The French government is preparing sharp budget spending cuts of over €50 billion

The French government plans to carry out budget consolidation of approximately €54 billion in 2027, trying to reduce the public finance deficit to 5% of GDP. The main burden will fall on reducing public spending, including pensions, while the defence budget is not planned to be cut.

Prime Minister Sébastien Lecornu presented the main parameters of the upcoming budget after a government seminar on 17 September. It is not only about direct spending cuts: the total fiscal effect of €54 billion is also to be formed by tax decisions and other deficit-reduction measures.

Separately, the government expects to save about €6 billion on the pension system. Options include limiting the indexation of payments or reducing some tax benefits for pensioners. Spending of most ministries is also to decrease, with the exception of defence.

In addition, Paris wants to extend the additional tax on large companies, which was introduced in 2025 as temporary. Last year it brought approximately €8 billion to the budget. In a softened version for 2027, the government expects to receive about €5 billion from it.

The need for large-scale savings is intensified by weak economic growth and the rising cost of servicing public debt. The Bank of France on 15 September worsened its forecast of the country's GDP growth for 2026 to 0.4%. In the first quarter the economy contracted by 0.2%, and in the second it showed no growth.

At the same time, the state's interest costs are growing rapidly. According to government estimates, about €65 billion may be spent on debt servicing in 2026 – about a quarter more than a year earlier. In 2027 this amount may grow by about another €10 billion.

The pressure is also visible in the debt market. The spread between the yield on French and German ten-year government bonds, which investors use as an indicator of the risk of French debt, has approached the highest levels since the eurozone debt crisis in 2012.

At the same time, the budget plan still has to pass parliament, where the Lecornu government has no majority of its own. Some opposition forces have already spoken out against pension-related cuts, so the Budget review may end in a no-confidence vote in the government.

For Lecornu this will be the last full-scale budget before the presidential elections in France in spring 2027. The government is also trying to keep the 2026 deficit below 5.5% of GDP after the previous target of 5% had to be postponed.

Source: Financial Times, Le Figaro, Banque de France