Image Source: Pexels

What is the future for the French economy? What does the future hold for a country with four simultaneous deficits - the only one in the entire eurozone? What is the future for a country with a debt of over 3 trillion euros, which finds itself sanctioned by a transnational institution - the European Commission - for its budgetary situation? What is the future, finally, for France, which, in addition to this disastrous situation, also finds itself in a deep political crisis?

The big question is: can we still hope for economic recovery, or is France doomed to decline?

The resignation of the Barnier government interrupted the examination of the Finance Bill for 2025. The new Prime Minister, François Bayrou, now finds himself faced with the task of dealing with the demands of the various parties. In these conditions, two options are emerging: to quickly resume the budgetary texts in early January, or to take more time to rewrite them in depth, with a timetable stretching to February-March. In fact, the spectre of triggering a 49.3 vote looms again (even if the executive is still hoping for a classic vote), as the absence of consensus makes reforms more complex, in a context where every budgetary decision is the subject of lengthy negotiations.

In our hyper-financialized economy, the alarm bells are ringing in the markets, not in Parliament. For several weeks now, French borrowing rates have remained relatively high, and the gap with Germany is widening. Although it has not risen sharply (thanks to the budgetary rigor of European countries), it has exceeded that of Greece, a country marked by a decade of unprecedented crisis. The prevailing political uncertainty, combined with the absence of a budget likely to further worsen the deficit, reinforces the image of a France less and less solvent. By 2025, debt interest payments alone are expected to reach 60 billion euros, more than the budgets allocated to defense or higher education. France is caught in a vicious circle of indebtedness: of the 300 billion euros of debt issues planned for 2025, almost 175 billion will be devoted to repaying past debts, a figure that is almost 20 billion higher than in 2024. Far from investing in the necessary transformations, the country is exhausting itself financing its own inertia. And if the budgetary situation remains so worrying, it is also the lack of long-term vision that gives cause for concern... Households, overcome by uncertainty, prefer to save rather than consume (consumption is expected to pick up only slightly in 2025): at 17.6%, the savings rate remains well above its pre-crisis level. The effects of this are only multiplying: the foreign investments so vaunted by the government are being blocked, even as French stocks are making substantial losses. 

The crisis has also hit strategic sectors. Whether in defense, agriculture, real estate or energy, the country's main sectors are affected. French defense, a pillar of the country's sovereignty (particularly at a time when every man for himself dominates), has seen its appropriations frozen by almost 3.3 billion euros. Agriculture, a historically important sector for the country, has lost over 400 million euros in aid. In the real estate sector, the extension of the zero-rate loan has been abandoned for the time being, depriving many households of access to home ownership. In the energy sector, the post-Arenh reform, essential for structuring the electricity market, has been postponed even though Europe finalized an incomplete reform last July. Finally, another unresolved issue is investment in research and development. France invests only around 2% of its GDP, whereas Germany invests 4% and the European consensus calls for a minimum of 3%. A country that doesn't invest in the future is at best stagnating, at worst going backwards...

Faced with this, change for the sake of change will probably be the Republican motto in the weeks to come. The situation is likely to get worse: while Moody's anticipates a public deficit of 6.3% of GDP in 2024, the rating agency has decided to downgrade France's credit rating, along with seven national banks. At this rate, Brussels could sanction the country to the tune of 1.5 billion euros every six months, given the excessive deficit procedure to which it is subject. Worse still, this instability could reduce French growth to 0.2% by 2025. How can stable public finances be restored without sufficient growth? Growth allows us to generate new revenues and reduce both deficit and debt. Without sufficient growth, and with inflation now below 2%, the situation is becoming unmanageable. At the same time, unemployment is set to rise once again, to 7.6% - as we predicted for most European countries at the start of the year. Only 40,000 new jobs are expected to be created in France in three quarters, while flagship companies such as Michelin, Renault and Auchan have already announced significant redundancy plans. 

This multiple crisis is also taking place in a changed international context. It goes without saying that the multipolarity of the world and the rise of numerous emerging powers do not benefit France, dissolved in the European project. But the recent election of Trump and the rise of protectionism add to these challenges. The United States remains France's fourth-largest trading partner, with exports of 45 billion euros in 2023. The rise in tariffs predicted by the new American president - in the order of 10% to 20% on the Old Continent - will hurt the French economy. Higher prices will lead to fewer purchases by American importers, making French products less attractive. In particular, some sectors are more affected than others, namely beverages (wines and spirits), textiles, fashion and food. Small and medium-sized French companies will be the hardest hit, as they will not be able to relocate their activities as the larger ones do. Conversely, some of the latter will benefit from Trump's policies, which will also be marked by massive investment programs.

At a time when it is lagging far behind in the emerging world, France finds itself unable to meet the challenges it faces. In the current state of uncertainty, the way ahead seems clear, regardless of which Prime Minister is in office. Faced with this situation, either the country makes a 180-degree turn that combines sovereignty and fiscal stability, incorporating a new monetary policy that would enable the country to regain control of it’s destiny, or to remain integrated into current structures - particularly European ones - which will inevitably lead to bogging down and a loss of influence on the international stage. As De Gaulle said, France cannot be France without greatness. The time may come to regain this lost greatness, but for that to happen, great work is needed.

More By This Author: