Her next will need to find more than EUR 15 billion (16.2 billion) in additional revenue or savings annually to meet the European Union’s requirements, Bloomberg reported. This was included in a proposal sent by the European Commission to France last month, the same sources said. The adjustment corresponds to approximately 0.55% of the annual Gross Domestic Product over a period of seven years. This will be the basis for tough negotiations with a future French government that has not yet been formed. France was one of many Member States that were reprimanded in June for violating EU financial rules and is now subject to a monitoring regime that could lead to possible sanctions. The agreement on any cost cuts in France will be a major decision following the early election of President Emanuel Macron. A left-wing alliance won the vote, but did not gather the majority of MPs and the result is a hanging parliament divided by divisions about fiscal policy. The outgoing government in Paris was committed to taking extraordinary measures to limit spending this year, but parties that are able to form the next are committed to huge increases. Even the hastyly assembled manifesto of Macron’s own group would add around EUR 21 billion annually to the deficit, according to an analysis by the Institut Montaigne think tank. Given the burden of debt and control from Brussels, the Governor of the Bank of France François Villeru de Gallau warned today (11.7.2024) that the country should not increase its fiscal deficits. “We cannot dig deeper deficits,” he said on Franceinfo radio. “Funding increasingly costs and burdening our sovereignty”. The 15 billion-euro account is part of the negotiations so that France has more time to reach below the 3% deficit threshold of GDP block, extending the allowed horizon from four years to seven years, citizens said. France’s dead end complicates the discussions on reforms and investments that would accompany this greater perspective, the citizens said. Measures that could reduce costs include reforming the unemployment insurance system to be implemented. However, on the night of the first round of the parliamentary elections, the Prime Minister suspended the implementation of the changes. Without extending the time horizon, the country should cut plans more drastically. The adjustment required should be 0.94% of GDP in a four-year scenario and 0.54% in seven years, according to Bruegel estimates, of a Brussels think tank. PIMCO Europe Sovereign Credit analyst Nicola Mai said yesterday (10.7.2024) on Bloomberg television that he appreciates that any government formed in Paris will eventually play ball. “We will have a weak government – a minority government,” he said. “Anyone in the government will likely generally meet the Commission’s deficit requirements”. Recommendations to the countries made last month aim to guide them as they prepare to send medium-term budgetary plans to Brussels by 20 September, in accordance with the EU’s newly renewed financial rules. These plans are then examined by EU officials and finance ministers and serve as a basis for the annual budgets that countries should then submit by mid-October. A Member State and the Commission may agree to extend the deadline for submission in September by a reasonable period of time, a representative of the Commission said. But if this is not achieved, the bloc’s finance ministers, on a proposal from the Commission, should recommend the full implementation of the submission sent by Brussels in June, the representative added. For bond investors, France’s fiscal progress is vital at a time when its debt already exceeds 110% of GDP and continues to increase. The additional return requested by investors to buy French bonds compared to the safest German counterparts has already been launched, as the market turns against this prospect. The difference now stands at 65 basis points, well above the average of 40 base points over the last five years. While financial markets have granted France a “summer rest”, pressure from investors may increase before the planned reports of rating companies later this year, Barclays Bank’s chief financial investigator, Christian Keller, said on Bloomberg television. “France must do something, and it must do the opposite of what most parties seem to be proposing right now,” he said. “Over time there will be pressure on French spreads, further away from where we are now”.