French borrowing to hit record as 2023 budget unveiled

The French government will borrow a record 270 billion euros ($260 billion) next year to finance a budget that includes caps on energy prices that are expected to soar over the winter, officials said Monday.

“This is not a restrictive budget, nor an easy one — it’s a responsible and protective budget at a time of great uncertainties,” Finance Minister Bruno Le Maire said at a press conference.

Electricity and gas prices have jumped since Russia’s invasion of Ukraine, and officials are urging energy “sobriety” to help avoid any shortages as the conflict drags on.

The government has vowed that, from January, increases of electricity and gas prices will be limited to 15 percent, a measure expected to cost 45 billion euros.

“There’s a large amount of spending because of gas,” Le Maire acknowledged, saying “this can only reinforce our determination to accelerate the climate transition.”

The borrowing plans come as interest rates on government borrowing rise all over the world, with the yield on a 10-year French bond hitting 2.71 percent on Monday, its highest level since June 2012.

The government also announced pay increases for teachers, judges and other civil servants as inflation is forecast to reach 4.3 percent next year after a forecast 5.4 percent in 2022.

And another 11,000 more public employees will be hired, in a stark reversal of President Emmanuel Macron’s 2017 campaign promise to slash 120,000 public-sector jobs.

– Growth forecast –

To finance some of the extra spending, the government is banking on potentially optimistic forecasts for economic growth and an explosive pension reform which has not yet been passed.

Le Maire expects GDP growth of one percent, a forecast he defended as “credible and pro-active” despite an estimate of just 0.5 percent by the Bank of France, and 0.6 percent from economists at the OECD.

“France continues to live beyond its means,” business lobby group Medef said in a statement which said the budget was “lacking ambition”.

The public deficit is expected to reach five percent of GDP — above the three-percent limit stipulated in EU rules which have been temporarily suspended because of Russia’s war against Ukraine.

Having come to power promising to balance the books, Macron’s government only sees the deficit dipping below 3.0 percent for the first time in 2027.

The budget plans are likely to face fierce opposition in parliament, where Macron’s centrist party and its allies lost their majority in elections earlier this year.

The government is expected to have to use a constitutional mechanism known as “article 49.3” which allows the executive to ram certain laws through parliament without a vote.

Prime Minister Elisabeth Borne is yet to decide how to pass flagship pension reform that will gradually lift the official retirement age from 62, one of Europe’s lowest levels.

The quickest and stealthiest option under consideration is to slip it into a separate budget bill for the social security system that is set to be voted in October.

But others argue it should form a separate bill that can be debated on its own merits in the parliament.

Opposition parties from the left to the far-right have vowed to oppose the pensions changes, while a nation-wide strike has been called by the influential CGT union this Thursday.

“There are different scenarios and therefore we’re looking for the best way, with the aim of having a dialogue, consultations and making progress rapidly,” Prime Minister Elizabeth Borne told BFM television.