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JOHN LICHFIELD

ANALYSIS: What France’s financial aid bill has revealed about the likelihood of early elections

A package of economic aid to help the French deal with the cost of living crisis has proved the first big test so far of France's new government, which has lost its absolute majority - John Lichfield looks at what the bill's stormy passage can tell us about the months ahead in France.

ANALYSIS: What France's financial aid bill has revealed about the likelihood of early elections
Finance minister Bruno Le Maire addresses the Assemblée nationale during the storm debates on the cost of living crisis. Photo by Christophe ARCHAMBAULT / AFP

A messy experiment is in progress this week on the left bank of the river Seine in Paris. It is called parliamentary democracy.

As a result, petrol and diesel prices may be subsidised this autumn more than the government intended – up to 30 centimes a litre, instead of 18 centimes. Opinions may differ on whether that’s a good thing in the week that France burned in a climate-change induced heatwave.  

For the first time in nearly 30 years, a French President and a French government are having to calculate, cajole and compromise to get basic business through the National Assembly. A €20 billion package of anti-inflation measures is proceeding, snail-like, through the lower house of parliament where June’s election left President Macron’s allies 39 seats short of an overall majority.

There are 20 articles in the cost-of-living package. After three days, deputies have approved five of them, including a 4 percent increase in pensions and welfare payments. The assembly will have to sit until late on Saturday – in July, no less – to meet its timetable and send the government’s plan, and related budget amendments, to the Sénat next week.   

The fact that a quarter of the package has already been agreed suggests that the Prime Minister Elisabeth Borne and her government will find a minimum way of governing over the next few months.

But the most contested articles – notably how to reduce the cost of petrol and diesel – have yet to be reached.

The government wants to phase out its existing 18 centimes a litre subsidy on pump prices from October and replace it with direct payments to people who used their cars for work or who have to drive to work. Opposition groups of Right and Left want massive cuts in petrol and diesel taxes for all.

According to leaks to the French media, the government is now working on a compromise with the centre-right Les Républicains (LR)). The centre-right wanted originally to cut VAT to reduce pump prices to €1.50 a litre (while complaining about the state deficit and debt).

The Républicains leadership and the government have provisionally agreed that the existing 18 centimes a litre subsidy should be  increased to at least 30 centimes from October and phased out from the New Year. The proposed payments to high-mileage motorists would disappear.

It remains to be seen whether all the 61 centre-right deputies – more than enough to give the government a majority  – will go along with this deal. The first couple of weeks of the new assembly have shown that two of the three main opposition groups – the Left and Centre-Right – are themselves much divided.

The government lost a late-night vote on a relatively minor anti-Covid measure last week because some centre-right deputies defied their own leadership and voted against.

The landscape of the new assembly is broadly as follows.

The hard-left La France Insoumise and the Greens oppose almost everything. They shout a great deal and table motions which insult the government. They also complain that the government refuses to work with them.

Their aims are to show off to their core support by: a) opposing Macron at every turn b) defying parliamentary convention.

The rest of the Left – the Socialists and Communists – are calmer. They oppose most of the cost-of-living package as inadequate but abstain, rather than vote against.

The Far Right Rassemblement National is trying to embarrass the government and the Left by seeming serious and constructive. They have opposed most of the package but have voted for some articles and abstained on others.

The government is refusing to negotiate with the Far Right but – to its discomfort – needs them to abstain, at least, on key issues.

The centre-right Les Républicains (LR) are the pivotal group. They are much courted by the government but undisciplined and unreliable. Some of them are closer to the Far Right than to Macron’s Centre.

It is possible that the LR will split in the months ahead but any Macron-compatible centre-right sub-group is likely to fall far short of the 39 extra votes that the government needs.

The cost-of-living package – and maybe even more so the related budget amendments – are an important test of the government’s ability to govern. In her dealings with the assembly so far, the Prime Minister Elisabeth Borne has shown herself to be more politically astute than many people had imagined.

The package will survive, somewhat battered, to progress to the upper house next week and return to the assembly for a final vote early next month. But this is the easy part.

Even if they dislike the details, most of the much-splintered opposition does not want to seem to block inflation relief. The assembly is voting, slowly and painfully, this week on something that French people want.

How can the government, without a parliamentary majority, push through the stuff that France does not want? Such as pensions reform.

There is no obvious answer to that question. My bet would still be on a new parliamentary election next year.   

