"Adding Insult to Injury" France Faces EU 'Fiscal Deficit' Warning Ahead of General Election

France, suffering from political uncertainty ahead of an early general election, has now received a warning from the European Union (EU) over excessive fiscal deficits. Both the far-right party and the left-wing coalition, currently polling first and second respectively, have announced plans to expand fiscal spending, raising concerns about increased political risks for the Emmanuel Macron administration.

French President Emmanuel Macron [Photo by Reuters]

On the 19th (local time), the European Commission announced that it would propose to the EU Council the initiation of the 'Excessive Deficit Procedure (EDP)' for seven member states, including France, Belgium, Italy, Hungary, Malta, Poland, and Slovakia.

The EDP is a system that requires member states with reckless fiscal management to revise their budgets according to EU regulations, and imposes sanctions such as fines if they fail to comply. The EU stipulates that public debt and fiscal deficits of each member state should not exceed 60% and 3% of their Gross Domestic Product (GDP), respectively, due to the impact that the fiscal deterioration of one member can have on others.

On the same day, the European Central Bank (ECB) also urged debt reduction, stating that Eurozone countries face "significant fiscal burdens" due to population aging, additional defense spending, and climate change-related expenditures. The ECB recommended that these countries reduce their fiscal deficits by an average of 5 percentage points of GDP. This would require cutting expenditures or securing additional revenues amounting to approximately 720 billion euros.

Among the seven member states on the European Commission’s warning list, France is drawing the most attention due to recent political turmoil. After the ruling party suffered a crushing defeat to the far-right party in the European Parliament elections earlier this month, President Macron immediately dissolved the National Assembly and unexpectedly announced early general elections for June 30 and July 7. Consequently, concerns are growing that either the far-right party or the left-wing coalition will seize parliamentary power instead of Macron’s Renaissance party.

The New York Times (NYT) evaluated, "With less than two weeks remaining before the general election, another problem has been added to the list facing President Macron," and noted that "France’s fragile finances are being highlighted amid political chaos." For President Macron, who had previously called for fiscal normalization, it is expected to be difficult to gain momentum while losing parliamentary power. France’s fiscal deficit stood at 5.5% of GDP last year, the second highest in the Eurozone after Italy. Public debt exceeded a staggering 110%.

Currently, the think tank Bruegel expects the EU executive authorities to instruct France to reduce spending by about 15.7 billion euros this year. However, the key question is whether France, likely to cohabit with either the far-right or the left-wing coalition, will accept the EU’s budget revision demands. The far-right National Rally (RN), which leads in the polls, and the left-wing coalition New Popular Front (NFP), united to block RN’s rise to power, have both pledged to expand fiscal spending in opposition to the Macron administration’s policy direction.

Moreover, they have strongly criticized the EU’s budget guidelines themselves. The NFP has already declared its intention to reject the EU’s budget regulations. Lucino Penchi, a researcher at Bruegel, pointed out, "The pledges of RN and NFP directly confront Brussels’ (EU authorities’) request to reduce spending," warning that "there is a risk of a direct clash between the European Commission and member states, which we wanted to avoid."

Mustafa Raman of Eurasia Group also noted in a report that "a far-right or left-wing coalition government will expand (France’s) fiscal deficit," adding that "neither is helpful for fiscal policy." The NYT analyzed that this will ultimately unsettle even French investors.

This content was produced with the assistance of AI translation services.