French President Emmanuel Macron delivers his televised New Year's address to the nation from the Elysee Palace in Paris on December 31, 2024.
Kieran Ridley | AFP | Getty Images
As France enters the new year, there is little hope that the political and economic uncertainty that has plagued the euro zone's second-largest economy for months will disappear in 2025.
France was plunged into a political crisis last summer when early parliamentary elections, called for by President Emmanuel Macron, failed to achieve a decisive result, as the far-left and far-right parties declared victory in the elections.
Amid infighting over who should rule, Macron installed a conservative centrist government that proved short-lived, as disagreements over France's 2025 budget sowed the seeds of its downfall — at the hands of the far left and far right — in a vote of confidence. In December.
A new minority government has now been formed, but it faces the same challenges as before – how to convince political rivals in the French National Assembly to approve 2025 spending and tax plans that reduce France's budget deficit, which is expected to reach 6.1% in 2024. , and a debt pile of 112% of GDP, both well above EU rules.
The political debacle in France continues to shake financial markets and raise concerns among economists: The credit rating agency Moody's lowered France's credit rating last monthHe warned that political division “is likely to hinder meaningful fiscal consolidation” and that the country's public finances “will weaken significantly over the coming years.” While most European markets were able to make gains in 2024, French markets were able to make gains CAC 40In light of the political turmoil, It fell 2.2% over the year.
Macron admits his mistake
Although Macron has defied calls for his resignation and refused to hold early presidential elections, he appeared to acknowledge on Tuesday that his decision to hold early elections last year created more problems for France than solutions.
“We are also facing political instability, and it is not just limited to France, but we are also seeing it among our German friends who have just dissolved their parliament. But it legitimately worries us,” Macron said in his New Year's address.
He added, “I must admit tonight that the dissolution of (Parliament) has currently brought more divisions to the Assembly than solutions to the French.”
French President Emmanuel Macron delivers a televised New Year's address to the nation from the Elysee Palace in Paris on December 31, 2024.
Kieran Ridley | AFP | Getty Images
“If I decide to dissolve it, it means giving the floor back to you, to restore clarity and avoid the stalemate that threatens. But clarity and humility require us to recognize that, at this time, this decision has led to more instability than calm and I take full responsibility for that.”
The economy faces a “difficult winter”
This challenge is not one to underestimate, and new Prime Minister François Bayrou, when he took office in December, said that France faces a “Himalayan” mission when it comes to fixing deficit and debt problems and addressing political division.
Economists and analysts agree.
“The French economy is facing a difficult winter, with the possibility of economic activity stagnating and recession not unlikely,” Charlotte de Montpellier, chief economist for France and Switzerland at ING, said in an email analysis last month.
“While we can hope for a slight recovery when – and if – the political situation becomes clearer, this will not be enough to give a significant boost to French activity in 2025. We therefore still expect GDP to grow by 0.6% in 2025, “Compared to 1.1% in 2024 – a figure lower than most official institutes’ expectations,” she said, adding that the risks facing France are now receding.
Andre Sapir, a senior fellow at the Brussels-based Bruegel Center for Economic Research, believes the new government will make slow progress.
He added, “Basically, the new government has the same mission as the previous government, which did not last long, which is to try to fill part of the budget gap… It will not be very simple, but I think the life of this government may be difficult.” “Longer than before,” he told CNBC.Squawk Europe Fund.“
“I think the only way to understand what is happening in France is not to use an economic lens. Yes, there are a lot of economic issues to take care of, including the budget, but the game that is being played is the next presidential election,” he noted. “So everyone is preparing for the elections in 2027, but some parties want it early, so they are pushing for more crisis, and others are trying to buy time.”
He added, “In a sense, you can say that France is not governable, and for this reason I do not expect much progress on the budget, but in fact the minimum that can be approved by (Parliament).”
Early elections?
Sapir believes that if Bayrou's new government is brought down in a new vote of confidence, calls for Macron's resignation may grow.
However, he noted that there is a division among a group of political parties over whether holding early presidential elections would be beneficial to their respective interests.
However, Sapir noted that for the far-left and far-right, it might be better to hold elections in 2025, with both Jean-Luc Mélenchon, leader of the far-left France Insoumise party, and the far-right National Rally party (Rassemblement). National) Marine Le Pen imagines her chances in a previous vote.
“Many others don't want Le Pen or Mélenchon (in power), so they won't want elections in 2025, so I think that's the game that's really being played. For Le Pen and Mélenchon, 2025 would be the ideal time.”
