On December 31, 2024, French President Macron delivered a televised New Year’s address to the nation at the Elysée Palace in Paris.
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, with President Emmanuel Macron calling for early parliamentary elections that failed to produce decisive results, with both far-left and far-right parties claiming victory in the polls.
Amid internal strife over who should govern, Macron installed a centrist, conservative government that proved short-lived, with disputes over France’s 2025 budget sowing the seeds of France’s downfall in a confidence vote – in December in the hands of the far left and far right.
A new minority government is now in place, but it faces the same challenge as before – getting political opponents in France’s National Assembly to agree to a 2025 spending and tax plan to reduce France’s budget deficit, expected to hit $6.1 in 2024 %, with total debt accounting for 112% of gross domestic product (GDP), both well above EU regulations.
France’s political collapse continues to roil financial markets and raise concerns among economists: Credit ratings agency Moody’s last month downgraded France’s credit rating, warning that political divisions were “more likely to hinder meaningful fiscal consolidation” and that the The country’s public finances will “drop significantly.” While most European markets will grow in 2024, the French market CAC 40Troubled by political unrest, it fell 2.2% for the year.
Macron admits mistake
While Macron has ignored calls for him to resign and refused to call snap presidential elections, he appeared to acknowledge on Tuesday that his decision to hold early votes last year had created more problems than solutions for France.
Macron said in his New Year’s address: “We are also facing political instability, which is not limited to France. We also see this among our German friends who have just dissolved their parliament. But it does worry us.”
He added: “I must admit tonight that the dissolution (of parliament) currently creates more divisions in Parliament than the French solution.”
On December 31, 2024, French President Macron delivered a televised New Year’s address to the nation at the Elysée Palace in Paris.
Kieran Ridley | AFP | Getty Images
“If I decide to disband, it will be to allow you to regain your voice, to regain clarity, and to avoid the rigidity that threatens you. But sobriety and humility require that we recognize, at this time, the instability that this decision brings More than calm, I fully understand being responsible for this.
The economy will face a “difficult winter”
No one underestimates the challenge, with new Prime Minister François Bayrou saying when he took up his new post in December that France faced a “Himalayan” task in resolving deficit and debt problems and bridging political divisions.
Economists and analysts agree.
Charlotte de Montpellier, senior economist for France and Switzerland at ING, said in an email analysis last month that “the French economy is facing a difficult winter and economic activity is likely to decline. Stagnation and recession are not out of the question.
“While we can hope for a modest economic recovery when the political situation becomes clearer, this will not be enough to significantly boost economic activity in France in 2025. Therefore, we still expect GDP to grow by 0.6% in 2025, compared with It will be 1.1% in 2024, which is lower than the forecasts of most official agencies.
André Sapir, a senior fellow at the Brussels economic think tank Bruegel, believes that the new government will make slow progress.
“Essentially, the new administration has the same mission as the previous, very short-lived administration, trying to fill some of the budget holes… It’s not going to be simple, but I think this administration is probably going to be very long-lived.” Longer than the last one. ,” he told CNBC’s “Squawk Box Europe.
“I think the only way to understand what’s going on in France is not really to use an economic lens. Yes, there are a lot of economic issues to focus on, including the budget, but the game being played is the next presidential election, so everyone is preparing for 2027 Preparations are being made for elections in 2020, but some parties want them to be held earlier so they are pushing for more crises, while others are trying to buy time.
“In a sense you could say that France is ungovernable and, in fact, that’s why I don’t expect much progress on the budget, in fact the bare minimum to be able to get it through (parliament).”
Early election?
Sapir believes that if the new Beru government is overthrown in a new confidence vote, calls for Macron to resign may intensify.
However, he pointed out that there were differences among political parties on whether holding an early presidential election would serve their respective interests.
However, Sapir noted that holding elections in 2025 might be a better option for both the far left and the far right, as Jean-Luc Mélenchon, leader of the far-left La France Insoumise party Melenchon and Marine Le Pen, the figurehead of the far-right National Rassemblement (Rassemblement) state opera, are bullish on their chances in early voting.
“A lot of other people don’t want Le Pen or Melanchon (to be in power), so they don’t want to hold elections in 2025, so I think that’s really the game that’s being played. For Le Pen and Melanchon, 2025 would be ideal. time.
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