(Bloomberg) -- The French government submitted a long-term plan to parliament to rein in its runaway deficit in the coming years as the country seeks to restore investor confidence and avoid sanctions under the European Union’s new fiscal rules.
France’s executive committed to bring the budget deficit to 2.8% of economic output in 2029 from 6.1% in 2024, starting with a sharp adjustment next year. The outline is based on growth accelerating from 1.1% next year to 1.4% in 2026 and 1.5% in 2027.
The document will be sent to the EU by the end of the month as part of a procedure for France to get an extension to seven years from four to repair public finances. To meet the conditions for such an extension, the government also presented reforms it said would improve its economic prospects, including the already-adopted increase in the retirement age and further changes to unemployment insurance.
The plans are pivotal in France’s efforts to restore fiscal credibility after repeated slippages over the last year and as the minority government resulting from snap elections struggles to get parliamentary backing for spending cuts and tax increases in 2025.
Investors have reacted to the political instability and fiscal uncertainty by selling French bonds, driving the country’s borrowing costs higher compared to those in Germany. The premium the country pays on ten-year debt compared to Germany is currently around 72 basis, while it was under 50 before the elections.
Ratings agencies have also sanctioned France, with Fitch putting its assessment on negative outlook and Scope downgrading the country last week. Moody’s is due to issue an assessment on Friday.
Under new fiscal rules, EU member states were due to submit medium term plans earlier in September, but France and others have negotiated extensions to that deadline.
The new framework is designed to give countries more agency over plans to repair their finances and the opportunity to take more time if they commit to reforms in other areas.
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