demain (thanks very much, see you tomorrow).

After the meeting, Barnier’s office said he had had a “constructive exchange” with the president and that the full list of names of the new ministers will be made public “before Sunday, after the usual checks have been made”.

French media reported that the full list of 38 names, of which 16 will be full minsters, includes seven ministers from Macron’s centrist group, two from fellow centrists MoDem and three from Barnier’s own party, the right-wing Les Républicains.

Listen to John Lichfield discussing the challenges that Barnier faces in the latest episode of the Talking France podcast – download here or listen on the link below

Barnier’s statement said that “after two weeks of intensive consultations with the different political groups” he has found the architecture of his new government, adding that his priorities would be to;

  • Improve the standard of living for the French and the workings of public services, especially schools and healthcare
  • Guarantee security, control immigration and improve integration
  • Encourage businesses and agriculture and build upon the economic attractiveness of France
  • Get public finances under control and reduce debt

France has been in a state of limbo ever since parliamentary elections in July produced a deadlock with no group coming close to winning enough seats for a majority.

A caretaker government remained in place over the summer while president Emmanuel Macron declared an ‘Olympics truce’.

He finally appointed the right-wing former minister and ex-Brexit negotiator Michel Barnier on September 5th.

Barnier has spent the last two weeks in intense negotiations in his attempt to form a government that won’t immediately be brought down through a motion of no-confidence in parliament.

Numerous left-wing politicians are reported to have refused to serve in his government while several high-profile Macronists have also ruled themselves out, including long-serving finance minister Bruno Le Maire who last week announced that he was quitting politics.

The reported make up of the new government does not reflect the election result – in which the leftist Nouveau Front Populaire coalition came first, followed by Macron’s centrists with the far-right Rassemblement National in third – but Barnier’s hope is that enough MPs will support it to avoid an immediate motion de censure (vote of no confidence).

The government’s first task will be to prepare the 2025 budget, which is already a week late. France’s soaring budget deficit and threat of a downgrade from ratings agencies mean that it will be a tricky task with Barnier, who has prepared the ground for tax hikes by warning that the situation is ‘very serious’.

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