To justify the decision to bypass a vote at the Assemblée Nationale, President Emmanuel Macron told the Council of Ministers on Thursday, March 16: “I consider that as it stands, the financial, economic risks are too great.” His message was that giving up on this bill would put the country’s ability to borrow on the financial markets at risk. The argument was already put forward in the first Council of Ministers of 2023, when the government formally launched the pension reform. The president had then pointed out to his ministers that France was now borrowing “above 3%, which had not happened for years,” seeing this as a new sign of what he calls the “end of abundance.”
In recent months, the specter of bankruptcy has been brandished continuously by the government, during debates in Parliament, in TV studios and in negotiations with the opposition. All winter, Public Accounts Minister Gabriel Attal repeated: “It’s reform or bankruptcy!” He claimed that not doing the reform would lead to “€500 billion in additional debt”.
The context is hardly favorable. After two successive crises that have put a strain on the country’s finances – Covid-19 and the surge in energy prices – France is about to officially pass the €3 trillion debt threshold. And the rates that have been rising for the past year have already increased the debt burden by €13 billion in 2022. In recent weeks, while monitoring the state of public opinion, Macron has been discreetly consulting market economists, just to keep an eye on the investors capable of tipping a country into chaos even faster than the demonstrators.
Rates fell slightly on Thursday
However, by brandishing this risk, the president “is waving a red cape,” says Ludovic Subran, chief economist at Allianz. “The pension reform alone does not create a risk of a spectacular attack on the French debt, even if the cost at which we finance ourselves is linked to our ability not to mobilize our budgetary resources excessively.” A dissolution of the National Assembly would be more likely to worry creditors, he judges.
French debt, moreover, did not react to Thursday’s political events, and continues to play its role as a safe haven while a banking storm hits the United States. Rates even fell slightly on Thursday, due to the reassuring announcements from the European Central Bank. France is benefiting, for the time being, from a form of generalized indulgence in the face of public debt in Europe, linked to the series of crises, analysts say. The moment of truth will be the 2024 budget.
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Politically, on the other hand, raising the threat of bankruptcy is a sure way to create fear. Even if the issues of the deficit and debt do not appear as a major concern in opinion polls, they can resurface very quickly, pollsters warn. Especially when the financial industry’s woes bring back memories of the last crisis.