France: fiscal credibility remains at stake ahead of presidential vote despite enhanced budget rules

France’s next president will inherit record public debt after decades of budget deficits but also a recently strengthened fiscal framework, though one lacking the more rigorous controls of Germany and Nordic countries.

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“The structural weight of public spending in France (AA/Stable) - the ratio of cyclically adjusted spending relative to potential GDP - has fallen only one year in three since 2000, compared with an average of one year in two in the rest of the EU,” says Thomas Gillet, analyst at Scope Ratings.

“President Emmanuel Macron’s government has strengthened France’s fiscal framework to reverse the years of budget deficits and ever-increasing public debt which have set France apart from more frugal members of EU,” Gillet says. France’s public debt reached 112.9% of GDP in 2021, up from 97.4% in 2019.

The bill introduced a revamped expenditure rule that covers total public expenditure, increases budgetary transparency and accountability and enhances the supervisory powers of parliament and the French fiscal council.

“The reforms, announced with little fanfare amid the pandemic, constitute an important step forward in enhancing the country’s fiscal credibility – but they don’t have the heft of the constraints on excess government spending that we find in the Nordics and Germany,” says Gillet.

France’s fiscal fundamentals versus rating peers
% of GDP

Note: The bubble size and label figures refer to the 2021 public debt-to-GDP ratio.
Source: IMF, Insee, Scope Ratings

France’s public expenditure is among the highest in the world, totalling 56% of GDP in 2019, 9.8pps higher than the EU average. France’s public spending is consistently higher than EU peers by relatively small margins for most components, except economic affairs (+1.7pps) and welfare spending (+5.3pps) which is structurally more generous and protective than in other advanced economies – softening the blow of economic shocks but potentially a source of long-term fiscal pressure.

Matching fiscal commitments made by the government through the enhanced governance framework with structural reforms will be essential to gradually rebuild fiscal buffers. The fiscal effort required to narrow down the deficit below the 3.0% of GDP threshold will be substantial, around EUR 47bn in savings over the next five years according to France’s Cour des comptes.

“Political party campaigns in for the presidential elections this year have largely ignored questions related to more careful public spending and debt reduction,” says Thibault Vasse, analyst at Scope. Many candidates promise extra spending without systemically matching funding for public finances, raising additional concerns for long-term fiscal sustainability, particularly as the growth outlook is weakening.

“France is left counting on structural economic reforms to boost its growth potential to bring down debt-to-GDP, hence the importance of the reform agenda of the incoming president and his or her ability to muster a parliamentary majority to push measures through,” says Vasse. As things stand, Macron is leading in the opinion polls but his margin over nearest contender, far-right candidate Marine le Pen, has narrowed ahead of the first round of the presidential election on 10^th April.

France’s public expenditure versus the EU average
pps of GDP