France's budget has failed in the National Assembly with a 5.1% deficit, debt above 115% of GDP and a Fitch outlook cut. Oilprice.com contributor Alastair Paynter argues the strain could spread to the euro and to EU cohesion more widely.
The French National Assembly unanimously rejected the government's proposed budget on Wednesday evening, writes Paynter, and the vote provoked further fears in the bond market. The rejection lands on top of weak public finances. A couple of weeks ago, it was reported that the budget deficit stood at 5.1%, the worst in nearly a quarter of a century.
Debt and a Fitch outlook cut
According to the article, national debt stands at over 115% of GDP. Last Friday, Fitch downgraded its outlook for France from stable to negative.
Paynter sees few good options if a default looms. In his view, letting a country of France's size default would undermine confidence in the euro. The only way to prevent it, he writes, would be a bailout from the European Central Bank, which would place a burden on Germany and hit German savers hard.
Politics and Germany add pressure
Paynter notes that Germany's economy has also been under pressure for several years, with its industrial sector hit by Green regulations and by geopolitical crises such as the Russia-Ukraine war and the war with Iran.
Politics offers little relief, he argues. It appears increasingly possible that Marine Le Pen might win the presidential election next May, but Paynter questions whether she could fix France's finances. She has promised to cut public spending to below 50% of GDP by 2032. Even modest spending cuts tend to meet fierce protest, he adds, and France has been rocked for several weeks by protests, rioting and looting.
Instability beyond France
The political churn is visible in the fact that five Prime Ministers have served under President Macron since 2022. Paynter also points to a constitutional crisis in Poland, where pro-EU Prime Minister Donald Tusk faces a nationalist opposition rallying around President Karol Nawrocki. He calls it a major stress test for the EU.
Paynter concludes that 2027 could see existing trends accelerate as multiple crises converge.
Source: Oilprice.com
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