European Central: France’s Finances Are Between A Rock And A Hard Place
It is an issue that has plagued governments across Europe: how to balance the budget as the world transitions out of the post-COVID era. After the massive spending sprees the pandemic demanded, the bill is coming due for many nations.
France’s budget crisis is becoming a focal point after Prime Minister François Bayrou introduced a new 2026 budget that has sparked uproar across the country. France’s deficit crisis is no secret, with debt reaching a total of €3.346 trillion in March and the nation’s deficit coming in at €169.6 billion in 2024, which exceeded 5.8% of its GDP in 2024.
But the issue has been long-standing, and a revolving door of unsuccessful prime ministers has failed to properly address it. Bayrou’s plan is bold, and if enacted as pitched, it could stave off disaster for the time being. But Bayrou has only barely survived a number of no-confidence votes, and the far-right is more than willing to use this crisis to collapse the government and try for power. At the same time, calls to repeal widely unpopular budget-cutting moves are ringing louder than ever, and the clock is ticking for France to steady the ship.
France’s Fiscal Woes
The issue of France’s finances is not a new one. Putting aside the stresses brought about by the pandemic, one of the main sources of financial stress has been France’s popular and generous pension system. With a retirement age that used to be 62 years old, it was the lowest among major European economies. It also meant the system was extremely costly, even with those in work making high contributions compared to the OECD average.
It wasn’t until 2023 when President Emmanuel Macron managed to force through changes raising the age to 64, something that sparked extremely wide protests. While these changes are predicted to help keep the pension system solvent until 2030, the pension deficit is expected to grow to 30 billion euros by 2045 as the number of pensioners increases, according to the French audit office.
Another primary financial strain has been the demands of NATO rearmament, something that has become an increasingly high priority for European nations since Russia’s invasion of Ukraine. France has vowed to double its military spending by 2027, something that will also require massive cuts to other fields. Finally, United States President Donald Trump’s tariffs and France’s political instability also threaten to further strain France’s economy, even after recent negotiations cut the threatened tariff rate in half.
All of this led to France’s public debt exploding to over 6% of GDP last year, double the EU’s limit, which then caused the bloc to take action against France for its budgetary mismanagement and has raised the prospect of further credit ratings downgrades and higher interest payment costs.
French government’s Budget Deficit
Desperate Times, Desperate measures.
But France’s political instability has perhaps played the biggest factor in nipping any attempts at deficit control in the bud. There have been three prime ministers since the beginning of 2024, with Prime Minister Michel Barnier’s government only lasting 99 days after a no-confidence vote in December. Bayrou himself has faced eight no-confidence motions this year already.
The reasons for this instability are complicated, but it essentially boils down to Emmanuel Macron’s 21% approval rating, combined with a three-way parliamentary deadlock that has left Macron’s centrist minority party, Renaissance, at the whims of both the left and far-right blocs. In the last no-confidence vote, the far right National Rally party essentially allowed Bayrou to survive, but made it clear that it could topple Bayrou during budget talks later this year.
These budget talks revolve around Bayrou's newest budget proposal that has sent waves throughout French society. Seeking a €43.8 billion deficit reduction in 2026 some of the proposals include cutting two bank holidays, job cuts, a freeze on state and local spending, freezing social benefits and income tax brackets at current levels, reforming unemployment insurance and pension schemes, a higher tax on wealthy individuals, and investments across France to stimulate growth.
While these proposals have the potential to bring the deficit to below the 3% threshold set by the EU by 2029, they are widely unpopular from both the left and the right, with the holiday cuts being especially controversial. The only way that Bayrou has a chance of getting the budget through is with the support of either the far-right National Party, or the center-left coalition, both of whom have either previously initiated or hinted at initiating no-confidence motions.
Walking A Tightrope
The previous prime minister tried to court the far-right on immigration, but to no avail, as both blocs backed his removal. Bayrou is now looking in the other direction. He’s already relied on the center-left in the past to survive no-confidence votes, and his finance minister's talk of raising taxes on wealthy individuals and corporations has gotten the left to the negotiating table.
Already, Bayrou has said that trade unions and industry representatives have managed to find compromises on tweaking the controversial 2023 pension age reform that many are calling to be repealed. Although the left has since tried, and failed, to get a no-confidence vote passed, and multiple unions have expressed outrage at Bayrou’s proposed unemployment insurance reform, it still seems that Bayrou is prioritizing talks with them over the right wing of French politics.
Bayrou’s position still remains precarious as ever. With the left pushing against welfare cuts, and the far-right waiting in the wings to bring down Bayrou, he will need to tread carefully. Bayrou already enjoys an abysmal level of faith from the public, with only 12% saying they trust him.
Any budget reform too extreme or too ineffective risks both his removal and widespread protests akin to the 2018 Yellow Vests protests over economic decline. With how touchy a policy pension reform has proven to be in France, finding a middle ground between frugality and supporting the public will likely require an exceptionally deft touch.
In terms of how this budget saga plays out, the odds are stacked against Bayrou. The pensions are already a tricky balancing act, but taxes on high income corporations have also spurred push-back from airlines like Ryanair, while the very presence of political instability has made foreign investors pass over France for its neighbors.
While there is some good news in the form of a bump in economic activity from military spending and lower interest rates from the ECB this year, the underlying economic issues still remain. If Bayrou wants to lift France’s flagging deficits, keep his position as Prime Minister, and prevent widespread protests over his new budget, he will have to play all sides in the French Parliament.
If he succeeds, he could pave the way for other European nations with increasing deficits to follow suit with welfare cuts, as the EU’s aggregate budget deficit and gross public debt are both expected to grow through this decade. But if Bayrou fails, France runs the risk of finding itself in a feedback loop based around political instability delaying economic reform, which then collapses the government. For Macron, Bayrou, and France as a whole, the coming fall budget negotiations will be a pivotal moment.
