France’s public debt has ballooned to a record level, official data showed Thursday, piling pressure on new Prime Minister Sebastien Lecornu as he confronts protests and political turmoil.
The French debt totalled 3.4 trillion euros ($4 trillion) in the second quarter of the year, statistics bureau INSEE said, equivalent to 115.6 percent of France’s gross domestic product (GDP).
The debt mountain grew nearly 80 billion euros in the previous three months alone.
France’s debt-to-GDP ratio is now the European Union’s third-highest after Greece and Italy, and is close to twice the 60 percent permitted under EU rules.
Lecornu was appointed by President Emmanuel Macron this month to succeed Francois Bayrou, who was ousted by parliament in a fight over his austerity budget after just nine months on the job.
But two weeks into the job, Lecornu has yet to form a new government and must deliver a budget proposal to parliament by mid-October, with a vote due by the end of the year.
Both tasks are complicated by the power dynamics in the National Assembly, where the Macron-friendly bloc is in a minority.
“I am the weakest prime minister of the Fifth Republic,” Lecornu said at a meeting with union leaders this week, according to participants, referring to France’s current system set up in 1958 under Charles de Gaulle.
Bayrou had proposed a series of measures he said would save 44 billion euros in a bid to curb France’s annual deficit — currently the EU’s highest — and put a dent in the spiralling debt.
Lecornu, who is Macron’s seventh head of government since 2017, has vowed a break from the past in a bid to defuse the political crisis.
But although Thursday’s data underlines the urgency of the situation, Lecornu will need to temper any ambition to slash spending radically, or risk suffering the same fate as Bayrou.
Sensing his fragile position, unions have announced fresh demonstrations for October 2 after hundreds of thousands of people protested across France last week, with anger focused mostly on Macron whom they accuse of wanting austerity for the country while saving the wealthy from making similar sacrifices.
Lecornu has tried to calm anger by promising to abolish life-long privileges for former prime ministers and Bayrou’s plan to scrap two public holidays — but experts agree that both measures are largely cosmetic.
France’s deficits have deepened in recent years because of accelerated spending to alleviate the impact of the Covid crisis and to offset inflationary pressures, according to economists, but also because of unfunded tax cuts.
“This deficit is not only a crisis deficit, it’s also structural,” said Mathieu Plane, deputy analysis and forecasting director at the OFCE, an economics institute.
As Lecornu puts together his budget, reports from his consultations with various political forces have indicated that the right-wing opposition is holding out for 35 billion euros of budgetary savings, while the left will stand for no more than 22 billion.
In a context where “the passing of a budget from one year to the next is already an extraordinary achievement”, the OFCE’s Plane told AFP, Lecornu should really seek to establish a plan “over several years” to stabilise the budget, but “without hurting the economy”.
Beyond divisions in France, Lecornu is also facing growing pressure from international investors who have been demanding an increased risk premium for purchasing French sovereign debt — adding substantially to France’s debt financing bill.
This month, US ratings agency Fitch downgraded France on its ability to pay back debts, from “AA-” to “A+”, warning that France’s debt mountain would keep rising until 2027 unless urgent action was taken.
“We are not currently in a position that would allow us to stabilise the debt,” Francois Ecalle, president at Fipeco, a site specialising in public finances, told AFP.
Ecalle recommended spending cuts as a remedy, but also tax hikes, including for the well-to-do.
“It is necessary, if only for social and political reasons, to tax the rich a bit more,” he said.
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