There is still no obvious way for France, hamstrung by a parliament torn three ways between left/far-left, center-right/centrist and Marine Le Pen’s RN, to work its way through its current crisis.
Prime Minister François Bayrou still seems set to lose the parliamentary vote of confidence (due on September 8) ahead of his attempt to force through a package of spending cuts and tax increases. The Socialists as well as RN, which have hitherto given tacit support to Bayrou’s minority government, continue to say that they will vote against Bayrou, in which case the current government falls — and it has no obvious successor.
Financial markets are noticing: Ten-year French government bonds now yield about 80 basis points more than their German equivalents, quite a bit above the 50-point average of the past five years, and more or less what naughty old Italy has to pay. The ECB (European Central Bank) is sounding warning notes, as well it might. As Bloomberg’s Lionel Laurent notes:
The French Treasury’s 2025 estimates show a 1% increase in interest rates on medium-to-long-term debt would add about €30 billion in extra interest payments by 2030. That is almost the size of the defense budget at a time when Europeans need a united continent and trillions in investment to secure their geopolitical future.
But what would the Socialists do?
Laurent:
The Socialists’ own “counter-budget,” including a wealth tax and a return to the retirement age of 62 from 64, is an exercise in denial in the face of a deficit that was already likely to stay around 5.5% of gross domestic product next year.
Some 44 percent of the increase in French government debt since 2017 has been spent on pensions.
Interestingly, the RN, a party of the “far right” generally associated with left-wing economic policies (the infamous “horseshoe” is what it is), might be shifting tack in this area, perhaps because it scents power and knows that a market meltdown would spook potential voters. Last week, Jordan Bardella, a 29-year-old political prodigy, who would be the most likely RN prime minister (and, if Marine Le Pen cannot find her way through her legal problems, presidential candidate), spoke to the French employers’ association, Medef.
The Daily Telegraph’s Hans van Leeuwen reported on what happened:
[Bardella] told the corporate bosses that France had “too many standards, too many taxes, too many duties”. There had been no supply-side reforms since 2017, he said, and business tax cuts had quickly been swallowed up by “paper taxes that we increase every few days”.
“The state must look after its own sphere, and France as a whole must relearn to love those who innovate and take risks,” he said.
Bardella’s almost Thatcherite tone reignited speculation that he aspires to reposition the National Rally as more business-friendly, after Le Pen’s party spent years pitching to disgruntled and disenfranchised blue-collar workers.
The trick would be to do that without alienating the RN’s largely blue-collar base, which is more used to hearing proposals for increasing spending from the party. As van Leeuwen notes, at the last parliamentary elections, Marine Le Pen proposed indexing pensions to inflation (at a cost of €27 billion) and cutting VAT on energy bills, which would reduce tax revenues by €11 billion. More recently, Le Pen wrote to Bayrou highlighting various savings that she believed could be made. As in so many cases (outside Javier Milei’s Argentina), claims of being able to find vast “efficiency” savings (in this case, €60 billion) to be extracted from public sector bureaucracy must be treated with some skepticism. There’s room for substantial savings, but would Le Pen have the political will to take on the interests that, in one way or another, appreciate that “inefficiency”? Turning to another area where she sees room for cutbacks, it’s hard to know whether her plan to cut €18 billion out of the €60 billion cost of providing welfare to migrants is realistic, but trying to do so is, to put it mildly, unlikely to displease her base.
Saving €8 billion “wasted” on renewable energy ought to be easy enough, and capping France’s payment to the EU at €20 billion, €3 billion below its spending this year ought to produce a politically productive punch-up. As van Leeuwen notes, Le Pen says that she no longer wants France to quit either the EU or the euro, two policies that, like the left-wing elements in RN’s program, could alienate more economically liberal (in the European sense of that word) voters who might be otherwise more sympathetic to the RN. The party would probably need their support if it is to have a chance of winning in the decisive second round of the presidential election due in 2027. In a similar vein, Le Pen has now qualified her earlier calls for higher taxes on the wealthy and corporate profits with the stipulation that such taxes:
should not be increased “except on the express condition that this tax justice allows for a proportional reduction in taxes for the middle and working classes, encourages the birth rate of French families and revives the real economy.”
That could mean just about anything and the class-based talk of “tax justice” will sound some alarms, but even introducing that qualification, however meaningless, is an interesting shift. As it is, French tax revenues account for 44 percent of GDP, the highest in the OECD. By a weird coincidence, spending by the French state as a percentage of GDP is just above 57 percent, the second-highest in the OECD (just after Finland).
In other news (via Bloomberg):
French power prices for Thursday jumped as industrial action by workers at Electricité de France SA disrupts production at several of the nation’s nuclear plants.
The day-ahead price climbed 66% on the EPEX Spot SE Exchange, while the evening peak hour from 8 p.m. to 9 p.m. on Thursday rose to its highest in more than a week.
The CGT union called the strike in a quest for both higher wages in the energy industry and lower bills for households.
All is well.