'Spiralling situation': Political paralysis deepening France's socioeconomic crisis

This cost-of-living protest come as France struggles with its increasing public debt and an inability to pass a budget. Concerns over the country's public finances have pushed France's 10-year government bond yield above 5% for the first time since 2002, making borrowing costs higher. All of this has everyone anxiously waiting to see what Moody's will do. The agency is expected to announce its latest credit rating for France later today, and many expect it to be downgraded. Let's bring in our guest now, Oliver Davis, professor and head of the Department of French at University College Cork. Oliver, thank you so much for joining us today. So we just heard some figures there. How bad is France's financial situation and what would a downgrade by Moody's actually mean? Hello. Yes. Well, it's it's clearly a very serious situation and it seems to be a kind of spiraling situation. A downgrade. I mean, I'm not an economist, but the two other leading rating agencies have already already rating France lower than the Moody's. So I think it wouldn't be a surprise if Moody's were to downgrade when they announce this evening. The difficulty is that President Emmanuel Macron has benefited, I think, partly due to his background in banking to some extent, in the confidence of the markets during his two presidencies. But that seems now to really be evaporating. And, you know, the public order crisis that we're seeing is kind of doubled by the political crisis in the Assemblée, but that really, I'm afraid, is a kind of self-inflicted crisis owing to his own miscalculation, obviously, in June 2024 in dissolving the Assemblée, meaning that there is now no majority. So it is it is really going to be very, very difficult to pass this this budget. I suspect the budget will not be passed by the by the usual means. In fact, you bring up the fact they are in the process of debating this budget. Is there a chance that they just to, you know, try and use this article forty nine point three? And if they do so, would that be helpful or would that make the situation worse? I would expect that there will be further attempts to try and debate the budget in the usual way. But I would actually, yes, indeed, expect that that article will be used. And if that happens, I think it's inconceivable there won't then be a motion of no confidence brought, which will probably pass, which will mean that the Barnier government will fall and then we will be in the situation that we've been in intermittently over the last two years and a bit in that the president will have to try and find another government. But that is really not going to be easy at this point. So close, relatively speaking, to the presidential and obviously very likely legislative elections in May, June next year, but also because most of the kind of existing possibilities have now been exhausted. So it's a very difficult situation. And also the failure to pass the budget in the usual way. And, you know, so if we do go down the route that I've kind of outlined and that you've suggested using that kind of the 49-3 provision, that is in turn going to have an exacerbating effect on the debt crisis in that lenders are going to demand higher returns so France will have to borrow more to service the debt and at the same time it will be impossible to the budget won't have passed so the 2026 budget will roll over into 2027 and all sorts of kind of spending freezes sort of come in automatically then meaning that it will not be possible to do anything other than listen in the kind of in the in the strict sense to the protesters demands, but there will be no possibility to kind of make commitments to spend to address those demands. I do want to get into those demands, the protesters on the street. But first, France is Eurozone's second largest economy. And there are some that are saying that France is too big to fail, but it's also too big to be bailed out. So is there a scenario in which the European Central Bank gets involved? Again, I should say I'm not an economist, but I think it's unlikely that that will happen. I think that in a way, the markets, in the absence of that kind of happening, are trying to issue their own corrective. Now, let's go back to what those protesters want. They're saying that, you know, the cost of living is just too high. You know, they pay high taxes. They want better public services. So at this point, is there a way for the government to satisfy the protesters' demands while also making the changes that the markets want to see? I think there isn't within what's been envisaged for the budget and any kind of conceivable modification that uh the local new government would would concede to make to what's been envisaged there um you know there are other proposals obviously on the table we've had the two uh contre-budgets or alternative budgets issued earlier in uh the month by uh le Rassemblement National and and LFI um which both have kind of different uh different uh ways forward that are been proposed but no i don't i just don't think it's impossible i don't think it's possible to um to meet the protesters demands uh whilst while also reducing uh the debt in in the way that the Barnier government wishes to do now um Oliver what options are left for the government i mean can they try and bring back the wealth tax because uh certainly you know extending the retirement age didn't go over well and reintroducing that is probably you know no go here i think that i mean reintroducing the wealth tax would be one way forward but it's not going to make up the the what 54 billion in euro in savings that are that are needed um uh i mean for people you know raising the retirement age is something that affects so many people and you know if you've been paying your your dues your taxes through your life for you're expecting to be able to retire at a certain age that's a really key part of the if you like the social contract between citizen and and state and if they can't be honored in your individual case you're going to be really angry that's very very understandable so i mean so if i mean you're looking at the kind of two the two alternative budgets that i mentioned um so the the Rassemblement National budget is is is envisaging uh even in a way even steeper cuts uh to public spending than than the Barnier has envisaged albeit over a kind of slightly longer period uh uh ending up in uh 2032 i think uh the aspiration is for uh yeah for a 2.5 percent uh budget deficit so a significant reduction there The LFI budget, alternative budget, has envisaged a whole kind of raft of new taxes, but mainly on the highest earning citizens, on corporations, and on finance capital, if you like. So, yeah, so there are, but also within that second alternative budget, kind of significant new commitments to spend. And now, Oliver, of course, this is also all happening ahead of elections next year, as we've been discussing. So, you know, all the different political parties are sort of vying to present their positions. Is there one party that's emerged as sort of like the fiscally responsible one? Is there one that's benefiting from all of this? You know, what about the national rally? How have they been positioning themselves? The National Rally have been really trying to position themselves as fiscally responsible, as I mentioned, really kind of steep cuts in a way exceeding what the Barnier government has proposed and also trying to make savings. So on the one hand, Marine Le Pen is committed to respecting Eurozone budgetary and fiscal constraints, which is a kind of a bit of a kind of what shift from, you know, earlier years and talk of Brexit and so forth. So it's committed to being a kind of good European citizen in that sense, but also at the same time has suggested there would be, I think it's 11 billion annual savings in terms of a kind of unilateral reduction in France's contribution to the EU budget. So that would have a very significant effect on Europe as a political, institutional and social entity. But I mean, you're asking me about the comparison between the two. Sorry. So, I mean, in terms of Le Pen also trying to be, you know, trying to bring forward fiscally responsible proposals, they are making proposals for significant increases in social security spending in particular. They are budgeted. I mean, there has obviously been a big public argument between Jean-Luc Mélenchon and Emmanuel Moulin, the governor of the Banque de France, about the kind of viability of LFE's proposals. And it's got quite heated already with Barnier kind of protesting that he's not going to be bullied and so forth. But actually, you know, I think LFE's proposals deserve to be considered on their own on their own merits. There's a lot of there's a lot of obviously kind of a kind of public relations communications operation going on against the LFE proposals because they're not in the interests of corporations. They're not in the interests of wealthy corporations of the highest earning individuals, but perhaps they are in the interests of ordinary French people. Right. Oliver, thank you so much for joining us today, sharing your expertise with us on the program. That's Oliver Davis, professor and head of the Department of French at University College Cork Moving on.