France presents belt-tightening 2027 budget as bond investors sour on French debt

France Presents 2027 Budget Targeting Deficit Reduction Amid Investor Concerns

France's 2027 Budget Bill: Measures, Challenges, and Economic Impact

By Leigh Thomas

Introduction to the 2027 Budget Bill

PARIS, Oct 1 (Reuters) - France is due to present its 2027 budget bill on Thursday after 0930 GMT, 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.

Political Landscape and Election Context

As has become common in France, where the two previous prime ministers were toppled over their austerity plans, 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. 

The vote is due to take place on April 18-May 2, with far-right leader Marine Le Pen far ahead in the polls amid a growing backlash against President Emmanuel Macron's centrist legacy.

Key Budget Measures

The budget squeeze would come from freezing public sector wages and all but the lowest pensions as well as a series of targeted tax measures.    

Investor and Public Reactions

Prime Minister Sebastien Lecornu faces growing pressure from jittery bond investors, volatile pre-election politics and increasingly restless voters over how the €54 billion in budget savings he plans will affect them.

Bond Market Response

France's benchmark 10-year borrowing costs have surged to the highest level since 2008 as bond investors question the government's ability to rein in its deficit and fret over political uncertainty heading into the election.

Public Sector and Student Protests

Meanwhile public sector workers held a strike on Tuesday over a wage freeze in the budget while high school students have blockaded dozens of schools this week in protests over a lack of resources that they say has left classrooms overcrowded, buildings dilapidated and teachers in short supply.

Government Strategy and Fiscal Goals

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.

His government aims to reduce the budget deficit from 5.4% of economic output this year to 5% in 2027.

Debt Burden and Future Financing

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 ThomasEditing by Alexandra Hudson)