• Bank of France Governor Emmanuel Moulin says France can reduce its public deficit to 3% of GDP by 2029.
  • The government's immediate challenge is passing a 2027 budget that cuts the deficit to 5% of GDP, with €43 billion in spending cuts.
  • Rising borrowing costs and political gridlock complicate the path to fiscal consolidation.

Bank of France Governor Emmanuel Moulin said France can reduce its public deficit to 3% of GDP by 2029, endorsing a three-year timetable that would bring the country in line with European Union fiscal rules. The assessment, reported by CNBC on October 15, is Moulin's view of what France can achieve, not an announcement that the necessary measures have been approved.

The immediate hurdle is passing the 2027 budget. The government proposes reducing the deficit from an estimated 5.4% of GDP in 2026 to 5% in 2027, using €43 billion in spending cuts and other measures. That would begin the adjustment but leave the bulk of the reduction to subsequent years.

France's public debt stood at 119% of GDP at the end of June and is projected to reach 121.7% in 2027 under the budget proposal. Even a smaller annual deficit would not immediately stop the debt ratio from rising.

Borrowing costs have climbed, with the 10-year government-bond yield approaching 5% in recent weeks. Finance Minister Roland Lescure called the higher yields an "alarm signal" on October 14, while stressing that France still has no difficulty issuing debt. The problem, he suggested, is increasingly expensive funding rather than a loss of market access.

Moulin attributes France's additional borrowing premium to both its relatively large deficit and uncertainty over the budget vote. He also places the pressure in a broader international context: inflation concerns and heavy government and corporate debt issuance have pushed up long-term yields across developed economies.

Political Gridlock

The main near-term obstacle is parliamentary arithmetic. Prime Minister Sébastien Lecornu's government lacks a lower-house majority and faces opposition from both the far right and far left. The approaching 2027 presidential election further complicates agreement over cuts and taxes.

France is subject to the EU's excessive-deficit procedure, with Brussels pressing it toward the 3%-of-GDP reference value. That figure concerns the annual deficit, not the accumulated public-debt stock.

On October 7, Moulin said France did not currently need European Central Bank intervention and that the solution lay in domestic budget decisions. His October 14 remarks also emphasized that ECB monetary-policy decisions remain data-dependent and taken meeting by meeting.

In a related October 14 development, Marine Le Pen advocated €140 billion in savings, partly through reducing France's EU-budget contribution, while acknowledging that this would provoke a confrontation with Brussels. That is an opposition proposal, not enacted government policy.

Moulin favors focusing more on expenditure than taxation and identifies pensions, healthcare and social benefits as major sources of France's spending gap with neighboring countries. Those remarks indicate where the debate is concentrated; they do not establish that specific benefit cuts have been approved.

He warns that persistently higher borrowing costs would weigh on growth, citizens and companies. Conversely, consolidation must be implemented against a backdrop of weak activity and pressure on purchasing power. Banque de France's September outlook projected 0.4% growth in 2026 and 0.9% in 2027.

Moulin traces the deterioration partly to successive shocks: pandemic support, followed by the energy-price response after Russia's invasion of Ukraine. In a September interview, he said France's energy-protection measures had cost more than €100 billion.

He also points to earlier French deficit reductions as evidence that another adjustment is possible. However, he distinguishes today's situation from both the 2008 financial crisis and the euro-area sovereign-debt crisis: in his assessment, banks are stronger and the euro area is more resilient.

IMF Managing Director Kristalina Georgieva is more cautious about the speed of restoring confidence, warning on October 14 that bringing debt and deficits down to reassuring levels will take time.

Moving from 5.4% to 3% requires a 2.4-percentage-point reduction in the deficit-to-GDP ratio. Because the proposed 2027 target is still 5%, the timetable implies considerably more adjustment afterward. Success would improve fiscal flexibility and reduce exposure to rising interest costs. But the government's own projection of debt reaching 121.7% of GDP in 2027 shows why a lower deficit is only an initial step.

Correction: An earlier version of this article misstated the deficit reduction required to reach 3% of GDP. It is 2.4 percentage points, not 2.4%.