France's Deficit Has Been Reduced

The national debt also went down, however modestly. Notwithstanding these encouraging numbers, France continues to rank high among EU member states when it comes to debt.

 

Finance Minister Bruno Le Maire praised the French economy for reducing the budget deficit to 4.7% in 2022, noting that the country had performed better than projected in the years after the coronavirus crisis. The goal was earlier set by the government at 5% of GDP.

The French government's debt has also improved thanks to the revival of the country's economy. To that purpose, France's finance minister has pledged to reduce government expenditure by billions. Now, government expenditure accounts for 57% of GDP.

The government has spent heavily over the last several years in an attempt to shore up an economy that has been damaged by declining business during the Covid-19 outbreak and soaring prices prompted by the current conflict in Ukraine, making this task look daunting.

To protect the French people from growing expenses of daily living, the government has implemented many stimulus initiatives since last year, including energy bill subsidies, price controls, and early changes in the value of social benefits, in addition to expenditure on vaccination campaigns and other sanitary precautions during the outbreak. In order to shield energy-intensive businesses from rising production costs, the government has authorised subsidies in addition to tax cuts, state guaranteed loans, and financing for jobless compensation under President Emmanuel Macron's "whatever it takes" motto for 2020.

Inflation in France has been held below the Bank of France's projection of 5.4% for the year, but as a consequence, the country's public debt has increased to €2.95 trillion last year. When compared to the European Union's fiscal guidelines from the 1997 Stability and Growth Pact, which state that a country's debt should not exceed 60% of GDP, the number for public debt may seem frightening at first. Meanwhile, the same criteria recommend keeping the budget deficit below 3% of GDP.

France is not the only member in the euro zone to have gone above the EU's spending restrictions.

Greece's government debt to GDP ratio was 178.2%, making it the highest in the European Union. Following Greece in terms of debt to GDP is Italy, which stands at 147.3%. The next positions go to Portugal at 120.1%, accompanied by Spain at 115.6%. In contrast, France's closest EU neighbour, Germany, has a debt to GDP ratio that is just 66.4%, exceeding standards by a very little margin.

French banking institutions continue to worry about the high debt ratio notwithstanding the EU's temporary suspension of budgetary restrictions until 2024.

On March 16, the European Central Bank (EBC) raised interest rates by 50 basis points, bringing them to 3.5 percent. This was the sixth consecutive rise in rates since July 2022. Interest on France's public debt is expected to cost the country billions due to the fact that 10% of France's public debt is linked to inflation.

On the other hand, the European Central Bank (ECB), which has stepped in on many occasions to support out borrowing nations like Greece and Italy, may be hesitant to do so again for fear of increasing the financial load on other EU nations.

 

Source: france24.com