Trade unions in France perceive themselves as the voice of the workers against the political elites and the wealthy. Last week, the unions and their supporters took to the streets to inject themselves directly into the political fight over a 2026 budget.
Perhaps 800,000 people participated in anti-austerity demonstrations with the purpose of persuading President Emmanuel Macron and his new Prime Minister Sebastien Lecornu, the third prime minister in under a year, to scrap looming budget cuts. The unions and the left want a larger social welfare system, and they want the wealthy and businesses to pay for it.
Teachers, train drivers, pharmacists, and hospital staff were among those who went on strike as part of the day of protests, while French youths blocked roads across the country. Because France is divided politically and the major political parties often refuse to compromise, many French voters see nationwide strikes, including damage to property, as acceptable behavior to achieve political goals. French citizens see economics as a zero-sum game. The left believes that if the affluent win, the other workers lose.
Lecornu continues to try to produce a budget for next year that the French parliament will pass. But the odds that he will deliver an acceptable compromise are low. After all, Lecornu is a member of Macron’s inner circle, and Macron has clearly signaled that major tax increases are off the table. His term expires in May 2027.
The budget deficit in France exceeds 5% of GDP, almost double the European Union’s 3% limit for government deficits. France’s gross deficit is around 115% of GDP. In the EU, the upper limit for fiscal deficits is 60% of GDP. France is flouting the fiscal rules. To fix this malaise, Macron and Lecornu want to reduce spending, which currently runs around 57% of GDP. But trade unions and protesters want more government spending on public services, which would be paid for by higher taxes on the wealthy, including a 2% wealth tax on the most affluent of French society.
This tax-and-spend agenda is highly fanciful. Indeed, it is what got France into this predicament in the first place. Mainstream economists deride wealth taxes as unworkable and harmful for long-term economic growth. The question is whether Lecornu and Macron will break. Both men are feeling extreme political pressure, with approval ratings in the teens.
The two political leaders are also facing demands from investors, including international investors, to bring spending under control. The private sector wants a clear path on how France will extricate itself from this fiscal mess.
In the interim, Lecornu can continue to talk and extend the 2025 budget for a few months into 2026. This will allow the government to continue to function, but with no new legislative initiatives. After temporary measures expire, the government has the option of using Article 49.3 of the Constitution, which allows legislation, including a budget, to pass the French Parliament without a vote. But the French Parliament has 24 hours to reject by a majority vote a 49.3 budget. If such a majority vote were to take place, the proposed budget would fail, and Lecornu would no longer be Prime Minister. Macron, however, would remain president.
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Seemingly, there is no near-term solution to the French budget impasse. Voters and the French Parliament are deeply divided. France will continue to run unsustainably large deficits, risking not only an economic crisis but also potentially igniting a political crisis for the European Monetary Union.
After all, at some point the European Central Bank, which backs French sovereign debt, will force austerity on France.