France’s Bayrou Wants Deal That Brings Deficit Down to Almost 5%
(Bloomberg) -- French Prime Minister Francois Bayrou said he aimed to reach an agreement with parliament on a 2025 budget that would reduce the country’s deficit to close to 5%, near the level his predecessor unsuccessfully tried to reach.
Most Read from Bloomberg
Bayrou said any budget agreement would need to be balanced and not only target companies, which he termed a “national treasure.” The premier, who was appointed this month after the collapse of Michel Barnier’s government, added that his goal is to finalize the budget by mid-February.
“I think we need to find something around five, a little more than five, that will enable us to reach an agreement and strike a balance,” Bayrou said in an interview on BFM television. He added that the budget effort shouldn’t unreasonably target companies even if they might need to make “short-term efforts.”
Bayrou’s comments came just hours after his cabinet was named with the principal task of crafting a budget that can repair the country’s finances and find support in a National Assembly that toppled Barnier, whose budget had a 5% deficit target.
France has been in political turmoil since June, when President Emmanuel Macron dissolved the National Assembly and called elections. The ballot returned a lower house split among three feuding blocs: the leftist New Popular Front alliance, Marine Le Pen’s far-right party and centrists that largely support the president. The first two joined together to force out Barnier in early December.
While the deficit target may be similar, Bayrou said that the implications of his government’s budget, particularly regarding businesses, would be different.
“I’m for protecting companies,” Bayrou said. “I’m not saying that we can’t find some some short-term efforts to make, but I think it’s necessary for everyone to know where the national treasure is. The national treasure is companies. They create wealth. They create jobs.”
Eric Lombard, who was tapped to become finance minister in the new government, also cited the importance of balance for any budget agreement.
“We must reduce the deficit without killing growth,” Lombard said at a handover ceremony at the finance ministry late Monday. “It’s this balance we must look for and that’s the meaning of the 2025 budget.”
Still, finding support for the legislation will be difficult in the National Assembly, where Macron’s lawmakers are in the minority and opposition forces have shown little desire for compromise. Because France doesn’t yet have a budget law for 2025, the state will be reliant from January on emergency legislation promulgated on Saturday and decrees that permit only vital spending and unchanged taxation.
France’s political and budget difficulties have sparked selloffs in the country’s debt in recent months, driving up the country’s borrowing costs compared to European peers.
To deliver on any new investment or spending pledges, Bayrou and Lombard must quickly navigate the fractured National Assembly. That proved too much for Barnier when opposition parties balked at €60 billion ($62.4 billion) of tax increases and spending cuts he proposed in a stringent plan to rein in the runaway deficit.
Bayrou on Monday didn’t enter into specifics on the budget other than the overall target. He will lay out his policy agenda in a speech to the National Assembly Jan. 14 after a first meeting of the new cabinet Jan. 3.
Since 2017, Lombard had been chief executive of the Caisse des Depots Group, a two-century-old financial institution that answers to parliament. The institution is designed to serve public interests, combining asset management, financing of social housing and management of the state’s strategic holdings.
Lombard, 66, has spent most of his career in the financial sector, with stints at BNP Paribas and Generali France. In the early 1990s, he briefly served as an adviser to Socialist Finance Minister Michel Sapin, who himself returned to the same post for part of Francois Hollande’s 2012-2017 presidency.
Lombard has argued that France’s fundamental economic challenges stem from too-high real interest rates that favor the wealthy and make it hard to reduce inequality and finance the climate transition.
“We are pleased that income inequality is better managed in France than elsewhere, but wealth inequality is abyssal,” he said at an economics conference in Aix-en-Provence in July.
Bayrou is counting on Lombard’s credentials in helping get the 2025 budget over the line.
“He’s someone who’s had a very long career in business, insurance and banking, and is respected, I think, by everyone,” the premier said on Monday.
Success for Lombard will depend for a large part on Bayrou’s political agility in ensuring some opponents at least agree not to censure the government. The 73-year-old premier, who has cordial relations with both the center-left, the right and even Le Pen’s far-right, has said he aims for “reconciliation.”
So far, Bayrou’s efforts have done little to assure French voters. According to a poll by Ifop for Le Journal du Dimanche, 66% are unhappy with the new premier — the worst performance on record for a prime minister.
What Bloomberg Economics Says...
“The divisions that have paralyzed the budget process remain and a break in the political logjam looks a long way off. All this will probably weigh on an economy that is already losing momentum.”
—Antonio Barroso, Eleonora Mavroeidi and Jamie Rush. For full research, click here
After Bayrou’s nomination, Le Pen and some left-wing parties said they wouldn’t immediately censure the government, so long as there were changes in policy. Initial reactions to the new cabinet from opposition figures, however, point to potential trouble for the French premier.
Shortly after the new cabinet announcement, National Rally President Jordan Bardella tweeted on X that Bayrou had “put together a coalition of failure.”
Senior members of the left were also unimpressed by Bayrou’s cabinet, with Socialist Party leader Olivier Faure saying on X that the new team is a “provocation.” Ecologist party leader Marine Tondelier said the outcome is “imbalanced” with too much influence given to the right.
“The same causes will have the same effects and Bayrou is following the same path as Barnier and it’s unlikely he doesn’t share the same destiny,” she said on BFM TV.
Lombard will have little to give by way of concessions on the budget, given the scale of the challenge — reducing a deficit that has swollen to around 6.1% of economic output this year instead of narrowing to the 4.4% initially targeted.
Bank of France Governor Francois Villeroy de Galhau said on Thursday that to remain credible France must still deliver a significant improvement that brings the deficit closer to 5% next year than 6%.
“We are at risk of gradually sinking little by little as we lose weight in Europe and the world and we lose our margin for maneuver,” he said on France 5 television.
Most Read from Bloomberg Businessweek
Phil Knight Is Using His Nike Fortune to Make Oregon a Football Powerhouse
Two Things Bluesky Needs to Become the Ultimate Sports Companion
‘There Are No Rules’: Inside College Football’s New Pay for Play
©2024 Bloomberg L.P.
