Can France cut spending without stoking recession?

France’s newly appointed prime minister, Michel Barnier, is facing the mammoth task of getting the 2025 budget through a parliament where he doesn’t have a majority. And pressure is mounting, as this year’s budget deficit will now exceed 6% of the country’s economic output — as opposed to the initially predicted 4.4%.
The topic was at the center of Barnier’s general policy speech in the National Assembly on October 1. “A sword of Damocles is hanging over us. It could push us to the brink of the abyss,” he told lawmakers.
President Emmanuel Macron recently appointed Barnier after months of hesitation following early July’s snap parliamentary elections. The prime minister thus missed the traditional deadline of October 1 to present his budget plans in parliament, and will now disclose them on October 10.
France’s public debt currently totals roughly €3.2 trillion ($3.53 trillion), about 110% of French GDP, compared to €2.2 trillion at the start of Macron’s first term in office in 2017. He was reelected for another five years in 2022.
Michel Ruimy, professor of economics at Paris-based Sciences Po university, puts the rise down to two main factors. “The government spent a lot of money helping households and companies during the COVID-19 pandemic that started in 2020,” he told DW. “Paris also heavily subsidized electricity prices, after they skyrocketed following Russia’s invasion of Ukraine in February 2022.”
Henri Sterdyniak, co-founder of a left-leaning collective called Devastated Economists, also blames other measures taken by Macron for the gaping hole in France’s public coffers. “He lowered taxes for households and especially companies by €60 billion, saying that these cuts would be financed through higher growth. But the latter never materialized,” Sterdyniak told DW.
The prime minister plans to lower the budget deficit to 5% next year and 3% in 2029. Two-thirds of the savings will stem from lower public expenditure and one-third from higher taxes. Taxes could go up for the rich, companies with exceptional profits and on capital gains.
The government also aims to close a number of tax loopholes — such as for certain rental revenues.
Ruimy thinks the government is right to largely bank on bringing down expenditure. “It’s more secure to cut spending, for example by abolishing subsidies for apprenticeships, as announced by Barnier,” he said, adding that “you never know if rich people, who are generally more mobile, will just move abroad if you increase their taxes further.”
But Anne-Sophie Alsif, chief economist at Paris-based consultancy BDO, disagrees. “Private consumption is the driver of our economy’s growth — 60% of public expenditure goes to households that spend that money,” she said. “Cutting public spending drastically could trigger a recession, which would lower tax revenue and increase our debt further.”
And yet, the government should spend its money differently, Alsif thinks. “They need to channel a higher share of it into productive investments, following the examples of the US and China, which would stimulate economic growth,” she said.
Eric Heyer, economist at left-leaning Paris-based think tank OFCE, said the private sector will not necessarily fill the gap left by the government. “The number of apprentices rose from 350,000 to 1 million per year after Paris started subsidizing apprenticeships,” he said. “But companies are telling us they will not take on as many apprentices if the subsidies are abolished.”
The new budget will have to pass through parliament, where Barnier’s government lacks a majority. His team includes members of his conservative Republican party and Macron’s centrist alliance, Ensemble.
Barnier is thus expected to trigger a special constitutional vehicle — paragraph 49.3. Only a no-confidence vote could then stop the budget from going through.
The left-wing alliance, New Popular Front, which includes far-left France Unbowed, the Socialists, the Greens and the Communists, has already announced it would launch such a procedure.
And so Ruimy has little confidence there will be an ambitious budget. “Whatever is put on the table will be rejected by at least one political camp,” he said. “A solid budget would only be possible if parliamentarians were able to forget about their own egos and think of our country’s future, but that’s highly unlikely.”
Jeromin Zettelmeyer, head of Brussels-based think tank Bruegel and who used to work at the International Monetary Fund, is more optimistic. “A no-confidence vote can only get through with the support of far-right Rassemblement National [National Rally (RN)] and that looks unlikely right now,” he told DW.
Rassemblement National has indeed said it wouldn’t vote down the government — at least for now. “I am confident Barnier will send a solid deficit reduction plan to Brussels, as he knows investors are watching France and he doesn’t have an interest in a confrontation with the EU Commission,” said Zettelmeyer.
Under the EU’s excessive deficit procedure, countries need to present a four- or seven-year plan to bring their public deficit down to 3%.
One possible indication of how nervous markets are is that the country recently, and for the first time since 2008, had to pay higher interest rates than Spain on 10-year bonds.
But Heyer said it’s actually good news that France’s borrowing costs are almost at a par with Spain. “Spain is Europe’s model student right now — with a relatively low budget deficit and less public debt,” he said.

He did admit, though, that things could look better. “No one understands why our budget deficit is suddenly a lot higher than anticipated, whereas the prognosis was based on correct growth and inflation figures,” he said, adding that it is difficult to see “what the compromise for a budget could be, given that each political camp has its own red lines which considerably reduce Barnier’s leeway.” Heyer didn’t rule out the possibility that the government could fall in the near future.
That’s certainly what many demonstrators marching against budgets cuts across France on October 1 were hoping for. It was supposed to be the first of many days of protest.
Edited by: Ashutosh Pandey