France’s Budget Problems ‘Very Serious,’ Prime Minister Says

The French government, which missed a deadline this week to show how it would cut its debt and deficit, is struggling to meet fiscal requirements set by the E.U.

France’s new prime minister said Wednesday that the country’s finances were in critical condition, as signs mounted that the government faced an uphill battle to control a ballooning debt and deficit that have become among the highest in Europe.

“I am discovering that the country’s budgetary situation is very serious,” said Michel Barnier, who was appointed by President Emmanuel Macron this month after a summer in which France hobbled along effectively without a government. Mr. Barnier told the Agence France-Presse news agency that the budget hole required immediate and responsible action.

The warning came as the head of the Court of Auditors, the supreme body for auditing government spending, told Parliament on Wednesday that the country would miss a target to lower its deficit this year, and would have to find ways to come up with an eye-popping 110 billion euros in savings in the next several years to comply with E.U. budgetary rules.

The governor of the French central bank, Francois Villeroy de Galhau, added that the country would need to plug three-quarters of the deficit with spending cuts and the rest with new tax increases — something that Mr. Macron had promised not to do.

“We have too much debt, too much deficit,” Mr. Villeroy de Galhau said in an interview on French television Wednesday.

France’s debt load has ballooned to €3 trillion, or more than 110 percent of gross domestic product, the highest in Europe after Greece’s and Italy’s. The deficit stands at €154 billion, representing 5.5 percent of economic output, the worst performance after Italy’s, and well above the bloc’s 3 percent limit. Around €80 billion a year goes toward paying interest on the debt.

In Germany, the eurozone’s fiscal stalwart and largest economy, the deficit is 2.5 percent of national output and debt is at 63.6 percent. France, which has the zone’s second largest economy, received a rare reprimand from Brussels in June for failing to get its financial house in order.

France, with one of the cornerstone economies of Europe, has become a weak link as a deteriorating financial situation stokes concern in European capitals and at international ratings agencies.

The problem risked inflaming an already tense political landscape after Mr. Macron tapped Mr. Barnier, a center-right politician, in hopes of breaking the political deadlock. Parliament is splintered among far-right, far-left and centrist coalitions after Mr. Macron held snap elections this summer, a gamble to try to stem the rise of the far-right National Rally party.

Mr. Macron now finds his policies potentially subject to vetoes by the National Rally, which wound up gaining many more seats than expected in Parliament. Mr. Barnier has distanced himself from Mr. Macron, but he faces hurdles in cutting France’s budget without throwing Parliament into a tailspin — or causing a social upheaval that might lead to protests in the streets.

Already, Mr. Barnier was forced to delay sending E.U. officials a budget reduction blueprint this week, as opposition parties squabbled over competing proposals to slash government spending — and loud calls for new taxes on the rich and on corporations. France’s police union on Wednesday threatened demonstrations if its budget was cut. And Jordan Bardella, the president of National Rally, hinted the party would block any budget that did not find savings by cutting spending on immigrants.

It has not helped that the Court of Auditors, which also monitors the budget of the president, admonished Mr. Macron’s government in July for lavish spending on official receptions and a globe-trotting travel schedule.

The court pointed to an extravagant €475,000 black-tie dinner for King Charles III of Britain at the Palace of Versailles in 2023, featuring blue lobster and rare French wines, as well as a €412,000 state dinner for Prime Minister Narendra Modi of India at the Louvre Museum.

The budget crunch is a legacy of heavy spending by Mr. Macron to support the economy during pandemic lockdowns and to shield households from a cost-of-living crisis linked to soaring energy prices. After Russia invaded Ukraine, he substantially increased military spending to deal with the threat.

All that spending seemed manageable when interest rates were low, but when the European Central Bank significantly increased rates to battle inflation, France’s ability to repay debt deteriorated sharply. In May, the Standard & Poor’s ratings agency cut France’s sovereign debt rating, and Moody’s warned that it would do the same if political gridlock prevented the government from passing a belt-tightening budget.

But the lack of a majority in the National Assembly complicates that task. In the worst case, France could find itself without a 2025 budget, and on paper at least, would no be longer able to pay its civil servants.

To avoid being sanctioned by Brussels, France must steadily lower its deficit to 3 percent by 2027.

But French finance officials warned Wednesday that slashing spending by more than €100 billion in the next several years would hurt growth. They urged Mr. Barnier to try to buy more of a grace period from Brussels to reach those targets by 2029 instead.

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