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ENERGY

EXPLAINED: Why are French energy prices capped?

As energy prices soar around Europe, France is the notable exception where most people have seen no significant rise in their gas or electricity bills - so what lies behind this policy? (Hint - it's not just that the French would riot if their bills exploded).

EXPLAINED: Why are French energy prices capped?

On most international comparisons of rising energy prices, France is the outlier – but the government control of energy prices is not in fact a new policy and was in place well before the Russian invasion of Ukraine sent gas and electricity prices soaring.

At present prices for domestic gas are frozen at 2021 levels and electricity prices can only increase four percent per year. According to economy minister Bruno Le Maire, without these measures French bills would have risen by 60 percent for gas and 45 percent for electricity.

Both these measures – collectively known as the bouclier tarifaire (tariff shield) – are in place until at least the end of 2022, and could be extended into 2023.

The extension of the price shield was confirmed by parliament earlier in August – part of a €65 billion package of measures aimed at tackling the cost-of-living crisis – but had been in place for much longer.

Tariff shield

The reason that gas prices are frozen at 2021 levels is that the freeze came into effect on November 1st 2021 – well before Russia’s February 2022 invasion of Ukraine.

The measure was initially put in place to help people deal with the economic after-effects of the pandemic, but was extended in the spring of 2022, when electricity prices were also capped at four percent.

Price regulation

But although prolonged price freezes are unusual, the French government involvement in price-setting is completely normal and during non-freeze periods, a rate is set each month.

If you read French media (or The Local), you’ll notice regular articles on ‘what changes next month’ which include gas and electricity prices, usually expressed as a month-on-month percentage rise or fall. This refers to the maximum rate that utility companies are allowed to increase their charges per month.

The government-set rate refers to the basic price plan from EDF. Some people are on special deals or time-limited tariffs, so if their deal or payment plan ends and they go back onto the basic rate, they can see a rise above the government rate.

Around 85 percent of households in France get their electricity from EDF. 

READ MORE: Reader Question: Why did my French electricity bill increase by more than 4%

State-owned utilities

So, why is the government involved? Well, it’s the majority stakeholder in EDF, the country’s largest electricity supplier, and owns Gaz de France (Engie). 

At present EDF isn’t completely state owned – although there are plans to fully nationalise it – but it owns 84 percent.

The French state owns a lot of service and utility companies including the country’s rail provider SNCF, postal service La Poste and France Télévisions. One notable exception is the country’s autoroutes, which are run by private companies, although the government sets limits on toll charges. 

Nuclear 

France is less exposed to energy shocks than some other European countries because of its nuclear sector.

It is unusual among European nations in the size of its nuclear industry – around 70 percent of electricity comes from its own domestic nuclear power plants, although during the heatwave several plants have had to lower output as rivers have become too hot to effectively cool the reactors. There are also ongoing technical issues that have seen some of the older plants shut down or forced to lower output.

READ ALSO Why is France so obsessed with nuclear?

France is usually a net exporter of electricity, but at peak times it has to import electricity, usually via the high-priced international spot market.

It does, however, import its gas, mostly via pipeline – in 2020 its biggest supplier was Norway, followed by Russia.

The French government has launched a sobriété energetique (energy sobriety) plan to cut its total energy consumption by 10 percent this year, which it hopes will allow it to get through the winter without Russian gas. 

Riots

Even before the recent €65 billion aid package, the French government was taking a pro-active role in helping people deal with rising prices – from the price shield to fuel rebates for drivers, €100 grants for low-income households and financial aid for industries such as agriculture and logistics so they could avoid passing prices on the consumers.

Cynics say this happened for two reasons – because there were elections in April and June and because the French would riot if their utility bills suddenly doubled.

There’s a kernel of truth in both – cost of living became a major issue in the April presidential elections and one that far-right leader Marine Le Pen very much made her own from early in the campaign, leaving Emmanuel Macron slightly on the back foot, although in truth his government had already introduced several measures to ease the burden on ordinary voters.

It’s also true that the French have a robust approach to holding their government to account, and high living costs have previously inspired noisy and sometime violent protests – the ‘yellow vest’ movement of 2018 and 19 began as a protest over living costs.

But it’s also true that the French State is generally quite involved in people’s everyday lives – as evidenced by those monthly gas and electricity price rates – and taking a laissez-faire approach such as that seen in the UK would be unusual for any French government, even outside of election season.

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