France revises up 2024 deficit target, announces more spending cuts

FILE PHOTO: French Minister for Economy, Finance, Industry and Digital Security Bruno Le Maire attends a press conference, as he unveils new measures to address grievances of farmers who have been protesting for weeks to demand fair prices and loosened regulations, at Hotel Matignon in Paris, France, February 1, 2024. REUTERS/Benoit Tessier//File Photo

By Michel Rose

PARIS (Reuters) – France, the euro zone’s second-biggest economy, will overshoot its budget deficit target for a second straight year in 2024 and plans to seek a further 10 billion euros ($10.76 billion) in cuts to reduce the shortfall, the finance ministry said.

The French government is under pressure to spell out how it will avoid a budget crunch that is putting its credit ratings at risk and threatening President Emmanuel Macron’s administration.

Paris has a history of overspending and has not posted a budget surplus since 1974. But more recently, sluggish growth, high interest rates and massive spending to shore up the economy after the pandemic have combined to push its deficit above the EU spending limit of 3% of gross domestic product.

After missing last year’s deficit target by a wide margin, the government on Wednesday revised its projections for the coming years before sending its reduction plan to Brussels.

It now expects the shortfall to hit 5.1% of economic output instead of an original 2024 target of 4.4% of GDP, before gradually shrinking to 4.1% in 2025 and 2.9% in 2027, the last year of Macron’s mandate.

In a briefing to reporters, finance ministry officials said the government would aim to cut an extra 10 billion euros in public spending in 2024, after already announcing 10 billion euros of emergency cuts earlier this year.

Half of that would come from the central government, 2.5 billion euros would come from local authorities and 2.5 billion euros from the profits of energy companies, they said, calling the new targets “ambitious but credible.”

ECONOMIC RECORD

The latest slippage in targets is embarrassing for Macron, who has built his political credibility at home on his record on the economy, often touting his success in bringing down France’s unemployment rate.

It also risks eroding hard-earned credibility with more frugal EU partners such as Germany, who Macron had sought to convince at the start of his first mandate that French profligacy was a thing of the past.

In France, Macron is under pressure from the conservatives on whom he relies on to form a government who want more spending cuts and the opposition, which has condemned more austerity.

Opposition politician Boris Vallaud, head of the Socialist Party, told Reuters the new deficit measures were “irresponsible, unrealistic, unfair and inefficient.”

The government, which lacks a majority, risks losing a no-confidence motion should conservatives carry through on a threat to call one during budget talks in parliament.

Although snap elections would not be automatic should the government fail, Prime Minister Gabriel Attal would have to offer the government’s resignation to Macron, who would need to haggle with conservatives to form a new cabinet.

Several other EU countries, notably Italy, are also running deficit’s above the 3% limit.

The United States and China have also been running large budget deficits over the past years, but have not set themselves limits like members of the single currency have to ensure they don’t put other countries at risk of fall prey to bond vigilantes.

($1 = 0.9298 euros)

(Reporting by Michel Rose, additional reporting by Elizabeth Pineau; editing by Tassilo Hummel, Christina Fincher and Sharon Singleton)