France Aims to Reduce Budget Deficit to 3% by 2029, Central Bank Leader Says

Moulin spoke to CNBC during the IMF Meetings in Bangkok, emphasizing that recent increases in government borrowing costs are primarily due to political uncertainty rather than fiscal policy changes. He highlighted the necessity of having a government budget approved that adheres to the target of a 5% deficit.

In past years, French administrations successfully cut deficits, but Moulin noted that current conditions, including higher debt servicing costs—approximately €10 billion more annually—complicate these efforts. He expressed confidence that a return to a 3% deficit by 2029 remains achievable.

When questioned about the potential need for austerity measures, Moulin refuted this idea, stating that the approach should be seen as "putting the house in order" rather than austerity. Furthermore, Kristalina Georgieva, Managing Director of the IMF, recently advised France to manage its fiscal affairs effectively.

French government bond yields have surged to multi-decade highs this year, sparking concerns of a sovereign debt crisis affecting the euro zone. However, Moulin reassured that France's financial stability remains intact due to well-capitalized banking and insurance sectors with ample liquidity.

He acknowledged the global trend of rising interest rates but remained optimistic that investor interest in French bonds would continue. Despite the higher yields influenced by political instability and the need for fiscal improvement, Moulin noted France's status as the seventh largest economy globally, with a diverse economic base and strong household savings.

Currently, the French government is grappling with a political crisis as Prime Minister Sébastien Lecornu's draft proposal for the 2027 fiscal budget faces obstacles in the National Assembly. Lecornu aims for €54 billion in spending cuts, which may involve freezing public sector wages and modifying tax breaks while attempting to control its substantial debt and budget deficit.

Negotiations over the budget have historically provoked political turbulence, with previous governments ousted over spending disagreements. Additionally, student protests have erupted across France, further complicating the government's fiscal strategy as they demand improvements in education. The government has pledged to add 3,000 teachers in response to these concerns.

With a presidential election looming, right-wing candidate Marine Le Pen has stated her belief that she could bring the deficit below 3% within 18 months if elected, though skeptics question the feasibility of her proposed cuts.