French Cabinet Collapses Again After 9 Months... Can 5,200 Trillion Won Debt Be Stopped? [Current Affairs Show]

Vote of No Confidence Over Austerity Budget
Possible IMF Bailout Looms for France

■ Broadcast: Asia Economy 'So Jongseop's Current Affairs Show'

■ Host: Political Specialist So Jongseop

■ Director: Producer Park Sumin

■ Guest: Reporter Lee Hyunwoo

Political instability in France is deepening as the cabinet has collapsed again after just nine months. Over the past 20 months, France has set a record by changing its cabinet five times. The immediate cause of this cabinet collapse is the strong opposition in parliament to the austerity budget bill. As the French government pushed for austerity measures, including welfare budget cuts to secure fiscal soundness, opposition parties and citizens fiercely resisted, leading to a vote of no confidence in the cabinet. There are now even concerns that France could face a sovereign default if it fails to properly repay its national debt in the future, but political backlash is making it increasingly difficult to implement an austerity budget.

Confusion Caused by the Semi-Presidential System... Repeated Votes of No Confidence

On the 10th (local time), anti-government protesters in Lille, northern France, are burning the French flag. Photo by AP Yonhap News

France's political instability stems from its unique semi-presidential system. This system, which is a hybrid between a presidential and a parliamentary system, means that the president and the parliament are elected separately. The president, elected under the semi-presidential system, has the authority to nominate the prime minister, who then forms the cabinet. Parliament has the power to pass a vote of no confidence against the cabinet, but not against the president. Conversely, the president holds the power to dissolve parliament and take emergency measures, allowing them to make urgent decisions without parliamentary consent in times of national crisis.

The adoption of this system is rooted in France's historical experience. From 1870 to 1958, France operated under a parliamentary system for about 80 years, during which time it experienced extreme political instability, with as many as 120 prime ministers being replaced. The severity of the situation is illustrated by an anecdote from World War II, when U.S. President Franklin Roosevelt, in a meeting with General Charles de Gaulle, reportedly said, "Who is your prime minister? There have been so many changes that I don't know a single name."

To resolve this chaos, France adopted the semi-presidential system in 1958, but the current situation suggests it has not been a fundamental solution. Five cabinet changes in 20 months show an instability not much different from the parliamentary era, raising questions about the effectiveness of the semi-presidential system.

The Shock of 5,200 Trillion Won in National Debt... Increasing by 20 Billion Won Every Hour

Reuters Yonhap News

The background to France's push for austerity measures is a severe fiscal crisis. The current French government debt stands at 3.3 trillion euros, which is over 5,200 trillion won in Korean currency-a staggering amount. This represents 114% of France's gross domestic product (GDP), more than 40% higher than the OECD average of 74%. It is the fifth highest government debt in the world, putting France at a dangerous level.

Even more alarming is the speed at which the debt is increasing. France's national debt is reportedly growing by 20 billion won every hour. Last year's fiscal deficit alone reached 142 billion euros (about 230 trillion won), which is equivalent to one-third of South Korea's entire annual budget.

To make matters worse, France is also in a position where it must play a key role in European defense. Alongside major European countries such as the United Kingdom and Germany, France has agreed to form and deploy a peacekeeping force for Ukraine, and has also committed to a significant share of the ongoing NATO and European defense modernization projects at the request of the United States government. As a result, an increase in the defense budget has become unavoidable.

In this context, the French government announced last July that next year's budget would be reduced by 44 billion euros (about 72 trillion won) compared to this year. The government has drawn up an austerity budget, stating that it must prevent a national bankruptcy even if it means cutting back on welfare policies such as pensions, health insurance, and unemployment benefits. However, as soon as this announcement was made, opposition parties and civil society strongly objected. Anti-government protests have erupted across the country, including in Paris, and are escalating into more radical actions such as highway blockades and arson. Protesters are now even calling for President Macron to step down.

The protestors' demands are clear. They argue that even now, the public is suffering severely due to inflation, and that cutting welfare budgets first threatens their very survival. In fact, since the outbreak of the war in Ukraine, energy costs have risen four to five times, severely worsening the economic situation for ordinary citizens. While citizens are pressuring the government to cut other areas of the budget first, the government finds it difficult to immediately reduce spending in other sectors.

Concerns Over IMF Bailout... France on the Brink of Sovereign Default

Reuters Yonhap News

If France ultimately fails to reduce its fiscal deficit, the worst-case scenario it could face is a bailout from the International Monetary Fund (IMF). Such concerns are already being raised both inside and outside France. Given the current pace of debt growth and the size of the fiscal deficit, analysts warn that France will have to borrow from the EU, and if that is not possible, it may have to turn to the IMF.

The bigger problem is that France is the second-largest economy in Europe after Germany. If the government defaults due to a fiscal crisis and President Macron is forced to resign, triggering an early presidential election, France's international credibility will plummet. This could very likely lead to a decline in the value of the euro.

Moreover, France is home to major investment banks and financial institutions, which have branches and make significant investments throughout Europe. The collapse of the French financial system could have a domino effect across the entire continent. Experts warn that there is a risk of a repeat of the wave of national bankruptcies seen during the Southern European financial crisis of 2011.

In particular, while the Southern European financial crisis arose in countries with relatively small economies such as Spain and Greece, France is the second-largest economy in the Eurozone after Germany, raising concerns that even a collective effort by all of Europe may not be enough to overcome the crisis.

A Fiscal Crisis Spreading Across Europe... All Major Countries Running Deficits

Reuters Yonhap News

The problem is that this fiscal crisis is not unique to France. The European Union (EU) recently warned countries with severe fiscal deficits to improve their fiscal soundness. There are seven such countries, including France, Italy, Hungary, Poland, Slovakia, and Belgium.

The fiscal deficits of these countries range from 4% to over 7% of GDP. This far exceeds the 5% of GDP defense spending target that President Trump demanded from European countries. More seriously, all of these countries are major European powers and are expected to play a key role in defense against the Russian threat going forward.

With fiscal deficits this severe, it is difficult to expect an improvement in Europe's overall defense capabilities in the short term. On top of this, soaring energy prices, inflation, and a tariff war initiated by the United States have made it extremely difficult for the European economy to recover. If European countries continue to fall into economic difficulties, their deterrence against Russia could be significantly weakened. If these countries become preoccupied with saving their own economies, there is a risk that defense in Eastern Europe could be compromised, increasing the possibility of further escalation by Russia.

Since the end of the Cold War, European countries have drastically reduced defense spending and significantly increased welfare spending, as peace has continued for more than 30 years. However, the war in Ukraine has brought a complex shock all at once, exposing vulnerabilities for which Europe was unprepared. The problem is that it is nearly impossible to reverse welfare policies that have been in place for over 30 years overnight. As the French case shows, once a welfare policy is implemented, it becomes a political burden that cannot be undone. In the worst case, it can lead to the collapse of the government, which is why the Macron administration is also finding it difficult to cut fiscal spending.

Other countries that have witnessed this situation firsthand are expected to take a more cautious approach to increasing welfare spending in the future. Governments around the world, including South Korea, are likely to use France's case as an important reference point in discussions about expanding welfare policies.