France’s conundrum: How to cut spending amid protests

France’s Prime Minister Sebastien Lecornu is unlikely to have had a quiet weekend. For almost two weeks, students across France have been protesting, angered by class cancellations, overcrowded classrooms and run-down school buildings. The protests have increasingly been overshadowed by serious clashes with police.

At the same time, the government accuses the left-wing party La France Insoumise (LFI) of exploiting the protests for political purposes and fueling the blockades.

On Friday, Education Minister Edouard Geffray tried to ease tensions by meeting with student representatives. It was unsuccessful.

Instead, a nationwide day of protest took place on Tuesday.

On Sunday evening, the prime minister took charge of the crisis. In a letter to several ministers, Lecornu called for concrete proposals: Class cancellations should be addressed more quickly, school buildings should be upgraded to cope with hotter summers, and the controversial university admissions system "Parcoursup" should become more transparent.

Initial decisions, along with funding and a timetable, are expected to be announced this month. But Macron's ally Lecornu faces one key problem: He has to promise young people more government support while his government is imposing an austerity budget on the entire country.

A signal to the markets

Last Thursday, the government submitted its 2027 budget proposal to parliament. The budget deficit is expected to fall from a projected 5.4 % of economic output this year to 5% in 2027. To make up the shortfall, the government plans to make spending cuts worth billions of euros. France is already subject to an EU excessive deficit procedure and is expected to bring its budget gap back toward the 3% limit set by the European Union.

Student protests in France: Schools shut as unrest grows

"It is an austerity budget," says Eileen Keller of the Franco-German Institute (dfi) in Ludwigsburg. At the same time, the draft is a signal to the financial markets. The government wants to show "that it is taking responsibility" and lay out a path toward reducing the deficit.

No majority in sight for the budget

The government plans to cut spending by the state itself, local and regional authorities, as well as in the social sector. Overall, Paris aims to reduce the budget by around €54 billion ($60.8 billion) compared with previously projected spending plans. Pensions alone are expected to make savings to the tune of around €5.5 billion, and more cuts are also planned in healthcare.

Whether the budget will actually be passed in its current form is still wide open. Lecornu's government does not have a parliamentary majority and relies on opposition votes. But with presidential elections coming next spring, an austerity budget is even less attractive to the opposition than it would otherwise be.

More money for schools — and more protests

The issue of education in particular shows that France's problem cannot be reduced to the formula "The state is cutting too much." The education budget is set to increase by around €1.2 billion in 2027. At the same time, the government expects around 1.7 million fewer schoolchildren by 2035.

For Keller, this contradiction shows that money is only part of the problem. Public dissatisfaction is linked to what she calls "priorities" and the fundamental direction of the education system, including the transition from school to higher education.

Financing education is getting more costly

The difficult outlook for France is compounded by another factor: the financial markets. For many years, France was used to financing its high levels of debt at relatively low interest rates. But those days are over. The yield on 10-year French government bonds has risen sharply in recent weeks. At times, the spread over German government bonds widened to around 1.5 percentage points, the highest level since the euro debt crisis in the 2010s. The business daily Les Echos ran the headline on Monday that the country was in the "eye of the cyclone."

Market skepticism is hitting France at a particularly difficult time. With debt at around 119% of economic output, France is almost twice as heavily indebted as Germany, whose debt ratio stands at around 64%.

France students demand better schools

Step by step, old government bonds that were issued at very low interest rates are increasingly having to be replaced with new and more expensive debt. The effects of this are clearly visible in the 2027 budget. Estimated around €74 billion, the government will have to spend more on its interest payments than it can afford to spend on schools or defense. According to Finance Minister Roland Lescure, interest payments already consume more than half of the overall budget deficit.

Keller stresses that it is therefore crucial that France continues to be seen by investors as a "credible debtor." These days, however, that credibility depends on more than just economic data.

Markets keeping a close eye on election campaigns 

In spring 2027, the French will elect a new president. "The election campaign, which is now gaining intensity, is being watched by the financial markets," Keller says. In an analysis for the dfi, she puts the need for fiscal consolidation at between €75 billion and €160 billion, depending on the calculation.

From the markets' perspective, political consensus on the need for the nation to tighten its belt would be helpful. But, at present, there is no sign of clarity. How the burden will be shared in the future is instead likely to become a central issue in the election campaign.

A French problem with a European dimension

France is an especially acute case. But many other European countries are also currently grappling with fiscal consolidation and how to finance the state. Europe wants to spend more on defense, modernizing its infrastructure and transitioning to renewable energy sources. At the same time, citizens still expect a certain standard of education, pensions and healthcare.

In France, this conflict can be observed almost in real time. The issue is not only whether the government can respond to the demands of young people, but also whether it can avoid further violence. In Paris, many are wary of the prospect of a new broad-based social movement, like the Yellow Vests protests of the past. For Prime Minister Sebastien Lecornu, the coming days will be a major test.