France is facing a projected deficit of 6.6% of GDP in 2025, more than double the EU’s 3% limit, due to the lack of a new budget.
The resignation of Prime Minister Barnier’s cabinet has not caused immediate turmoil, but the uncertainty is driving up debt refinancing costs. President Macron will need to appoint a new Prime Minister to form a government, but a new budget before year-end seems unlikely. If no budget is passed by December 20, the 2024 budget could be extended into 2025, leading to a deficit of 6.3-6.6% of GDP.
Despite EU pressure to reduce overspending, political instability makes it difficult to predict fiscal adjustments. Barclays forecasts a deficit of 5.8% for 2025 if a new budget is passed by Q1 2025. France’s legal framework prevents a government shutdown, but a special law may be introduced to maintain tax collection.
The Social Security system may face complications if its financing bill is rejected, but social benefits will continue as contributions are collected. Local governments can operate independently in the absence of a national budget. Even with the current budget, Barclays forecasts no significant deficit reduction in 2025, projecting a 5.8% deficit, above the government’s 5% target.
