France ‘dangerously exposed’ to fiscal shock, warns auditor

FRANCE is “dangerously exposed” to a financial shock, the country’s national auditor has warned amid growing fears of a spending spree.

Cour des Comptes has criticised Emmanuel Macron’s outgoing administration for failing to produce credible plans for getting public finances back on track after a deficit of 5.5pc last year.

It comes amid talks to form a new government after the Left won the most seats in elections held earlier this month. Many experts expect an increase in state spending as a result – with economists at Citi warning that the Leftwing alliance’s policies could cost up to €200bn (£168bn) if implemented in full. In April Mr Macron’s government promised to cut spending and boost revenues to limit the budget deficit to 3pc by 2027. However, the auditor said: “This trajectory does not appear very credible or very realistic.”

It added that Macron’s plans relied on “overly optimistic” assumptions for growth and spending cuts.

The auditor said: “Because of delays in making real structural reforms, the cost of public debt, which has been exacerbated by recurring deficits and the weight of these deficits, has become more and more expensive.”

It said this “has hampered other spending, hinders the ability to make investments and leaves the country dangerously exposed in case of a new macroeconomic shock”. The warning comes after the European Commission gave France a slap on the wrist for racking up budget deficits well above the EU’S limits last month.

France’s annual deficit grew to 5.5pc of gross domestic product (GDP) last year, up from 4.8pc. Its public debt now stands at 110.6pc of GDP, eclipsing the country’s annual economic output.

The European Commission believes it will rise to 113.8pc by next year, nearly double the EU limit of 60pc. The state auditor also highlighted that while France has committed to ambitious netzero targets, its fiscal plans fail to fully factor in the spending required to deliver such goals.

France’s ability to make difficult choices and get its public finances under control again has been severely weakened by political chaos after Mr Macron called a surprise election.

The country’s industrial output dropped 2.1pc in May compared with April, according to Eurostat, with factory production down 3.2pc on the same month a year ago.

Output in Germany was 6.6pc lower in May than a year earlier, marking the industrial powerhouse’s worst performance since 2020, when lockdown ravaged the economy.