France‘s belt-tightening budget will attempt to regain control over the country’s “colossal” debt burden, Finance Minister Antoine Armand has said.
The minister was speaking as the government delivered its 2025 budget on October 11, with the plan including €60 billion worth of spending cuts and tax hikes on large enterprises and wealthy individuals in the hopes of tackling a soaring fiscal deficit.
Armand insisted that the government would be keeping a close eye on the financial markets for their response to the budget.
“Our policy is not made for rating agencies but we look at the international climate and at how France is viewed,” Armand told France 2 TV.
“Facing a spiralling deficit, we must act and that is exactly why we presented yesterday a recovery budget. We absolutely need to regain control over our debt and our deficits.”
Ratings agency Fitch is scheduled to update its view on France‘s debt late on October 11, although markets see a bigger risk of a downgrade from Moody’s when it reviews its position at the end of the month.
Prime Minister Michel Barnier’s new government is under increasing pressure from financial markets and France‘s European Union partners to take action after tax revenues fell far short of expectations this year and spending exceeded them.
“The magnitude of the proposed consolidation and the corresponding reliance on tax increases leaves us less confident in the ability of the government to meet its 2025 deficit target of 5.0 per cent,” said investment banking company Goldman Sachs analysts in a research note.
France‘s borrowing costs surged after President Emmanuel Macron called a snap parliamentary election and his centrist party then lost to a left-wing alliance. Financial markets’ shifting perception of French risk has seen the premium on the country’s bonds surpass that of their Spanish equivalent.
But the budget squeeze, equivalent to two points of national output, has to be carefully calibrated to placate opposition parties, who could not only veto the budget bill but also band together and topple the government with a no-confidence motion.
