France: Budget politics and market testing – Rabobank

Rabobank's Senior Economist Maartje Wijffelaars assesses French budget negotiations starting next week in Parliament, noting protests and reluctance for austerity. She highlights Le Pen’s preference for a bad budget over none and possible use of Article 49.3. A 5% deficit target is seen as achievable, though insufficient to solve France’s fiscal issues, which markets have partly priced. "There are different ways to assess the chances of successful French budget negotiations. Talks begin next week in Parliament, while an increasingly broad group of protesters is taking to the streets and demanding support, adding to the challenge. Yet although no presidential candidate wants to endorse painful austerity, the risk of no budget may be lower than in recent years." "Le Pen has said she would prefer to have a bad budget to no budget in place if she becomes president – the most likely outcome in current polls – because a bad budget would be easier to amend than negotiating one from scratch in a fragmented parliament. While her fiscal plan lacks credibility in our view, she has advocated (how) she intends to tackle France’s debt burden and recognises that the problem will not solve itself." "If Parliament rejects the budget, the government will probably use Article 49.3 to pass it without a vote, triggering a confidence vote that it may survive for the same reasons Le Pen prefers a bad budget to none. A proposal targeting a 5% deficit may therefore be achievable, though it remains unclear whether the European Commission would consider that sufficient." "This would not solve the fiscal problem: risks remain, but markets have tested them and set them aside while the budget process unfolds."