France takes a hard look at its finances

Leanna Byrne (0:00)

How can France balance a debt and appease public anger? It's World Business Express from the BBC World Service. I'm Leanna Byrne.

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French lawmakers are continuing their scrutiny of next year's budget today, as the country reels from days of violent unrest. What began as protests over the cost of living and conditions in schools has escalated into some of the worst rioting France has seen in years. Thousands of people have been arrested, businesses have been looted, and buildings set alight. Curfews have now been imposed in parts of Paris and several other French cities in an attempt to restore calm. And the disruption is being felt by businesses across the country. Annadie Berta is a tour guide in Paris. She's had to rearrange plans for her clients this week because of the unrest.

Annadie Berta (0:57)

I had the tour of Notre Dame, and I have to say that most of what the clients and I discussed was not the cathedral, but the situation they had witnessed or they had lived this weekend. And I mean, the Louvre Museum was closed this morning. So a lot of clients were, and all of my colleagues were wondering, what do I do?

I have my clients, we have a reservation. Where do we go? Instead of the Louvre, we have to spin around very quickly to find an alternative.

Leanna Byrne (1:22)

But beyond the immediate disruption, there's a growing concern about what all this political uncertainty could mean for France's economy. Francois Proveau, chief executive of Renault Group, says that political instability is a risk to the company.

François Provost (1:36)

I'm concerned because Renault Group needs stability. France is very important. 20% of our business is in France, 40% of our employees, about 50% of the engineering is in France.

So we need stability in France. Without stability, this for sure will impact our people, our suppliers, and any candidate for the presidential should set a robust, realistic vision between stability.

Leanna Byrne (2:10)

And all of this comes at a particularly difficult moment for the French government. France is already struggling with a huge debt burden and is under pressure to bring down its budget deficit. But with protesters demanding more investment in schools and public services, the government faces a difficult balancing act. How can it spend more in some areas while cutting back overall? And with parliament deeply divided, there are serious questions about whether lawmakers can agree on a budget at all.

Leo Barnicu is in Paris as Chief France Economist with Oxford Economics. I asked him what kind of scale of cuts the government was proposing.

Leo Barnicu (2:47)

The government ambitions to reduce the deficit, right? From like this year's 5.4% of GDP to hopefully 5% of GDP next year. It doesn't sound that impressive when you say it like that, but it's actually a substantial effort in terms of expenditure reduction, because like at the same time, we have a lot of forces that are kind of pushing the deficit upwards next year, including much higher interest payments and like the kind of existing drift in social spending, pensions, health care, etc.

Leanna Byrne (3:16)

And then at the same time, we've seen anger on the streets, particularly over funding for schools. Is there actually any room in the budget to respond to those demands?

Leo Barnicu (3:24)

Well, there's very little room, of course, so I wouldn't expect a radical shift in policy because of the recent events, including because France, of course, remains under considerable market pressure, and there's very little fiscal space to provide a broad-based support, whether for school or for like, dampening the impact of higher fuel prices on the household budgets. I do expect some sort of additional kind of symbolic support measures for schools, and of course, some kind of financial support as well for shop owners who were like impacted by the riots last weekend.

Leanna Byrne (3:58)

When you've got the parliament so divided, what are the realistic options for getting that budget through? And then what actually happens if lawmakers can't reach an agreement?

Leo Barnicu (4:07)

Actually, the debates that you have today in parliament are useful for kind of understanding where each party stands, but they are not as important as they may look like, because in the sense that the budget is actually very unlikely to pass through the standard, like parliamentary procedure and be voted by the parliament, because there's no majority to vote it.

Leanna Byrne (4:28)

So basically, France is being pulled in two directions here. You've got financial markets. They want to see spending brought under control. And then you've got protesters on the streets. They want more investment.