France's draft 2027 budget caps net primary spending growth at 0.7%, inside the European Commission's 1.2% ceiling, even as the country's debt-to-GDP ratio is set to climb to 121.7%. Bond markets have already reacted, pushing French 10-year yields above 4.5% and widening the spread over German Bunds beyond 100 basis points, while Prime Minister Sébastien Lecornu proposes €54 billion in spending curbs to defend a slipping deficit target.
Spending capped, but debt keeps climbing
France's Budget Ministry said in a Saturday statement that the draft 2027 budget bill will satisfy the European Union's fiscal recommendations. The plan limits net primary expenditure growth to 0.7%, below the European Commission's recommended ceiling of 1.2%.
The proposal would trim total spending as a share of economic output to 56.9% in 2027, down from 57.1% in 2026, while tax revenues are projected at 44.2% on the same basis. Yet the debt burden keeps rising: the debt-to-GDP ratio is projected to reach 121.7% in 2027, up from 119.3% this year and 115.7% in 2025.
Bond markets under pressure
Persistent fiscal slippage and political volatility have hit French sovereign debt hard this year. France's 10-year government bond yield has surged above 4.5%. The yield spread over benchmark German Bunds also widened beyond 100 basis points to its highest level in over a decade. Investors continue to demand a higher risk premium to hold French OATs due to doubts over Paris's capacity to rein in spending without a stable parliamentary majority.
Political uncertainty complicates the deficit target
The government is struggling to stabilize public finances amid sluggish economic growth and rising interest burdens. On Thursday, Paris acknowledged it had missed its 2026 targets, revealing that the budget deficit will expand to 5.4% of GDP instead of narrowing to the 5% goal set out in the finance law.
Prime Minister Sébastien Lecornu said he will propose €54 billion ($62 billion) in spending curbs to check the growth in outlays and align the deficit with the 5% target in 2027. However, Lecornu's minority government faces a steep challenge in securing parliamentary approval, as opposition lawmakers remain reluctant to support austerity measures ahead of upcoming presidential elections. The Finance Ministry is scheduled to submit the formal budget bill to lawmakers at the end of September.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
