France cannot realistically lower its budget deficit to an EU limit in three years but it could be possible within five years with the right course of action, Bank of France head Francois Villeroy de Galhau said on Wednesday.
The previous government had planned to cut the fiscal shortfall to three per cent of GDP by 2027, but weak tax revenues and budget overruns have put that target all but out of reach, leaving a hole for the new cabinet that took office this month.
“Three years is not realistic, not economically or with regards to growth. But to do it in five years is possible,” Villeroy, who is also a policymaker at the European Central Bank, told France 2 TV.
Earlier this week, Finance Minister Antoine Armand said the budget deficit was one of the worst in French history. The last government had hoped to limit the 2024 budget deficit to 5.1 per cent of GDP, but the latest estimates suggest it may spiral towards six per cent.
The overshot puts huge pressure on new Prime Minister Michel Barnier to come up with billions of euros in budget cuts as well as a some targeted tax increases as it races to finalise the 2025 budget.
Barnier has suggested he would be open to raising taxes on the wealthy and some corporations. Spending cuts are also expected, which Villeroy said in the interview that he supported.
Time is running out for the government to finalise its 2025 budget and hand it over to lawmakers, with mid-October the very latest if it is to be passed by parliament before the end of the year, the head of the Cour des Comptes public audit office Pierre Moscovici said.
He added that parliament could pass special emergency laws to ensure taxes are in place by the start of the year, allowing for the overall budget bill to be dealt with later.
“That would be rather unorthodox, to say the least,” Moscovici told journalists.
In rare good news for the new government, consumer confidence improved for the third straight month in September, topping analysts’ expectations, official INSEE data showed.
An increase in the proportion of households feeling that the present is a good time to make big purchases, as well as easing concern about unemployment, helped drive the index up two points to 95, still below the long-term average but at its highest level since February 2022.
But the proportion of households considering that now is a good time to save more also increased, a possible sign that consumers want to build up a cushion of spare cash in case times get tougher ahead.
While consumer confidence has improved, investors remain concerned about the new government’s ability to tackle the deficit, pushing France’s borrowing costs briefly above Spain’s on Tuesday for the first time since 2008.