Finance
France can't stray far from 5% deficit - central bank head
Published by Global Banking and Finance Review
Posted on January 24, 2025
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Published by Global Banking and Finance Review
Posted on January 24, 2025
PARIS (Reuters) - France needs to bring its public sector budget deficit as close as possible to 5% of economic output this year as a first step towards getting the public finances back under control, the head of the central bank said on Wednesday.
France's new Finance Minister Eric Lombard is currently rewriting 2025 budget legislation after opposition lawmakers toppled the previous government last month because it had tried to force an unprecedented package of belt-tightening measures through parliament with special powers bypassing them.
Lombard said on Monday he would aim to keep the fiscal shortfall in a range of 5-5.5% of economic output, slightly easier than the 5% target his predecessor had targetted.
Bank of France Governor Francois Villeroy de Galhau warned that the public finances had already passed "multiple critical thresholds", leaving France with the biggest deficit in the euro zone this year.
"2025 must mark a first significant step (towards) credibility. This year the deficit has to be as close as possible to 5% of GDP and clearly less than 5.5%," Villeroy said in a New Year's address at the central bank, with Lombard and other economic actors in attendance.
He added that the first step towards steering the deficit back towards the European Union's 3% limit by 2029 should include targeted tax increases, followed by efforts to get spending in control.
Lombard is meeting with some opposition parties this week in hope of building enough support to pass a reworked budget next month and avoid a no-confidence vote like the one that brought down the previous government.
France's failure to pass a 2025 budget and collapse of the government has put its bonds under pressure and triggered a downgrade by credit rating agency Moody's.
The political drama is also weighing on business and consumer morale, although Villeroy said that fears of recession were overblown.
(Reporting by Leigh Thomas; Editing by GV De Clercq)