Key facts
- France's government proposed a 2027 budget with €43 billion in savings.
- The budget aims to reduce the deficit from an estimated 5.4% of GDP to 5% in 2027.
- Proposed savings include €9 billion in state spending cuts and a freeze on adjusting pensions for inflation.
- An extended temporary tax on big companies is expected to bring in €5 billion.
- Lawmakers will debate the budget in the coming weeks.
- Borrowing costs for French 10-year bonds over German equivalents crossed 130 basis points.
The French government on Thursday proposed a 2027 budget that includes €43 billion in savings, an effort to reduce the budget deficit to 5% of GDP and to reassure markets concerned about the nation's fiscal health. Economy and Finance Minister Roland Lescure presented the budget, stating the government's intention to return to fiscal consolidation in 2027.
The proposed measures include €9 billion in state spending cuts, a freeze on adjusting pensions for inflation, and the extension of a temporary tax on large companies, which is projected to generate €5 billion. These, combined with €11 billion in savings from measures already adopted this year, are intended to meet the deficit reduction target. The government also committed to increasing its annual contribution to the European Union budget by €2.5 billion.
Lawmakers across the political spectrum view Paris' proposals to delay access to welfare outlays and make key provisions modifiable as an overture to Marine Le Pen's National Rally party. The budget process has become particularly challenging since snap elections in 2024 resulted in a hung parliament, leading to the dismissal of two previous prime ministers who attempted to pass spending plans.
Some lawmakers believe the National Rally may support the budget, allowing Le Pen to project an image of fiscal responsibility while retaining the ability to amend the text if she wins a future election. However, others caution that while the party is currently showing openness, it could still choose to block the budget later. The ongoing debate and potential for a protracted, contentious process could exacerbate concerns about a sovereign debt crisis, especially given rising borrowing costs and record-high French debt levels.
Despite warnings from some quarters, Lescure dismissed fears of an impending financial crisis, asserting that "France's signature is solid."