French President Emmanuel Macron delivers his televised New Year’s address to the nation from the Elysee Palace in Paris on December 31, 2024.
Kiran Ridley | Afp | Getty Images
As France enters the new year, there is little hope that the political and economic uncertainty that has plagued the eurozone’s second-largest economy for months will disappear in 2025.
France plunged into political crisis last summer when early parliamentary elections called by President Emmanuel Macron failed to produce a decisive result, with the far left and far right declaring victory in the election.
Amid an internal struggle over who should rule, Macron installed a centrist, conservative government that proved short-lived, with arguments over France’s 2025 budget sowing the seeds of its downfall – at the hands of the far left and the far right – in a confidence vote in December.
A new minority government is now in place, but it faces the same challenges as before — how to get political rivals in France’s National Assembly to agree to spending and tax plans for 2025 that reduce France’s budget deficit, which is projected to reach 6.1%, and a debt pile of 112% of gross domestic product, with both well above EU rules.
The French political debacle continued to shake financial markets and cause concern among economists: Credit rating agency Moody’s lowered France’s credit rating last monthwarning that “political fragmentation is more likely to prevent meaningful fiscal consolidation” and that the country’s public finances will be “significantly weakened in the coming years”. While most European markets managed to post gains in 2024, French CAC 40obsessed with political turbulence, fell 2.2 percent during the year.
Macron admits a misstep
Although Macron has defied calls to resign and refused to hold early presidential elections, he appeared to admit on Tuesday that his decision to hold snap elections last year has created more problems for France than solutions.
“We are also faced with political instability, this is not specific to France, we also see it among our German friends who have just dissolved their Parliament. But it justifies us,” said Macron in his New Year’s address.
“Tonight I have to admit that it is a breakup [of parliament] he has, so far, brought more divisions to the Assembly than solutions for the French,” he added.
French President Emmanuel Macron in his televised New Year’s address to the nation from the Elysee Palace in Paris on December 31, 2024.
Kiran Ridley | Afp | Getty Images
“If I decided to disband, it was to return your word, to regain clarity and avoid the immobility that threatened. But lucidity and humility demand that we understand that at this moment this decision has produced more instability than cheerfulness and I fully accept responsibility for it.”
The economy is facing a ‘difficult winter’
No one is underestimating the challenge, and new Prime Minister Francois Bayrou said when he took up his new post in December that France faced a “Himalayan” task in tackling deficit and debt problems and healing political divisions.
Economists and analysts agree.
“The French economy faces a tough winter, with economic activity likely to stagnate and a recession not out of the question,” Charlotte de Montpellier, senior economist for France and Switzerland at ING, said in an emailed 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 significantly boost French activity in 2025. Therefore, we still expect GDP growth of 0.6% in 2025 compared to 1, 1% in 2024 – which is a lower figure than the forecasts of most official institutes,” she noted, adding that the risks facing France are currently negative.
Andre Sapir, a senior fellow at the Bruegel economic think tank in Brussels, believes the new government will make slow progress.
“Essentially, the new government has the same task as the previous very short-lived government, to try to fill part of the budget hole… it won’t be very easy, but I think the life of this government could be longer than the previous one,” he told CNBC.Squawk Box Europe.“
“I think the only way to understand what’s going on in France is not through an economic lens. Yes, there are a lot of economic issues to look at, including the budget, but the game being played is about the next presidential election, so everyone is gearing up for an election that should be in 2027, but some parties want it earlier, so they are pushing for an even bigger crisis, while others are trying to buy time,” he said. recorded.
“In a sense, you could say that France is ungovernable, and indeed, that’s why I don’t expect much progress on the budget, in fact the minimum that can be passed [parliament].”
Early elections?
Sapir believes calls for Macron to resign could intensify if Bayrou’s new government is toppled in a new confidence vote.
However, he pointed out that there is a division between a number of political parties over whether early presidential elections would be beneficial to their interests.
For the far left and far right, however, the 2025 election might be preferable, Sapir noted, with Jean-Luc Melenchon, leader of the far-left France Insoumise (La France Insoumise) and far-right National Assembly (Rassemblement Nationale) leader Marine Le Pen assesses his chances in earlier elections.
“Many others do not want either Le Pen or Melanchon [in power]so they’re not going to want an election in 2025, so this is really, I think, a game being played. For Le Pen and Melanchon, 2025 would be an ideal time.”
