Bank of France chief Moulin: 3% of GDP deficit possible in 2029 — CNBC
Bank of France Governor Emmanuel Moulin said that France could reduce its budget deficit to 3% of GDP in 2029 despite political instability. As CNBC reports, the country’s deficit stood at 5.1% of GDP last year, and the European Union recommended that Paris bring this figure closer to 3%.
Budget and cost of debt
During IMF meetings in Bangkok, Moulin said that the rise in the cost of French borrowing in recent months was primarily linked to political uncertainty rather than a change in the state’s fiscal stance. According to him, adopting a budget that provides for a deficit of 5% is important to calm markets.
The central bank chief noted that France had reduced its deficit in the past, but this is now more difficult because of the cost of servicing public debt. By his estimate, these costs have risen by about €10 billion per year. Moulin disagreed with describing such measures as austerity policy, calling them an effort to put public finances in order.
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Pressure on the bond market
Yields on French OAT government bonds have risen to multi-year highs this year due to investor concerns over France’s fiscal outlook. Moulin nevertheless said he was confident in the financial stability of France and Europe, citing sufficient capitalization and liquidity in the banking, insurance and financial sectors.
He added that France has no problem finding buyers for its bonds, although it pays somewhat higher yields because of political uncertainty and the need to improve public finances. According to him, investors take into account the scale and diversification of the French economy, low energy prices and substantial household savings.
Spending cuts
The government of Prime Minister Sébastien Lecornu has submitted a draft budget for 2027 that may face obstacles in the politically fragmented National Assembly. Lecornu plans to cut spending by €54 billion. Possible measures include freezing public-sector wages and pensions, changes to certain tax incentives for employment, and limits on local government budgets.
