France Could Cut Deficit to EU Limit in Five Years, Says Bank of France Chief

PARIS (Reuters) – The head of the Bank of France, Francois Villeroy de Galhau, stated that achieving a budget deficit of 3% of GDP within three years is not realistic; however, he believes it could be feasible within five years if appropriate measures are taken.

Villeroy, who also holds a position at the European Central Bank, expressed this viewpoint during an interview on France 2 TV. He acknowledged that a three-year timeline is not practical from an economic or growth perspective.

Earlier this week, French finance minister Antoine Armand reported that the nation’s budget deficit stands among the worst in history. The government anticipates a budget deficit of 5.1% of GDP for 2024, significantly above the European Union’s 3% threshold.

Amidst these challenges, Prime Minister Michel Barnier indicated a willingness to consider tax increases for the wealthy and certain corporations to help manage the deficit. He also mentioned that spending cuts would be part of their strategy, a point supported by Villeroy in the interview.

One of the significant challenges for France’s newly formed government will be to navigate the budget for 2025 through a fragmented parliament.

On a positive note, consumer confidence in France rose for the third consecutive month in September, exceeding analysts’ forecasts, according to official INSEE data. Increased optimism regarding significant purchases and savings contributed to a two-point increase in the consumer confidence index, which now stands at 95—still below the long-term average.

Additionally, concerns regarding unemployment have also diminished.

However, investor anxiety about the new government’s capacity to address the substantial budget deficit was reflected in a brief rise in France’s borrowing costs above those of Spain on Tuesday, marking the first such occurrence since 2008.