France’s Macron announced an expansion of public spending to “fight inflation”

President Emmanuel Macron announced a new “fiscal stimulus” package aimed at mitigating the effects caused by inflation.

Spending by the giant French state will increase again and accumulate up to €100 billion (US$97.6 billion) between the 2021, 2022, and 2023 budgets.

France’s fiscal deficit reached 5% of GDP at the end of the year’s first quarter and almost 10% for the first three months of 2021.

The imbalance of public finances continues at levels well above those recorded before the pandemic. The current deficit is almost 66% higher than in the last quarter of 2019.

“Fiscal inflation” affected most economies in the world to a greater or lesser extent. France was no exception, as stimulus packages had to be monetized from purchasing public debt with money issuance.

Unlike other countries such as Greece, Brazil, and even the United States until 2021, France persists in adopting a completely different course and decided to deepen fiscal stimulus instead of moderating it.

The European Central Bank (ECB) responded to inflation with a very subdued monetary policy rate hike to 1.25% nominal per annum, but the deepening French deficit could imply a new “quantitative easing” for France, upon which the ECB could be forced to issue money to bail out French debt that the markets can no longer refinance.

The French remedy for inflation could be even worse than the disease, as it would increase the surplus of money in the economy without due compensation on demand for euros.

Targeted social policies to combat the effects of inflation are financed with public debt and inflationary taxes, thus forming a dangerous cycle against stability.

French year-on-year inflation reached 5.57% in September this year, compared to the same period in 2021. Such records have not been observed since July 1985. At the same time, economic activity has remained stagnant since the third quarter of 2021.

With information from Derecha Diario

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