Interminable prime minister search fuels EU’s French debt fears

PARIS ― France’s budget hole is getting bigger and bigger and there is no one to plug it.
More than a month and a half since the French cabinet resigned there is still no indication of who will govern the country and take responsibility for the country’s increasingly dire economic situation. A note sent by the finance ministry to lawmakers on Monday and obtained by POLITICO said that the budget deficit — the difference between how much a country spends and receives — could reach 5.6 percent of the country’s GDP instead of the 5.1 previously predicted.
The clock is ticking. Paris has less than three weeks before a European Union deadline to send Brussels its proposals to slash public spending over the coming years. The government has to present next year’s budget to the national parliament by Oct. 1.
But, as one senior European Commission official put it: “A country without a government can hardly submit a plan.”
Surprise elections this summer delivered a fractured legislature, with an alliance of leftist parties winning the most seats but falling short of a majority. President Emmanuel Macron refused to appoint the left’s choice for prime minister, arguing she would not survive a no confidence vote. He has instead led a drawn-out search for a premier who would provide “institutional stability.”
Outgoing Finance Minister Bruno Le Maire has promised to put France public finances back on track following the spending bonanza during the Covid pandemic and an energy crisis caused by Russia’s full-scale invasion of Ukraine.
But the backlash against spending cuts and the ongoing political uncertainty has made it difficult for Le Maire to keep his word — much to the dismay of EU officials.
The Commission official, who was granted anonymity to speak candidly on the matter, pointed out that there is a rift between French treasury officials ― who agree with the EU’s blueprint to curb spending over the coming years ― and the pro-spending left-wing alliance in Paris that won the most seats in this summer’s snap election.
The two sides clearly “are not on the same wavelength,” the official said.
The Commission is watching closely as France is facing a so-called excessive deficit procedure for breaching European Union rules on public spending, which came back into force this year after being on hold since the coronavirus pandemic.
But there are no signs that massive cuts will happen any time soon.
After promising €20 billion worth of cuts, the outgoing government has given up on massive spending reductions for next year. Instead it proposed keeping total spending in 2025 at the same level of 2024: €492 billion. The office of outgoing Prime Minister Gabriel Attal stressed that he didn’t want to preempt the budget policy of France’s future executive. 
Brussels can grant Paris extra time ― seven years instead of four ― to cut its debt if it shows it is implementing pro-growth reforms or spending in strategic sectors. 
The caretaker government, however, must leave to its successor decisions that have a political dimension, such as reform promises to send to Brussels, but it’s still Le Maire’s responsibility for now.
“We are working on it but it will be for the next government to finalize and submit,” a French finance ministry spokesperson said.
To comply with new EU rules, France would need to make cuts of at least €30 billion in 2025, the finance ministry said in this week’s note. 
France repeatedly promised to comply with EU rules, and bring its deficit below 3 percent of GDP by 2027, a goal that would require €110 billion of cuts by 2027. But this week’s note mentioned the possibility that, with less draconian cuts, that goal could be reached in 2029, though that timeline “risks being judged too far by the Commission and the Council as part of the excessive deficit procedure.”
The Commission can slap countries refusing to rein in spending with a fine of up to 0.05 percent of GDP every six months, which could quickly add up to billions of euros in penalties for Paris.
Under the EU rules, Paris has to send its spending and reform plans to Brussels by Sept. 20, though that deadline can be extended until Oct. 15. But the government has to stick to its national deadline and submit a budget to parliament by Oct. 1. Attal’s office promised that it will respect that deadline, rejecting reports that it could try to seek an extension.
In the past, France has managed to avoid sanctions from Brussels despite overspending.
But this time things could be different as the Commission could decide to flex its muscles to make sure that new rules are taken seriously.
Some believe that France’s next government might get away with its massive spending level thanks to the complexity of new rules and to the fact that technocrats at the French treasury are now in command.
As French economist Jérôme Créel put it: “It is easier to comply when it’s done by people who are used to it, technocrats, without interference from politicians.” 
But Maria Demertzis, an economist at the Conference Board Europe, hoped that Brussels will be more inclined to act this time around.
“The credibility of the Commission is at stake here,” she said. “If France, a big country, doesn’t comply with the rules, then it will be the end of these rules.”