Escaping the French budget maze

For the second year in a row, France has failed to pass a budget before the end of December, as required by the constitution. At the time of writing, Prime Minister Sebastien Lecornu’s relentless efforts to find a compromise among the political parties willing to strike a deal seem likely to bear fruit, albeit at the expense of forsaking President Emmanuel Macron’s signature supply-side policy.

The core problem stems from the fact that French public accounts are deep in the red, with a fiscal deficit exceeding 5 percent of gross domestic product. Having backed down from higher initial ambitions, Lecornu’s hope is to keep the deficit below that threshold in 2026 and to bring it down gradually to 3 percent by 2029. In an extraordinary reversal of fortune, France is now lagging behind the likes of Spain and Portugal, which have come back from the brink to achieve stable or diminishing debt ratios.

Why does France stand apart and what is to be done? With the 2027 presidential election just over a year away, this is an essential question not just for France but also for the eurozone and the EU. Europe cannot hope to strengthen its “strategic autonomy” and stand firm in an increasingly dangerous security environment unless Germany and France are broadly on the same page. But France’s inability to stabilize its debt-to-GDP ratio is a threat to Europe’s Franco-German engine.

The key to escaping the budget maze is to separate financial requirements and political choices. Ensuring debt sustainability belongs to the first category, while decisions about the composition of the fiscal adjustment — which bits of public spending should be preserved and which reduced or cut — belong to the second. Since the current policy discussion has not been structured to distinguish neatly between these two categories, politics keeps encroaching, impeding progress.

In an extraordinary reversal of fortune, France is now lagging behind the likes of Spain and Portugal

Eric Hazan and Jean Pisani-Ferry

There is no way forward unless this distinction is made clear. Debt sustainability requires that the debt-to-GDP ratio stabilize at a certain level, which in turn requires that the primary budget deficit (i.e., the deficit net of interest payments) be brought to zero in the medium term. Whereas a hasty fiscal adjustment would trigger a recession, a credibly gradual adjustment need not have a strong detrimental impact on growth, especially if one factors in lower interest rates as markets’ likely response.

Such an outcome hinges on an explicit agreement between the political center (what remains of Macron’s majority of a few years ago) and the center-left (namely, the Socialist Party). But is a responsible compromise possible in today’s fragmented political landscape? To answer this question, we recently conducted a policy experiment that challenges the conventional wisdom.

Together with Pascal Canfin, a member of the European Parliament, former International Monetary Fund chief economist Olivier Blanchard and others, we asked a sample of about 150 self-declared center-left citizens to find agreement on a seven-year fiscal adjustment path. We started by presenting them with the amount of expenditure cuts or tax increases needed to stabilize the debt ratio in the medium term, which we estimated to be at least €110 billion ($129 billion), equivalent to 3.8 percent of France’s 2024 GDP. With this as the binding constraint, the choice of corresponding measures was left to the participants.

Center-left voters are not allergic to fiscal realism. When confronted with the facts, they come up with solutions

Eric Hazan and Jean Pisani-Ferry

This overall constraint was generally accepted: citizens did not dispute it. Instead, they focused on selecting policies from a very detailed menu of €175 billion in expenditure cuts and €170 billion in tax increases, prepared by the  Council of Economic Analysis. The rule for selecting measures (there were more than 50 potential ones on both the expenditure and the revenue sides) was that simple majority support was not a sufficiently high bar. To ensure legitimacy, only measures clearing with at least 66 percent support were classified as “consensual.”

Measures that are costly in the short term but yield benefits over a 10-year horizon — such as spending on business research and development or expenditures aimed at increasing senior citizens’ labor market participation — could be chosen as well. Because of the aggregate constraint, these required additional expenditure cuts or tax increases, but they also broadened the scope for choice. Overall, the cost of such measures over the first seven years amounted to €34 billion (not counting investment in defense, the green transition or public research, which total a similar amount).

Consensus was found on a balance between expenditure cuts (55 percent) and tax increases (45 percent). The former included a wholesale restructuring of public spending, while the latter mostly consisted of taxes on the upper middle class and the elimination of “brown” tax expenditures. Predictably, “consensual” measures fell short of the required €110 billion but only by €13.5 billion. A last round of voting was therefore necessary to come up with a sufficiently ambitious adjustment program. In the event, citizens ended up choosing to cut public pension entitlements rather than raise additional taxes or find other savings on expenditures.

The lesson is clear: center-left voters are not allergic to fiscal realism. When confronted with the facts, they come up with solutions. What they reject is opacity, improvisation and the absence of a credible horizon. The real failure is institutional, not societal.

France’s budgetary impasse reflects a broader loss of strategic ambition. The experiment described here shows that a way out exists. When the rules are made clear, the horizon credible and the trade-offs transparent, citizens are prepared to support difficult decisions. What is missing is not consent but method. The real choice for France (and other democracies) is simple: govern deliberately or be driven by events.

• Eric Hazan is Founding Partner of Ardabelle Capital, a co-founder of Plateforme Progressiste, a policy and strategy forum, and a lecturer at HEC Paris and Sciences Po. He is the co-author, with Frederic Salat-Baroux, of “Revolution Par Les Territoires” (Editions de l’Observatoire, 2025).
• Jean Pisani-Ferry, a senior fellow at the Brussels-based think tank Bruegel and a senior nonresident fellow at the Peterson Institute for International Economics, is a professor at Sciences Po and the co-author (with George Papaconstantinou) of “New World New Rules: Global Cooperation in a World of Geopolitical Rivalries” (Columbia University Press, 2025).

© Project Syndicate