Interest rate cuts by the European Central Bank (ECB) will assist in creating favourable conditions for France to implement long-overdue and much-needed budget tightening.

This is according to Bank of France governor Francois Villeroy de Galhau on Monday. 

Last week, the country's independent fiscal watchdog said the government must undergo an unprecedented budget tightening to adhere to Paris' plans of reducing its deficit in line with an EU limit of 3% of output by 2027.

Several economists have cautioned that tightening, likely to be around €50 billion over the period, will impact growth and, therefore, the budget deficit, according to Reuters reports.

In response to such concerns, the governor stated: "The times are not unfavourable for carrying out budget consolidation."

The Bank of France forecasts a robust economic recovery in 2025/26 as lower inflation bolsters consumers' purchasing power and drives household spending growth, whilst rate cuts boost investment.

"So the monetary policy easing period creates favourable conditions for budget consolidation," Villeroy told a news conference.

With inflation easing back towards its 2% target, the European Central Bank has indicated a potential first rate cut in June. Villeroy has consistently advocated for the gradual implementation of subsequent cuts.

The Bank of France governor went on to add that although the country's budget tightening should focus on keeping control of spending, the government cannot afford to overlook the potential to increase tax revenue by reducing some of the €80 billion in tax breaks available to households and firms. 

The government has maintained its stance of no new taxes up to now, but is contemplating implementing targeted levies, such as a tax on energy companies' outsized profits and corporate share buybacks.

News you might like

Media contact

deVere France’s Public Relations Department deals with all areas of the media and external communications including international, national, regional, local, trade, consumer, print, broadcast, social and online. The Department aims to provide a helpful service to journalists, broadcasters and editors, amongst others, and reply to all media enquiries, including urgent enquiries out of hours, within agreed deadlines. Our press office does not have access to client details and will not be able to assist with individual client enquiries. Please contact deVere France’s Head of Public Relations on [email protected] or call +44 2071220925