France's Budget Battle: What's Next?

Key Developments

• Senate Approval: French senators have given the green light to the 2026 budget bill, setting the stage for critical negotiations.
• Vote Count: The conservative-leaning Senate voted 187 to 109 in favor of the bill.
• Previous Failure: The lower house failed to pass the bill last month due to disagreements over tax plans.

Next Steps

• Special Committee: A group of seven lawmakers from both houses will meet on Friday to revise the bill.
• Final Vote: The revised version will return to the lower house for a final vote on December 23.
• Contingency Plan: If no agreement is reached, the government may resort to temporary measures to maintain spending, tax collection, and borrowing.

Government's Fiscal Challenge

• Deficit Goal: The government aims to keep the public sector budget deficit under 5% of economic output in 2026.
• Current Deficit: The estimated deficit for this year is 5.4%, the highest in the euro zone.
• Political Hurdles: The government holds a minority in parliament, and budget battles have toppled three governments since President Macron lost his majority in the 2024 snap election.

Recent Concessions

• Social Security Budget: The lower house narrowly passed the social security budget, including a pause on the unpopular 2023 pension reform.
• Deficit Impact: Amendments by the Senate and the pension reform suspension have left the deficit at 5.3%, requiring further cuts.

The Road Ahead

The joint committee of lawmakers faces a challenging task: finding ways to cut the budget and reduce the fiscal shortfall to meet the government's deficit target.