France aims to keep 2026 deficit below 4.8% of GDP

France is locking in a 4.8% deficit ceiling for 2026, as the government scrambles to hold its fiscal credibility together and avoid choking under its own ￰0￱ Villeroy de Galhau, Governor of the Bank of France, told lawmakers that capping the budget shortfall at that level is the only way to stay on track toward a 3% deficit target by 2029. “It is absolutely necessary to get within 3% between now and 2029 and this means a maximum deficit of 4.8% next year to cover a quarter of the path,” Villeroy said in an interview with La Croix, warning that anything more risks pushing France into “gradual suffocation.” The National Assembly is still grinding through the 2026 draft ￰1￱ currently sets a deficit of 4.7%.

But Prime Minister Sebastien Lecornu, whose survival depends on opposition support, has publicly floated ￰2￱ says the real aim is to stay “within 5%,” if that’s what it takes to avoid another political bloodbath. “It is no longer possible to govern by the discipline of one camp alone,” Lecornu told lawmakers, “but by the cultivation of a rigorous debate between lawmakers who start with different beliefs.” Credit outlook slashed as Macron’s pension freeze fuels backlash Moody’s Ratings didn’t waste time ￰3￱ agency slashed France’s credit outlook from stable to negative, citing political gridlock and legislative chaos. “The decision to change the outlook to negative reflects the increased risk that the fragmentation of the country’s political landscape will continue to impair the functioning of France’s legislative institutions,” it said ￰4￱ still holds a Aa3 rating, seven levels above junk, on par with the UK and Czech ￰5￱ that gap is shrinking ￰6￱ downgrade followed earlier hits from S&P, Fitch, and DBRS, as investors began questioning how long France could delay difficult ￰7￱ of those delays?

President Emmanuel Macron’s pension reform, which would have raised the retirement age from 62 to ￰8￱ suspended it under pressure from left-leaning opposition ￰9￱ Moody’s warned that leaving the reform on ice for too long would damage growth and worsen long-term budget ￰10￱ that hasn’t calmed ￰11￱ Socialists, who Lecornu needs to keep his job, are threatening no-confidence votes unless the budget includes fewer cuts and new taxes on rich households and big ￰12￱ is trying to keep them at bay without triggering another ￰13￱ also backed off using Article 49.3, a constitutional tool that allows governments to bypass votes, saying this battle would have to be fought “the hard way,” through direct ￰14￱ pressure builds as spread with Germany widens The government’s proposed draft trims the deficit from 5.4% in 2025 to 4.7% in 2026, but there’s no guarantee it survives the Assembly floor ￰15￱ has said lawmakers are free to adjust it, so long as the number stays below 5% and doesn’t derail the longer-term 3% ￰16￱ Minister Roland Lescure responded to Moody’s cut by insisting France remains committed to a “ambitious” deficit ￰17￱ he admitted the outlook downgrade shows there’s an “absolute necessity” for a budget deal.

Moody’s was clear about what happens if the stalemate continues: “If persistent, the inability to pass legislation that effectively addresses such policy challenges would mark a weakening of the country’s institutions.” That warning hit the market ￰18￱ asset sell-offs have picked up steam since Macron’s June 2024 snap elections, which left the National Assembly in ￰19￱ yield spread between 10-year French and German bonds, a key market risk gauge, hit 89 basis points, nearly double what it was before the ￰20￱ Friday, it settled at 81, still the highest in 11 ￰21￱ came S&P’s unscheduled downgrade, wiping out France’s average double‑A rating across all major credit ￰22￱ triggered forced selling among investment funds with tight rating ￰23￱ scrambled to rewrite their investment rules just to keep holding French bonds.

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