(Bloomberg) -- French Finance Minister Eric Lombard said he secured support from Brussels for his deficit-reduction path, in a boost for the government as it tries to push through massive spending cuts to repair public finances.
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France has pared back ambitions for fiscal consolidation after Michel Barnier’s government collapsed in December in a parliamentary row over plans for a sharp reduction in the deficit to 5% this year from 6.1% in 2024.
The new administration led by Prime Minister Francois Bayrou is instead targeting a gap of 5.4%. It has, however, maintained a goal of getting it below the European Union’s 3% limit by 2029.
As a first step, Lombard has set out €53 billion ($55 billion) of spending cuts and tax rises in the delayed budget bill for this year, which is still making its way through parliament.
EU backing for France’s commitment to longer-term objectives is a source of relief for Bayrou’s government as it struggles to find a way to rein in the deficit that can both restore investor confidence and find support in a hostile, divided National Assembly.
“The budget we’ve presented is above all in the interest of our country,” Lombard told reporters after a meeting with EU counterparts in Brussels on Tuesday. “We can’t leave such a level of debt and deficit for our children and grandchildren.“
The political upheaval of recent months and doubts over France’s finances have contributed to market selloffs that drove up the country’s borrowing costs relative to peers.
The gap between French and German 10-year yields, a closely watched risk gauge, has narrowed in recent days to around 77 basis points from above 88 basis points in December, providing some relief.
While Bayrou still faces opposition in parliament to the budget plans, his government has a greater chance of getting the finance bill adopted after negotiating the indirect backing of some Socialists.
Until it becomes law, the administration is reliant on emergency legislation to keep functioning with minimal spending.
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