French Prime Minister Sébastien Lecornu has proposed a €54 billion ($62 billion) “effort” to control government spending in the 2027 budget, aiming to prevent the deficit from widening further. This plan seeks to reduce the public deficit to 5% of economic output, down from an anticipated 5.4% in 2026. The government initially targeted a 5% deficit for 2026, but slower growth and rising interest costs made this goal unattainable. Lecornu emphasized that these measures, while significant, do not constitute austerity, but rather a moderation of spending growth.
The proposed cuts are critical as France faces economic challenges, including a national debt at 117.5% of GDP—a level not seen since World War II—and surging government bond yields. The country's 10-year borrowing costs have risen faster than other developed economies, with the premium France pays over Germany for its bonds reaching a 104-basis-point difference, the highest since 2012. This situation, exacerbated by rising energy prices and inflation concerns, underscores investor unease about France's fiscal position ahead of the presidential election.
Key areas targeted for spending adjustments include housing assistance (APL), social aid, healthcare, and local government budgets. While public sector workers will not receive cost-of-living adjustments, Lecornu assured that no pensions would be reduced, with debates on the pace of increases to be settled in parliament. The government also plans to let income tax thresholds rise to increase revenue from individuals, while reducing taxes on some companies. These measures aim to stabilize public finances and ensure compliance with EU spending guidelines, despite the political risks involved just months before the presidential election.
