French Budget Deficit to Widen as Macron Spends to End Protests

(Bloomberg) -- French Prime Minister Edouard Philippe said measures to qualm the Yellow Vests protest will have an impact on the budget deficit as the government indicated it would breach European Union limits next year.

“The measures will have consequence in terms of spending and that necessarily implies consequences in terms of deficit,” Philippe told the National Assembly on Tuesday. “The president said he would continue the transformation.”

The premier, defending the raft of new spending announced by Macron in a speech to the nation, signaled that containing the month-long Yellow Vests crisis will take priority over EU budget rules. That means Macron is risking a confrontation with the European Commission over his decision to put more pressure on the public finances.

Budget Minister Gerald Darmanin said the spending will amount to about 10 billion euros ($11.3 billion) and add 0.5 percentage point to the 2019 deficit. That will boost the gap to 3.4 percent of GDP, above the EU’s 3 percent limit.

The estimate includes the fuel-tax cuts, ending levies on overtime, a state-paid monthly bonus for minimum wage earners, and no extra taxes for retirees earning less than 2,000 euros. Excluding the one-off impact from the change of a tax credit called CICE, Darmanin said the new estimated deficit will be 2.5 percent of GDP.

“This will mean extra debt, and more debt means eventually more taxes,” Republican party chief Christian Jacob said on LCP television. “We will try to unmask the government during the budgetary debate.”

Macron said he has not abandoned his ultimate goals to “transform” France. Still he sought to soften the edges and tried to take a rational approach to reach his goal, taking into account his citizens sensitivities, demands and financial limits.

His speech may not end the crisis. The first indications from activists were that the protests would continue. An Odoxa poll released Tuesday showed 46 percent of respondents want an end to the demonstrations and 72 percent said they are not reassured after Macron’s address.

To contact the reporter on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Fergal O'Brien, Brian Swint

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