As France's fiscal crisis deepens, political circles are increasingly raising questions about President Emmanuel Macron's responsibility. Earlier, the Financial Times (FT), citing Goldman Sachs data, reported that the yields on bonds issued recently by 10 French corporations, including L'Oréal, Airbus and AXA, are lower than those on French Government Bonds of similar maturities. This means investors see French corporate bonds as a safer investment than French Government Bonds.
According to FT, the yields on corporate bonds issued by more than 80 corporations in the eurozone (the 20 countries using the euro) are currently lower than French Government Bond yields. French Government Bond yields are higher than those of Greek Government Bonds, even though Greece has the highest government debt ratio in the eurozone. On 12th, international credit rating agency Fitch downgraded France's sovereign credit rating by one notch from "AA-" to "A+."
Experts say this situation is the result of Macron's large-scale tax cut measures combined with massive government fiscal expenditure related to COVID-19.
In 2018, Macron abolished the wealth tax and eased the property tax, cut the capital gains tax to a single rate of 30%, and lowered the corporate tax from 33% to 25%. At the time, he eased strict labor laws to reduce unemployment and raised the retirement age to 64, maintaining jobs for older workers, but some criticized that he "expanded inequality through tax cuts for the rich."
On top of that, during COVID-19, 170 billion euros, equivalent to 10% of gross domestic product (GDP), was injected, and during the energy crisis, large-scale subsidies were distributed, resulting in a net loss of 72 billion euros, which experts see as a decisive misstep.
François Ecalle, formerly of the Finance Ministry, said, "It is true that there were blunders by President Macron," but also noted, "The public's demand for both expanded welfare and tax cuts is inconsistent." In fact, former Prime Minister François Bayrou proposed in Jul. to freeze next year's government expenditure excluding the defense budget and to abolish two public holidays to reduce public liability, but he was ousted after a no-confidence vote in the legislature due to opposition backlash. At that time, 550 anti-government rallies against austerity broke out nationwide.
France's fiscal crisis did not erupt only recently. Since the 1970s, France has never achieved a balanced budget, and among Organisation for Economic Co-operation and Development (OECD) countries, it is among those with the highest public expenditure share at about 57% of GDP. Although the tax burden is also among the highest, various welfare expenditure items such as pensions, medical costs and unemployment benefits account for 47% of total finances, leading to an assessment that structural limits have gradually become entrenched.
Economists propose improving efficiency in high-cost areas such as education and health and pursuing gradual cuts across public expenditure, but as party conflict deepens, there is a view that full-scale reform will be realistically difficult for the time being.
Xavier Jaravel, Chairperson of the French government's Economic Analysis Council, said, "One or two measures are not enough to sufficiently reduce the deficit," and added, "A variety of measures should be pursued gradually."