France's budget proposal is a meaningful attempt to tame the deficit, and it risks adverse consequences if it fails to pass, according to a senior Fitch Ratings analyst. In an interview this week, Federico Barriga-Salazar, Fitch's head of western Europe sovereigns, described Finance Minister Roland Lescure's push to pare the shortfall to 5% of output next year as "substantial."
"The whole challenges of the fiscal story are still there, but it's significant enough that it would create a bit of a short circuit if it didn't happen," Barriga-Salazar said. "It is big, it is important. The question mark is whether it gets approved in its current state."
Lescure's budget envisages €43 billion ($48.2 billion) in measures to bring down the deficit and ease financial-market worries about the country's public finances. The extra yield investors demand to hold French 10-year bonds over German ones recently hit its highest since 2011. Even so, Barriga-Salazar offered a sanguine view. "Where we are today, it's a fiscal problem," he said. "It's not a financing problem."
He predicted that if the budget impasse drags on, the government is ready to bypass parliament and push the budget through by ordinance. "They cannot function very well without a budget, so I think this looks like a very likely outcome." He also noted that far-right presidential candidate Marine Le Pen's plan to cut the deficit to 3.7% of GDP in 2027 matches France's existing EU commitments, but said there is not enough detail to show how it can be delivered. Fitch downgraded France to A+ last year, a level Scope and S&P have since matched, while Moody's retains a higher rating. "It's already clear that the fiscal situation in France will be much more difficult," Barriga-Salazar said.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing