BdF chief urges French politicians to break budget deadlock

The governor of the Banque de France (BdF) has urged rival factions in the country’s parliament to coalesce around a budgetary proposal, rather than fall back on a “special law” – provided for under the constitution – that would allow the government to tax and borrow without an approved fiscal plan.

Emmanuel Moulin, who also sits on the European Central Bank’s governing council, told French television channel Public Sénat on September 25 that “everyone should take responsibility” when it came to improving the public finances.

His comments came as French lawmakers are tasked with agreeing on a draft 2027 budget by early October. The package, due to be put to a parliamentary vote on November 17, could help reduce the national deficit from 5.4% of GDP in 2026 to 5% in 2027.

In June, the French central bank wrote that if France failed to cut its deficit to 5% of GDP, “the factors supporting its sovereign debt could be eroded further, raising the risk of further downgrades by rating agencies”.

France’s budget dispute has its roots in 2024’s snap legislative election, which failed to deliver an absolute majority for any of the parties in parliament. In February, prime minister Sébastien Lecornu used the special law to force through a budget for 2026. This came after two previous heads of government were ousted over budgetary rows in 2024 and 2025.

However, Moulin said investors’ appetite for French government bonds remained strong, and that “there should be no concerns about France’s capacity to finance itself”. “What is worrying is the upward trend in long-term [government] borrowing costs,” he added. “That is principally due to political infighting.”

The interest rate on France’s 10-year government bond reached 4.7% on September 24, more than one percentage point higher than Germany’s – a gap Moulin described as “well above what is acceptable”.

The BdF governor, who took office in June after his predecessor François Villeroy de Galhau announced in February that he would step down early, acknowledged that bringing the deficit back to 3% by 2029 would be “tough to do”. However, he insisted it was necessary to avoid the country being stuck servicing its debt rather than investing in its future.

The ECB’s 2022 transmission protection instrument allows it to buy a member state’s bonds to counter “unwarranted, disorderly” movements in yields that pose a threat to the monetary policy transmission mechanism.

However, Moulin said it would be “flawed reasoning” to expect the ECB to step in if the government was struggling to borrow on the financial markets because “the instruments of change are in our hands”.

Although France’s economy shrunk by 0.2% in the first quarter of the year, the BdF governor pointed to the country’s below average annual inflation figures – 2.4% in August against 3.2% in the eurozone – which he attributed mainly to France’s nuclear power generation capacity. France had relatively “cheap” energy, top-tier talent and high household savings, he said, adding “we need to stop the doom and gloom”.

Once this year’s budget has been passed, the focus will turn to next April’s presidential election. The results of the Senate elections, announced today (September 28), show Marine Le Pen’s opposition National Rally party forming a parliamentary group in France’s upper house for the first time.