PARIS — France is putting €6 billion of spending on hold this year because of the economic fallout of the war in the Middle East.
“In the current phase we cannot turn a blind eye to the war nor the debt,” Budget Minister David Amiel told reporters after a meeting with key ministers and lawmakers. “Faced with the €6 billion cost of the crisis, we anticipate €6 billion of spending that could be stopped.”
Amiel said that extra tax revenue coming from higher fuel prices had already dropped by €100 million in April, as fuel consumption slowed due to high prices.
Finance Minister Roland Lescure was quick to insist that the freeze would not inevitably lead to spending cuts, even if this is likely in future. “We are taking precautionary measures, we will be able to adjust throughout the year,” he said.
Lescure confirmed that the government has lowered its growth forecast to 0.9 percent for this year, while raising its inflation forecast to 1.9 percent.
The French government is eyeing spending cuts to narrow its deficit — the gap between what it collects in taxes and what it spends — down to 5 percent of gross domestic product this year. It is also trying to keep its promise to get that figure below 3 percent of GDP, as required by EU rules, by 2029.
An Economy Ministry official, who was granted anonymity in line with the French government’s communication policy, said that €4 billion of spending in the general budget be frozen, while the remaining €2 billion of the freeze will affect the social security budget, which funds health spending and pensions.
The government did not clarify which ministries will be the most affected, nor when the final decision will be taken on whether to enact spending cuts.
Out of the total estimated €6 billion of costs arising from the crisis, €3.6 billion represents higher interest payments on government debt, €1 billion is linked to the negative effects of inflation, another €1 billion stems from extra military spending, while the rest covers financial support to French citizens and businesses.
Later Tuesday, Prime Minister Sébastien Lecornu will announce an extension of fuel subsidies to the worst-affected sectors — at least for May. Lescure said that the subsidies package for May could be broader and cover more sectors.
Both the European Central Bank and the International Monetary Fund have warned against extending broad subsidies, both warning that they are highly expensive and difficult to phase out once introduced. Any subsidies should be “temporary, targeted and tailored”, the ECB said in a statement on Friday.
