French politicians agree on the need to strengthen public finances and this consensus keeps financial markets calm despite the political instability France faces from mid-2024, said the head of the European department of the International Monetary Fund (IMF), Alfred Kammer.
Kammer said French fundamentals are solid, the country has no liquidity problems, spreads on French bonds versus German bonds are tight and France has a preliminary budget proposal with a lower budget deficit for 2026.
“In terms of near-term risks, they have not risen to a level that is of particular concern,” Kammer told Reuters.
“What makes us positive is that we expect the 2026 budget to be presented in line with French commitments under European fiscal rules in order to reduce the budget deficit to 4.7% of GDP,” Kammer said.
French public debt rose to 114.1% of GDP in the first quarter of the year, from 113.2% at the end of 2024, well above the 88% of GDP for the entire euro zone, making France the third most indebted country in the EU, after Greece and Italy.
Kammer said that while French political parties are hotly debating measures to reduce the deficit, the direction of the discussion – more fiscal consolidation – is clear and indisputable.
“What happens sometimes is that there is a lack of recognition and then the reminder comes through the action of the markets,” Kammer said.
“One of the reasons markets remain relatively calm is that the political class and members of Parliament clearly understand that this is a problem they need to solve,” he said, adding that that understanding does not preclude a difference of opinion on how fiscal consolidation should be achieved.
Source: Terra
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