France’s Economic Uncertainty Persists into 2025
As France enters the new year, the country’s political and economic uncertainty shows no signs of dissipating. The euro zone’s second-largest economy has been plagued by instability since last summer, when snap parliamentary elections failed to produce a decisive result.
A Political Crisis Unfolds
The elections, called by President Emmanuel Macron, led to infighting over who should govern, resulting in a short-lived centrist, conservative government. The government’s downfall came in December, when it lost a confidence vote due to disagreements over France’s 2025 budget. A new minority government is now in place, but it faces the same challenges as before: getting political rivals to agree on spending and taxation plans to reduce France’s budget deficit and debt pile.
Economic Concerns Mount
France’s political debacle has rattled financial markets and raised concerns among economists. Credit ratings agency Moody’s downgraded France’s credit rating last month, citing political fragmentation as a major concern. The country’s public finances are expected to be “substantially weakened” over the coming years. The CAC 40, France’s main stock index, fell 2.2% in 2024, while most European markets managed to eke out gains.
Macron Admits Mistakes
In his New Year address, Macron acknowledged that his decision to hold a snap vote last year had created more problems than solutions for France. “I must admit tonight that the dissolution [of parliament] has brought, for the moment, more divisions to the Assembly than solutions for the French,” he said.
Challenges Ahead
The new Prime Minister, Francois Bayrou, faces a daunting task in fixing France’s deficit and debt problems, as well as healing political divisions. Economists predict a difficult winter for the French economy, with economic activity likely to stagnate and a recession not out of the question.
Slow Progress Expected
Andre Sapir, senior fellow at the Brussels-based economics think tank Bruegel, believes the new government will make slow progress in addressing France’s economic challenges. “Essentially, the new government has the same task as the previous very short-lived government, to try to fill part of the budgetary hole… this is not going to be very simple,” he said.
Presidential Election Looms
Sapir notes that the game being played in France is not about economics, but about the next presidential election. “Everybody is gearing themselves for the election. It’s meant to be in 2027, but some parties want it earlier, so they are pushing for more of a crisis, and others are trying to gain time,” he said. If the new Bayrou government were brought down in a new confidence vote, calls for Macron to resign could intensify.
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