Macron’s steps to pacify protestors will hit French economy

PARIS: France is on course to overshoot the European Union’s budget deficit ceiling next year without new spending cuts after President Emmanuel Macron caved in to anti-government street protests.

Macron announced wage increases for the poorest workers and a tax cut for most pensioners on Monday to defuse discontent, leaving his government scrambling to come up with extra budget savings or risk blowing through the EU’S 3% of GDP limit.

His concessions to protesters have put pressure on French bond yields with the spread over German yields spiking up to the highest level since May 2107. Prime Minister Edouard Philippe was due on Tuesday to address parliament to detail how the measures will be financed in a redraft of the budget weeks before it takes effect.

“Under all likelihood, the 2019 public deficit will print above the 3.0 percent benchmark,” Societe Generale economist Michel Martinez wrote in a research note. However, the deficit was unlikely to hit 3.5%, as some French media suggested, because the government would look to offset the extra strain on the budget, he said. The measures announced by Macron on Monday would put a 8-10 billion euro ($9.1-11.4 billion) hole in the budget, ministers said, on top of the 4 billion euros lost after Macron scrapped hikes to fuel taxes in a first wave of concessions last week. “We are going to make savings, just as we have said we would, starting with savings in government and that’s for us to make happen,” government spokesman Benjamin Griveaux.

In its original 2019 budget, the government targetted a public deficit of 2.8% of GDP. That, though, was based on a growth estimate of 1.7%, which now looks increasingly optimistic as the economy slows in the face of the protests.