France Called “Fiscal Time Bomb” as Deficit Plan Shakes EU Confidence

By Staff, Agencies

France’s deepening fiscal crisis is rattling European markets and stoking fears over the eurozone’s economic stability, Bloomberg reported Friday, citing analysts at ING Groep NV.

The euro slipped to a one-month low this week as investors reacted to French Prime Minister Francois Bayrou’s controversial plan to slash the country’s ballooning deficit. The €43.8 billion [$50.9 billion] package includes sweeping austerity measures such as cutting public sector jobs, freezing pensions, and eliminating public holidays to boost productivity.

While some of the euro’s weakness was driven by a stronger US dollar, ING currency strategist Francesco Pesole wrote in a note that France’s fiscal situation is weighing heavily on investor sentiment.

“The French deficit story has been very much in the background as of late, but [Tuesday] probably served as a reminder that it is a ticking bomb for EU sentiment,” Pesole said. He warned that foreign exchange markets could see further disruption in the months ahead.

France’s deficit reached 5.8% of GDP in 2023—nearly double the European Union’s 3% threshold—prompting Bayrou to declare the country’s debt a “mortal danger.” His proposals have reignited fierce debate in parliament, where his minority government faces stiff resistance from both the left and right.

Leftist parties have accused Bayrou of gutting social protections while inflating military spending. “These injustices cannot be tolerated any longer,” said Jean-Luc Mélenchon, head of La France Insoumise, who called for Bayrou’s resignation.

Defense spending has become a flashpoint. France plans to double its military budget to €64 billion by 2027, with President Emmanuel Macron allocating an additional €6.5 billion over the next two years, citing growing security threats across Europe. A recent defense review warned of the possibility of a “major war” by 2030 and named Russia among the primary risks—a charge Moscow has rejected as NATO scaremongering.

Bayrou, who has already survived eight no-confidence motions, must still secure parliamentary approval before submitting the full budget in October. Meanwhile, the right-wing National Rally party has demanded another vote of confidence, vowing to oppose the austerity plan.