Allianz | Commercial real estate concerns for US banks


President Macron’s roadmap for new reforms falls well short of tackling France’s long-standing structural issues. In a televised speech broadcast on Monday, Macron committed to tackling long-standing structural gaps, such as the deterioration of educational attainment, but also to address growing social discontent over the cost-of-living crisis. He called for renewed social negotiation between trade unions and corporates over wages, careers, better sharing of wealth and senior employment. Prime Minister Elisabeth Borne is expected to reveal a precise reform roadmap as early as next week. However, we doubt it will seriously address France’s structural economic bottlenecks, including the high level of taxation, the elevated yet deteriorating quality of public spending, the low employment rate and low and deteriorating education and skills attainment. Tackling these issues has become even more politically difficult since the passing of the pension reform, which has heightened political and social tensions. In particular, the usage of Article 49.3 of the Constitution – which allows the Government to pass (mostly finance) bills without the backing of Parliament – has become highly sensitive, crystallizing tensions during the passing of the pension reform. 

The benefits of the post-pandemic rebound and higher inflation to public finances are fading fast. The French public deficit narrowed relatively rapidly in the aftermath of the pandemic from -9% of GDP in 2020 to -4.7% in 2022. However, the bulk of the improvement was cyclical, owing to the economy’s post-Covid rebound and high inflation, which boosted revenue receipts (Figure 9). Elevated inflation instantly bolsters revenue intakes such as VAT collections, which are collected on a nominal base. The very robust pace of job creation also boosted social-contribution collections. On the other hand, expenditures typically take longer to increase since the indexation of transfers (such as pensions) to inflation is implemented with a lag (and often times only partially indexed), owing to legislative and calendar constraints. 

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