France's belt-tightening plan to avoid being 'crushed' by mounting debt

PARIS (Reuters) -French Prime Minister Francois Bayrou on Tuesday announced a plan to steady France's creaking public finances, outlining 43.8  billion euros ($50.88 billion) in deficit reduction measures in 2026, and proposing cutting two bank holidays to spur growth.

Below is a factbox on the key measures:

WHY ARE FRANCE'S FINANCES SO BAD?

France saw its budget deficit hit 5.8% of gross domestic product last year, nearly double the official EU limit of 3% of GDP, as a political crisis left four successive governments paralysed and incapable of tackling an unexpected drop in tax income and surge in spending for a second year.

Bayrou, a long-time debt hawk who is already facing an uprising from opposition lawmakers over his plan to push unpleasant spending cuts through a deeply divided parliament, said France had become "addicted" to public cash, and needed to get its house in order. France faces credit ratings downgrades and higher interest payment costs if it cannot steady the ship.

WHAT IS BAYROU'S PLAN?

The government has targeted a budget deficit of 4.6% in 2026, and aims to bring it down to 3% in 2029. The plan will be two-pronged, focused on debt reduction and boosting industrial growth and job creation.

KEY POINTS OF THE DEFICIT-REDUCTION PLAN

- A freeze on state and local spending, excluding defence.

- Cutting 3,000 civil service jobs with no replacement of one in three retirees from 2027.

- Merging or closing government agencies, trimming 1,000–1,500 posts.

- A 5  billion euro cap on health spending growth via higher co‑pays, limiting free drug schemes, efficiency gains and sick‑leave reforms.

- 7.1  billion euros to be saved by freezing social benefits, civil servants' wages and income tax brackets next year at 2025 levels.

- 9.9 billion euros to be saved via a crackdown on fraud, a curbing of tax loopholes, a restructuring of a tax break for pensioners, an added solidarity surcharge for high earners, and a new parcel tax.

PROPOSED MEASURES TO IMPROVE PRODUCTIVITY

- Cut two national public holidays - perhaps Easter Monday or May 8 - to increase annual working days.

- Reform employment system to provide faster job placement and streamlined hiring rules.

- Introduce a unified social allowance to incentivise work.

- Reform unemployment insurance and pension schemes, with special provisions for mothers and strenuous jobs.

- Cut red tape, with a plan to offer firms the chance to opt for simplified regulation in exchange for fewer public grants and a bill later in the year that would allow the fast-tracking industrial site authorisations.

- Stimulate industrial competitiveness by extending nuclear plants to 50–60 years and restarting investments in hydroelectric power.

- France will audit underperforming sectors to identify opportunities for local production, while strategic support will be directed toward high-performing industries through strengthened public-private coordination.

- Invest in future-facing industries, particularly in artificial intelligence and cybersecurity.

- Reforms of public procurement with France advocating for a "European preference" in EU tendering rules to prioritize domestic and continental suppliers.

(Reporting by Gabriel Stargardter; Editing by Susan Fenton)