IMF chief Georgieva urges France to cut deficit — CNBC

International Monetary Fund Managing Director Kristalina Georgieva urged the French government to reduce the budget deficit in order to convince investors that the country is capable of controlling public finances. She said this in an interview with CNBC on the sidelines of an event in Singapore.

According to Georgieva, France must clearly demonstrate to markets its intention to limit government borrowing. She noted that the country recognizes the need to reduce the deficit to below 5% of GDP.

Pressure on French bonds

Political instability in France has increased pressure on the country's government bonds, known as OATs. Investors are demanding higher yields on them than on Italian government bonds. The yield on 10-year French securities has risen by more than 100 basis points since the beginning of the year.

France is under the European Union's excessive deficit procedure. The EU recommends that the country bring it closer to the 3% of GDP benchmark. Last year, France's deficit amounted to 5.1% of GDP.

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Budget negotiations and protests

The French government is preparing for budget negotiations in a politically fragmented parliament. It seeks support for spending cuts worth tens of billions of euros.

At the same time, the country is experiencing a new political crisis due to nationwide student protests, which have continued for a third week and have been accompanied by violence. Participants in the demonstrations express dissatisfaction with long school days, a shortage of teachers, and the neglected condition of schools.

Georgieva acknowledged that it would be difficult to implement a multibillion budget adjustment under such conditions. At the same time, she emphasized that France's economy is growing and that Europe now has stronger mechanisms to protect financial stability, including the capabilities of the European Central Bank.

She also noted that bond markets respond to fundamental economic indicators: inflation and interest rates have risen, while public debt remains high.