France is facing the unprecedented risk of being put under the guardianship of the International Monetary Fund (IMF) as the country struggles to rein in its budget deficit and get its rising debt under control.
According to Pierre-Olivier Gourinchas, the chief economist of the IMF, the question of putting France under the organisation’s guardianship “could arise if nothing was done, if there was no will to change the trajectory of the debt.”
However, Gourinchas believes that the government is “very determined” in its plans to save €40 billion next year, and he is “completely confident” that the government will know what to do.
His stark warning comes after the IMF recently said in its annual review of the French economy that it expected the government to meet its 2025 public sector budget deficit target of 5.4% of economic output. It said that without additional measures, the shortfall would remain around 6% in the medium term and debt would keep rising.
France’s total debt now exceeds €3.3 trillion, or 113% of GDP.
Prime Minister François Bayrou’s minority government is trying to come up with €40 billion in budget savings to cut its fiscal deficit to 4.6% of economic output next year, but many of the measures floated so far have found little political support.
The consequences of an IMF guardianship would be considerable: loss of credibility in the markets, imposition of drastic reforms, and external monitoring of national budgetary choices.
