France's budget for 2027 is set to face heightened scrutiny as political fragmentation and record debt levels complicate efforts to reduce the deficit to 5% of GDP this year, down from 5.1% in 2025.
Prime Minister Sebastien Lecornu has warned lawmakers against prolonging budgetary uncertainty, emphasizing that financial markets are closely monitoring the presidential campaign scheduled for April 18 and May 2. The government, operating under a hung parliament, has pledged 'big savings measures' in the budget bill slated for early October, aiming to pass the 2027 budget before the election to avoid additional fiscal instability.
Finance Minister Roland Lescure has proposed freezing part of France's pension spending next year as one of the measures to curb expenditures. However, analysts remain skeptical about the feasibility of structural reforms given the political landscape. Christopher Dembik of Pictet described the outlook as 'very pessimistic,' while David Zahn of Franklin Templeton noted that no leading candidate appears committed to reducing the fiscal deficit.
Investor sentiment has already reflected concerns over France's fiscal trajectory. The spread between French and German 10-year bonds widened to 88 basis points, its highest since late 2024, with projections suggesting it could reach or exceed 100 basis points. This comes after Fitch downgraded France's credit rating to A+ a year prior, citing elevated debt levels.
The upcoming election adds further complexity, with polling by Harris Toluna indicating a likely runoff between hard-left leader Jean-Luc Melenchon and far-right veteran Marine Le Pen. Melenchon's platform includes cancelling debt held by the central bank, while Le Pen has proposed lowering the retirement age to 60 for some workers. Both candidates' fiscal policies suggest a potential easing of budget constraints, raising questions about France's ability to manage its debt, which already exceeds 110% of GDP.
Even with deficit reduction efforts, France's Treasury must refinance hundreds of billions of euros in bonds issued during the pandemic at historically low rates. The refinancing burden over the next five years underscores the challenges ahead as the country navigates political divisions and fiscal pressures.
