(Bloomberg) -- Bank of France Governor Francois Villeroy de Galhau said it’s urgent for the country to deal with its deficit and debt challenges as bond markets are increasingly sending warnings about the risks.
“In recent days, international lenders, those who lend to France, are also telling us we must now react,” he said on France 2 television on Wednesday. “Before June, we had an interest-rate spread with Germany of around 0.5 percentage points, and now we are close to 0.8, so we really must deal with this sickness.”
The French government is under pressure to find quick solutions to the country’s fiscal challenges and must present a budget bill for 2025 to parliament in the coming weeks. Prime Minister Michel Barnier indicated on Sunday that he will make the country’s biggest companies and wealthiest individuals pay more tax in an effort to tackle the massive budget deficit — an approach Villeroy has backed.
“When a family is living beyond its means, which is France’s case, you can cut spending or raise revenues,” Villeroy said. “Today, we need to do a both — we need a well-proportioned cocktail.”
He said savings should account for three quarters of the effort. The central banker added that France is in a “relatively favorable” situation for fiscal consolidation because inflation is easing, real incomes are improving and interest rates are falling.
“For 40 years, we’ve been saying it isn’t the moment and that we mustn’t break growth — the result is that public debt is getting out of hand,” Villeroy said. He added that France will soon be the only country in Europe unable to bring its deficit within the European Union ceiling of 3% of economic output.
In an unexpected bright spot for Prime Minister Michel Barnier’s new government, data from statistics agency Insee on Wednesday showed that French consumer confidence rose in September to the highest level since February 2022, the month that Russia invaded Ukraine. The reading was higher than any economist estimate.
Insee said earlier this month that France’s economic growth will be modest on average in the second half of the year as consumer demand picks up only slightly and businesses rattled by political uncertainty continue to hold back on investment.
(Updates with consumer confidence in seventh paragraph.)
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