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France’s Austerity Package: Assessing the Macroeconomic Impacts
France suffered a major political crisis in late 2024, culminating in the collapse of Prime Minister Michael Barnier’s minority government on December 4. The political upheaval was triggered by Barnier’s 2025 budget proposal, which aimed to cut spending by around €40 billion and raise revenues by about €20 billion. The austerity proposal faced strong opposition from both right- and left-wing parties, leading Barnier to bypass Parliamentary approval. This decision ultimately resulted in the opposition ousting the government with a no-confidence vote.
This Box evaluates the potential macroeconomic impacts of France’s proposed budgetary measures. It begins with a brief background on France’s fiscal position and summarise the key measures in France’s 2025 budget. It then analyses the macroeconomic and budgetary impacts using the National Institute’s Global Macroeconometric Model, NiGEM.
France has historically been running large government budget deficits, but the size of the deficit increased significantly during the Covid-19 pandemic, a similar trend seen across most advanced economies. Owing to the large fiscal stimulus, including financial support and loans to households and businesses, higher healthcare expenditure and a decline in revenues due to lockdowns and restrictions. As a result, the budget deficit-to-GDP ratio increased to 9.1 per cent in 2020, compared to the annual average of 4.3 per cent in the 2010s. Although this figure was larger than the European Union average of 6.7 per cent, it was lower than some other G7 economies, such as the United States and United Kingdom (figure A1).
This Box evaluates the potential macroeconomic impacts of France’s proposed budgetary measures. It begins with a brief background on France’s fiscal position and summarise the key measures in France’s 2025 budget. It then analyses the macroeconomic and budgetary impacts using the National Institute’s Global Macroeconometric Model, NiGEM.
France has historically been running large government budget deficits, but the size of the deficit increased significantly during the Covid-19 pandemic, a similar trend seen across most advanced economies. Owing to the large fiscal stimulus, including financial support and loans to households and businesses, higher healthcare expenditure and a decline in revenues due to lockdowns and restrictions. As a result, the budget deficit-to-GDP ratio increased to 9.1 per cent in 2020, compared to the annual average of 4.3 per cent in the 2010s. Although this figure was larger than the European Union average of 6.7 per cent, it was lower than some other G7 economies, such as the United States and United Kingdom (figure A1).
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