Failed government: Paris in economic trouble
Published: Thursday, Dec 5th 2024, 06:10
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The political crisis in France could hardly have come at a more inopportune moment. The fall of the center-right government of Prime Minister Michel Barnier by the left-wing alliance and the right-wing nationalists of Marine Le Pen in parliament on Wednesday evening is leading the heavily indebted country into a crisis. This evening, President Emmanuel Macron wants to comment on the political crisis - this should shed light on what happens next.
An austerity budget for the coming year, which was called for by Brussels and was the reason for the vote of no confidence in the minority government, should have been passed long ago. This is urgent, also in order to secure the confidence of the economy, which is currently hesitant to invest in France, and the financial markets. The political deadlock that has persisted since the summer has caused uncertainty.
France and Germany weaken at the same time
Furthermore, in view of the war in Ukraine, the uncertainty ahead of the inauguration of future US President Donald Trump and the tensions in global trade, a strong France is actually needed on the international stage that is not paralyzed by domestic problems and budget issues. The driving force in the EU is also failing with the simultaneous weakening of France and Germany, where a new Bundestag will be elected earlier than planned in February.
"If the motion of censure goes through, everything will be more difficult and everything will get worse," warned Prime Minister Barnier before the vote, to no avail. The political instability would mean higher risk premiums on loans and billions more for the country and France would have to pay even higher interest rates on its debt than Greece. With a public debt level of over 110 percent of its economic output, France is already one of the worst performers in the EU, with only Italy and Greece worse off.
OECD emphasizes importance of budget agreement
In its global economic outlook presented on the day of the vote of no confidence, the Organization for Economic Cooperation and Development (OECD) emphasized the importance of a quick budget agreement in Paris. If the political uncertainty subsides, the markets will calm down and the pressure on finances will ease. However, if the budget is not passed, the expected economic growth will be jeopardized and tax revenues will decrease. This in turn would jeopardize the government's ability to reduce the budget deficit.
The fall of the government and the failure of the austerity budget mean further months of political and economic uncertainty for German companies in France, said Patrick Brandmaier, Managing Director of the Franco-German Chamber of Industry and Commerce, to the dpa news agency in Paris. The difficult situation with increasing national debt and worsening economic expectations are exacerbating this development.
Chamber of Commerce fears for France as a business location
"After more than five years of pro-business and reform-oriented policies, stagnation and uncertainty are now looming for companies," said Brandmaier. "Although this has no immediate major impact on German companies in France, it does not contribute to the attractiveness and competitiveness of France as a business location."
"France is in a serious crisis. The vote of no confidence in Prime Minister Barnier increases the country's instability," said Sandra Weeser, FDP member of the Bundestag and board member of the Franco-German Parliamentary Assembly. "Weakened confidence on the financial markets will place an additional burden on French taxpayers through rising financing costs."
The FDP politician said that, as in Germany, the aim in France must be to get the economy moving again through real reforms. "Franco-German cooperation is also weakened at the moment, but we need it more urgently than ever to guarantee European competitiveness and security."
Will a new prime minister be appointed quickly?
All the warning signs suggest that a new prime minister and cabinet will be appointed in Paris as soon as possible. Barnier was expected to hand in his resignation in the morning. President Emmanuel Macron could possibly ask him to remain in office with his government on a temporary caretaker basis. According to media reports, however, Macron wants to appoint a new prime minister very quickly. The president plans to address the nation in a speech in the evening - will he possibly present a new head of government by then?
Meanwhile, populist forces on the left and right in the Paris National Assembly are targeting Macron following the fall of the government. They say he should resign or at least consider an earlier date for the presidential election. However, Macron had previously always emphasized that he would remain in office until the end of his regular term in 2027.
©Keystone/SDA
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