France Demands Belt-Tightening in 2027 Budget Amid Rising Debt and Investor Jitters
France's 2027 Budget: Austerity Measures and Political Implications
By Leigh Thomas
Introduction to the 2027 Budget Bill
PARIS, Oct 1 (Reuters) - France presented its 2027 budget bill on Thursday, seeking to enact unpopular belt-tightening measures that can lower its deficit and appease increasingly twitchy bond investors ahead of next year's presidential election.
The legislation faces a tough ride in a deeply divided parliament, as political clans position themselves for one of the country's most consequential elections in modern times. France's two previous prime ministers were toppled over their austerity plans.
The presidential vote is due to take place on April 18-May 2, with far-right leader Marine Le Pen ahead in the polls amid a sharp backlash against President Emmanuel Macron's centrist legacy.
Key Austerity Measures in the Proposed Budget
Public Sector and Pension Freezes
The budget squeeze would come from freezing public sector wages and all but the lowest pensions, and from curbs on local government budgets, healthcare costs and reduced tax breaks on employers' payroll contributions.
Taxation Adjustments
It does stop short of a broad-based tax hike on households and businesses while an exceptional surtax on France's biggest companies in place for the last two years will be reduced by 30%.
Government Perspective on Savings
"This budget enables us to get back on track towards consolidation through a significant effort," Finance Minister Roland Lescure told journalists, adding the savings were worth a total €54 billion euros of which €43 billion are new in 2027.
Bond Market Jitters and Investor Concerns
Rising Borrowing Costs
BOND MARKET JITTERS
Prime Minister Sebastien Lecornu faces growing pressure from jittery bond investors, volatile pre-election politics and increasingly restless voters over how the budget savings he plans will affect them.
France's benchmark 10-year borrowing costs rose to 4.96% on Thursday, the highest level since July 2002 and close to 5% as investors question the government's ability to rein in its deficit and fret over political uncertainty heading into the election.
Investor Skepticism Toward Political Promises
Investors have repeatedly voiced concerns over untested spending promises from Le Pen and hardleft challenger Jean-Luc Melenchon.
If Le Pen, a euro-skeptic populist, wins, among her first big challenges will be convincing financial markets to finance her campaign promises in the face of anaemic growth and a long French track-record of missing deficit targets.
Interest Payments and Creditworthiness
Lescure said the soaring cost of interest payments would account for more than half of the budget deficit next year and were on course to reach €100 billion by the end of the decade, but insisted France remained creditworthy.
"Here and there, I hear the prophets of doom promising us worse times ahead. I would like to reiterate here that France’s signature is solid," Lescure said.
Backlash Against Austerity and Social Impact
Public Discontent and Strikes
BACKLASH AGAINST AUSTERITY
Public discontent over high energy prices and the cost of living as inflation climbs higher has heaped pressure on a government will little fiscal room to soften the pain.
Public sector workers held a strike on Tuesday over a wage freeze in the budget while high-school students demonstrations over a lack of resources that they say has left classrooms overcrowded, buildings dilapidated and teachers in short supply are spreading and turning increasingly violent.
Government's Rationale for Fiscal Tightening
Lecornu has said that the budget squeeze is necessary to get the fiscal deficit back on track after predecessors failed to make much headway in the absence of a majority in parliament since Macron held snap legislative elections in 2024.
Deficit Reduction Targets
His government aims to reduce the budget deficit from 5.4% of economic output this year to 5% in 2027, which Lescure said meant it was still possible to reach an EU limit of 3% in 2029 despite many economists doubts.
National Debt and Borrowing Needs
France's persistently high deficit has pushed the national debt burden to a post-World War Two record of 119% of output as of the second quarter, the INSEE statistics office said on Tuesday.
France will have to sell a record amount of debt next year to investors — €340 billion — to fund its fiscal shortfall and refinance a growing amount of bonds issued at rock-bottom rates during the COVID-19 pandemic that are now reaching maturity.
(Reporting by Leigh Thomas; Editing by Alexandra Hudson and Richard Lough)
