Bruno Le Maire announces 20 billion euros in budget savings. Is it enough?

The government's position, as stated by the Minister of Economy and Finance, seems straightforward: less economic growth, therefore lower tax revenues, hence the need for budgetary savings. This apparent simplicity is deceptive and plays on the gullibility of the French public. In fact, it all starts with the minister's overestimation of growth. He dreamed of 1.4%, while the consensus among economists was around 0.9%, and the High Council of Public Finances deemed the growth forecast in the budget "optimistic." The 2024 draft budget now raises a question of sincerity in its preparation. With a reckless and intellectually indecent starting assumption, the result is inevitably disappointing. For my part, following the forecasts of the OECD and the IMF, I observe that the rate retained by Bercy, namely 1%, is very uncertain. Our partners in the Eurozone are going through a mediocre economic situation, starting with Germany, which is indeed in recession. A growth rate close to 0.5% is not an absurd forecast. INSEE has just published the figure for the last quarter of 2023: +0.1%, which puts us on the verge of recession. Revenues, particularly from corporate and VAT taxes, are down by nearly 8 billion. Using simplified arithmetic, Minister Le Maire has thus announced a freeze on budgetary credits amounting to 10 billion euros. Surprisingly – and predictably – he glossed over, in his TF1 interview, the actual extent of the deficit, which stands at -173 billion, nearly twice the volume of tax revenues from income tax. In other words, with serenity but compunction, the initial announcements of 10 billion in savings were a minor measure when compared to the magnitude of our deficit. For my part, considering geopolitical uncertainties and the propensity for spending in our public sphere, I believe we risk seeing an additional 20 billion in budget deficit.

The deficit of the social security system would reach 11.2 billion euros this year and rise to more than 17 billion in 2027... Our debt service is exploding. Can we avoid a downgrade of our financial rating by rating agencies next April?

French people are suffering, and this is reflected in various parameters: increased consumption of anxiolytics, a surge in sick leave, and a multiplication of post-Covid prescriptions. Thus, health insurance expenses are growing, while the slowdown in economic activity will dry up a portion of the funding for the social budget. Once again, the last voted PLFSS (Social Security Financing Bill) will be partially obsolete. If the trend continues, by 2027, our country will be close to 20 billion in social deficit. Regarding the debt service, the question deserves serious but grave reflection. With a debt of 3,100 billion euros by the end of 2024 (if we take care to consolidate the debt by integrating the execution deficit of the PLF), France will be close to 45 billion euros in interest or debt service. Bercy published a forecast document three months ago indicating that by 2027, the debt service would be the largest national budget item, amounting to 70 billion euros. Due to a lack of rigor for decades, we will face a severe austerity (rigor XXL), which I doubt the social body will be able to accept the effort rate. This is probably a factor in the reflection of rating agencies, which for now, note that the French tax potential is substantial and tax collection is efficient. In other words, our objective situation (major aggregates and debt) is not good, but the sheep accept the tax pressure. Let's remember the increase in CSG (Generalized Social Contribution) on retirees. The logic of a downgrade of the French rating is before us, but we must remember the reasoning used by two agencies concerning the debt of the City of Paris. Faced with the brutal observation (2 billion in Bertrand Delanoë's time versus 9 billion under Mayor Hidalgo's management), the agencies highlight the contributory potential of Parisians and companies headquartered there. I do not find the reasoning, which censors an income statement but approves a balance sheet marked by debt under the pretext that Parisian wallets are filled, chemically pure. Moreover, a downgrade of France's rating would have a classic and ultimately digestible impact. Why? Simply because our borrowing rates would indeed be higher, but the holders of our debt tranches (58% of non-residents) would continue to trust us because private savings outside real estate represent a windfall of 6,850 billion euros and play - albeit reluctantly - a role as a guarantor. The government does not manage like a good father and de facto shifts the quality of its management onto a debt that individuals and their descendants will have to honor. Partly. For a detailed point, it is necessary to read the estimate of Jacques de Larosière.

Proof that we have been living beyond our means for too long, Bercy seems to want to tackle the cost of our social model... There are numerous paths, from reducing unemployment benefits to subjecting health care reimbursements to income levels... What do you think?

Not good! In reality, France is steered by minds fed by a poor assimilation of the teachings of John Maynard Keynes and by a creeping socialism worthy of Swedish practices in the 1980s. It gloats over solutions where "the sharp head of the top" (thus the highest income deciles) pays and pays again. This is in contempt of property rights. Look at the idea of "virtual rents" consisting of taxing a fraction of your main residence (France Stratégie, J Pisani-Ferry) or the possible abandonment of the exemption from capital gains for the main residence. Clearly, the reordering of public finances will cause a big bang that will demotivate many taxpayers.

How do you assess the political risk of reforming a social model that is financially exhausted but, in a context of inflation, reduces the purchasing power of many households?

I used to believe in the reforming capacity of the current Executive. Seeing the results, I admit my mistake. Now, I await the days ahead and an audit of France worthy of the one carried out by François Bloch-Lainé in 1981. The truth about public financial flows needs to be revealed beyond the messages of poor political communication.

Our public finances are particularly degraded: where do the responsibilities lie? Can we imagine that France would default on its public debt?

The evaporation of the strong growth of the Glorious Thirty generates an annual deficit that ultimately impoverishes us. France will not default on its debt (private savings as a guarantee and the ability to vote, as in 1983, a mandatory loan) but if the wall of bankruptcy excites some minds, I consider that we risk a debacle, the recall of the private legal definition of which is necessary: Article 1613 of the Civil Code In force since March 21, 1804. Creation Law 1804-03-06 promulgated on March 16, 1804. He will also not be obliged to deliver, even if he has granted a delay for payment if, since the sale, the buyer has fallen into bankruptcy or a state of debacle, so that the seller is in imminent danger of losing the price; unless the buyer gives him a guarantee to pay at term. Legal experts know how to write (without change since 1804!) and the notion of debacle is not bankruptcy, which the State is supposed to be protected from. On the other hand, it raises the question of providing "a guarantee to pay at term"... As for parents who sometimes pay the guarantee for their children's rental.